As described in Note 3 – “Summary of Significant Accounting Policies – Loss Reserves,” Case reserves and loss adjustment expenses ("LAE") reserves are established when we receive notices of delinquency on insured mortgage loans. We consider a loan delinquent when it is two or more payments past due. Case reserves are established by estimating the number of loans in our inventory of delinquent loans that will result in a claim payment, which is referred to as the claim rate, and further estimating the amount of the claim payment, which is referred to as claim severity.

Estimation of losses is inherently judgmental. The conditions that affect the claim rate and claim severity include the current and future state of the domestic economy, including unemployment and the current and future strength of local housing markets; exposure on insured loans; the amount of time between delinquency and claim filing; and curtailments and rescissions. The actual amount of the claim payments may be substantially different than our loss reserve estimates. Our estimates could be adversely affected by several factors, including a deterioration of regional or national economic conditions, including unemployment, leading to a reduction in borrowers’ income and thus their ability to make mortgage payments, and a drop in housing values which may affect borrower willingness to continue to make mortgage payments when the value of the home is below the mortgage balance. Changes to our estimates could result in a material impact to our consolidated results of operations and financial position, even in a stable economic environment.

The “Losses incurred” section of table 8.1 below shows losses incurred on delinquencies that occurred in the current year and in prior years. The amount of losses incurred relating to delinquencies that occurred in the current year represents the estimated amount to be ultimately paid on such delinquencies. The amount of losses incurred relating to delinquencies that occurred in prior years represents the difference between the actual claim rate and severity associated with those delinquencies resolved in the current year compared to the estimated claim rate and severity at the prior year-end, as well as a re-estimation of amounts to be ultimately paid on delinquencies continuing from the end of the prior year. This re-estimation of the claim rate and severity is the result of our review of current trends

in the delinquent inventory, such as percentages of delinquencies that have resulted in a claim, the amount of the claims relative to the average loan exposure, changes in the relative level of delinquencies by geography and changes in average loan exposure.

Losses incurred on delinquencies that occurred in the current year decreased in 2019 compared to 2018 and in 2018 compared to 2017, in each case, primarily due to a decrease in the number of new delinquencies, net of cures, as well as a decrease in the estimated claim rate on recently reported delinquencies.

The “Losses paid” section of table 8.1 below shows the amount of losses paid on delinquencies that occurred in the current year and losses paid on delinquencies that occurred in prior years. For several years, the average time it took to receive a claim associated with a delinquency had increased significantly from our historical experience of approximately twelve months. This was, in part, due to new loss mitigation protocols established by servicers and to changes in some state foreclosure laws that may include, for example, a requirement for additional review and/or mediation processes. In recent quarters, we have experienced a decline in the average time it takes servicers are utilizing to process foreclosures, which has reduced the average time to receive a claim associated with new delinquent notices that do not cure. All else being equal, the longer the period between delinquency and claim filing, the greater the severity.

Our estimate of premiums to be refunded on expected claim payments is accrued for separately in "Other liabilities" on our consolidated balance sheets and approximated $30 million and $40 million at December 31, 2019 and 2018, respectively.



Development of loss reserves
Table	8.1
(In thousands)		2019			2018			2017
Reserve at beginning of year		$	674,019		$	985,635		$	1,438,813
Less reinsurance recoverable		33,328			48,474			50,493
Net reserve at beginning of year		640,691			937,161			1,388,320

Losses incurred:
Losses and LAE incurred in respect of delinquent notices received in:
Current year		189,581			203,928			284,913
Prior years ⁽¹⁾		(71,006		)	(167,366		)	(231,204		)
Total losses incurred		118,575			36,562			53,709

Losses paid:
Losses and LAE paid in respect of delinquent notices received in:
Current year		4,018			7,298			11,267
Prior years		235,551			327,743			493,300
Reinsurance terminations		(13,996		)	(2,009		)	301
Total losses paid		225,573			333,032			504,868
Net reserve at end of year		533,693			640,691			937,161
Plus reinsurance recoverables		21,641			33,328			48,474
Reserve at end of year		$	555,334		$	674,019		$	985,635



Reserve development on previously received delinquencies
Table	8.2
(In millions)		2019			2018			2017
Decrease in estimated claim rate on primary delinquencies		$	(112	)	$	(213	)	$	(248	)
(Decrease) increase in estimated severity on primary delinquencies		(1		)	29			9
Change in estimates related to pool reserves, LAE reserves, reinsurance and other		42			17			8
Total prior year loss development ⁽¹⁾		$	(71	)	$	(167	)	$	(231	)

For the years ended December 31, 2019, 2018 and 2017, we experienced favorable development on previously received delinquencies. This development was, in part, due to the resolution of approximately 69%, 73% and 67% for the years ended December 31, 2019, 2018 and 2017, respectively, of the prior year delinquent inventory, with improved cure rates. During 2019, 2018, and 2017, cure activity on loans that were delinquent twelve months or more was significantly higher than our previous estimates. During 2019, the favorable development was offset by adjustments to LAE reserves and amounts paid in settlement of disputes for claim paying practices. See Note 17 – “Litigation and Contingencies.” The favorable development for the years ended 2018 and 2017 was offset, in part, by an increase in the estimated severity on previously reported delinquencies remaining in the delinquent inventory.

A roll-forward of our primary delinquent inventory for the years ended December 31, 2019, 2018, and 2017 appears in table 8.3 below. The information concerning new notices and cures is compiled from monthly reports received from loan servicers. The level of new notice and cure activity reported in a particular month can be influenced by, among other things, the date on which a servicer generates its report, the number of business days in a month and transfers of servicing between loan servicers.



Primary delinquent inventory roll-forward
Table	8.3
		2019		2018		2017
Beginning delinquent inventory		32,898		46,556		50,282
New Notices		54,239		54,448		68,268
Cures		(52,035	)	(60,511	)	(61,094	)
Paid claims		(4,267	)	(5,750	)	(9,206	)
Rescissions and denials		(168	)	(267	)	(357	)
Other items removed from inventory		(639	)	(1,578	)	(1,337	)
Ending delinquent inventory		30,028		32,898		46,556

New delinquent notice activity increased in 2017 (particularly in the fourth quarter) because of hurricane activity that primarily impacted Puerto Rico, Texas, and Florida in the third quarter of 2017. In response to the hurricanes, the Federal Emergency Management Agency declared Individual Assistance Disaster Areas ("IADA") which we used to identify new notices of delinquency for reserving and loss mitigation purposes. We received 9,294 new notices of delinquency on loans in the IADAs in the fourth quarter of 2017. Loans in our ending delinquent inventory within the IADAs were 12,446 as of December 31, 2017. The majority of notices of delinquency received from the IADAs due to the hurricane activity cured during 2018.

During 2019, 2018, and 2017 our losses paid included amounts paid upon commutation of coverage on policies . The impacts of the commutations of coverage on policies and/or settlements in each of the past three years were as follows:

Historically as a delinquency ages it becomes more likely to result in a claim. The new notice activity from hurricane impacted areas in the fourth quarter of 2017 increased the percentage of our delinquent inventory that had been delinquent for three months or less (table 8.4) as of December 31, 2017.



Primary delinquent inventory - consecutive months delinquent
Table	8.4
		December 31,
		2019		2018		2017
3 months or less		9,447		9,829		17,119
4 - 11 months		9,664		9,655		12,050
12 months or more⁽¹⁾		10,917		13,414		17,387
Total		30,028		32,898		46,556

3 months or less		32	%	30	%	37	%
4 - 11 months		32	%	29	%	26	%
12 months or more		36	%	41	%	37	%
Total		100	%	100	%	100	%

Primary claims received inventory included in ending delinquent inventory		538		809		954

Our loss reserving methodology incorporates our estimates of future rescissions. A variance between ultimate actual rescission rates and our estimates, as a result of the outcome of litigation, settlements or other factors, could materially affect our losses. Our estimate of premiums to be refunded on expected future rescissions is accrued for separately and is included in "Other liabilities" on our consolidated balance sheets.