We establish case reserves and loss adjustment expenses (“LAE”) reserves when we receive notices of delinquency on insured mortgage loans. Notices of delinquency are typically reported to us when loans are two 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.

IBNR reserves are established for estimated losses from delinquencies occurring prior to the close of an accounting period on notices of delinquency not yet reported to us. IBNR reserves are also established using estimated claim rates and claim severities.

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 11.1 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 increased in the first three months of 2020 compared to the same period in 2019, due to an increase in the claim rate and severity due to the current macroeconomic environment related to the COVID-19 pandemic. This was offset by a decrease of approximately 9% fewer new delinquency notices received in 2020, compared to the same period last year. In the first quarter of 2020, we also increased our IBNR reserve by $7.8 million.

The “Losses paid” section of table 11.1 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 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 $29 million and $30 million at March 31, 2020 and December 31, 2019, respectively.



Development of reserves for losses and loss adjustment expenses
Table	11.1
		Three Months Ended March 31,
(In thousands)		2020			2019
Reserve at beginning of period		$	555,334		$	674,019
Less reinsurance recoverable		21,641			33,328
Net reserve at beginning of period		533,693			640,691

Losses incurred:
Losses and LAE incurred in respect of delinquency notices received in:
Current year		59,799			47,488
Prior years ⁽¹⁾		1,157			(8,425		)
Total losses incurred		60,956			39,063

Losses paid:
Losses and LAE paid in respect of delinquency notices received in:
Current year		39			—
Prior years		45,633			56,365
Reinsurance terminations		(20		)	—
Total losses paid		45,652			56,365
Net reserve at end of period		548,997			623,389
Plus reinsurance recoverables		25,756			31,875
Reserve at end of period		$	574,753		$	655,264



Reserve development on previously received delinquencies
Table	11.2
		Three Months Ended March 31,
(In millions)		2020			2019
Decrease in estimated claim rate on primary defaults		$	—		$	(31	)
Increase in estimated severity on primary defaults		3			—
Change in estimates related to pool reserves, LAE reserves, reinsurance, and other		(2		)	23
Total prior year loss development ⁽¹⁾		$	1		$	(8	)

A rollforward of our primary delinquent inventory for the three months ended March 31, 2020 and 2019 appears in table 11.3 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.



Delinquent inventory rollforward
Table	11.3
		Three Months Ended March 31,
		2020		2019
Delinquent inventory at beginning of period		30,028		32,898
New notices		12,398		13,611
Cures		(14,113	)	(14,348	)
Paid claims		(897	)	(1,188	)
Rescissions and denials		(32	)	(52	)
Delinquent inventory at end of period		27,384		30,921

The decrease in the primary delinquent inventory experienced during 2020 was generally across all markets and primarily in books years 2008 and prior. Historically as a delinquency ages it becomes more likely to result in a claim.

The CARES Act and other related actions includes payment forbearance on mortgages to borrowers experiencing a hardship during the COVID-19 pandemic. Forbearance allows for mortgage payments to be suspended for up to 360 days. Loans in forbearance are included in our delinquent inventory.



Primary delinquent inventory - consecutive months delinquent
Table	11.4
		March 31, 2020		December 31, 2019		March 31, 2019
3 months or less		7,567		9,447		8,568
4-11 months		9,535		9,664		9,997
12 months or more ⁽¹⁾		10,282		10,917		12,356
Total		27,384		30,028		30,921
3 months or less		28	%	32	%	28	%
4-11 months		35	%	32	%	32	%
12 months or more		37	%	36	%	40	%
Total		100	%	100	%	100	%
Primary claims received inventory included in ending delinquent inventory		472		538		665

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. For information about discussions and legal proceedings with customers with respect to our claims paying practices see Note 5 – “Litigation and Contingencies.”