As described in Note 3 – “Summary of Significant Accounting Policies – Loss Reserves,” we establish case reserves and loss adjustment expenses ("LAE") reserves on delinquent loans that were reported to us as two or more payments past due and have not become current or resulted in a claim payment. Such loans are referred to as being in our delinquency inventory. Case reserves are established by estimating the number of loans in our delinquency inventory 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 we estimate have occurred prior to the close of an accounting period, but have not yet been 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 (all else being equal, the longer the period between delinquency and claim filing, the greater the severity); 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, the impact of past and future government initiatives and actions taken by the GSEs (including mortgage forbearance programs and foreclosure moratoriums), 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. Loss reserves in future periods will also be dependent on the number of loans reported to us as delinquent.

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. Given the uncertainty of the macroeconomic environment, including the effectiveness of loss mitigation efforts, change in home prices, and changes in unemployment, our loss reserve estimates may continue to be impacted.

In considering the potential sensitivity of the factors underlying our estimate of loss reserves, it is possible that even a relatively small change in our estimated claim rate or claim severity could have a material impact on loss reserves and, correspondingly, on our consolidated results of operations even in a stable economic environment. For example, as of December 31, 2022, assuming all other factors remain constant, a $1,000 increase/decrease in the average severity reserve factor would change the loss reserve amount by approximately +/- $10 million. A one percentage point increase/decrease in the average claim rate reserve factor would change the loss reserve amount by approximately +/- $15 million.

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 claim severity associated with those delinquencies resolved in the current year compared to the estimated claim rate and claim 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 claim severity is the result of our review of current trends in the delinquency 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 2022, compared to 2021. The increase is primarily due to an increase in estimated severity on current year delinquencies. In addition, there was a decrease in IBNR reserve estimates by $5.9 million in 2021, while IBNR estimates increased by $2.3 million in 2022.

In 2022, we experienced favorable loss development of $404.1 million on previously received delinquencies primarily related to a decrease in the estimated claim rate. The favorable development primarily resulted from greater than expected cure rates, as borrower reinstatements and servicer mitigation efforts resulted in more cures than originally estimated. Additionally, home price appreciation experienced in recent years has allowed borrowers to cure their delinquencies through the sale of their property. For the year ended December 31, 2021 we experienced favorable loss development of $60.0 million on previously received notices primarily due to the decrease in the claim rate on delinquencies received prior to the COVID-19 pandemic. This was offset by the recognition of a probable loss of $6.3 million related to litigation of our claims paying practices and adverse development on LAE reserves and reinsurance.

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. At the start of the COVID-19 pandemic, the level of claims received decreased and the average time it took to receive a claim increased. Claim activity has not yet returned to pre-COVID-19 levels.

Table 8.1 provides a reconciliation of beginning and ending loss reserves as of and for the past three years:


Development of loss reserves
Table	8.1
(In thousands)		2022		2021		2020
Reserve at beginning of year		$	883,522	$	880,537	$	555,334
Less reinsurance recoverable		66,905		95,042		21,641
Net reserve at beginning of year		816,617		785,495		533,693

Losses incurred:
Losses and LAE incurred in respect of delinquent notices received in:
Current year		149,565		124,592		345,170
Prior years (1)		(404,130)		(60,015)		19,604
Total losses incurred		(254,565)		64,577		364,774

Losses paid:
Losses and LAE paid in respect of delinquent notices received in:
Current year		362		664		3,069
Prior years		49,626		68,769		109,923
Reinsurance terminations (2)		(17,684)		(35,978)		(20)
Total losses paid		32,304		33,455		112,972
Net reserve at end of year		529,748		816,617		785,495
Plus reinsurance recoverables		28,240		66,905		95,042
Reserve at end of year		$	557,988	$	883,522	$	880,537

(1)A positive number for prior year loss development indicates a deficiency of prior year reserves. A negative number for prior year loss development indicates a redundancy of prior year loss reserves. See the following table for more information about prior year loss development.

(2)In a reinsurance termination, amounts for any incurred but unpaid losses are due to us from the reinsurers. As a result, the amount due from the reinsurers is reclassified from reinsurance recoverable on loss reserves to reinsurance recoverable on paid losses, resulting in no impact to losses incurred. (See Note 9 - "Reinsurance")

The prior year development of the reserves in 2022, 2021 and 2020 is reflected in the table 8.2 below.


Reserve development on previously received delinquencies
Table	8.2
(In thousands)		2022		2021		2020
(Decrease) in estimated claim rate on primary delinquencies		$	(400,577)	$	(82,904)	$	(2,536)
Increase (decrease) in estimated claim severity on primary delinquencies		(21,995)		310		13,535
Change in estimates related to pool reserves, LAE reserves, reinsurance and other		18,442		22,579		8,605
Total prior year loss development (1)		$	(404,130)	$	(60,015)	$	19,604

(1)A positive number for prior year loss development indicates a deficiency of prior year loss reserves. A negative number for prior year loss development indicates a redundancy of prior year loss reserves.

DELINQUENCY INVENTORY

A roll-forward of our primary delinquency inventory for the years ended December 31, 2022, 2021, and 2020 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 delinquency inventory roll-forward
Table	8.3
		2022	2021	2020
Beginning delinquent inventory		33,290	57,710	30,028
New Notices		42,988	42,432	106,099
Cures		(48,262)	(64,896)	(76,107)
Paid claims		(1,305)	(1,223)	(2,245)
Rescissions and denials		(35)	(38)	(65)
Other items removed from inventory		(289)	(695)	—
Ending delinquent inventory		26,387	33,290	57,710

During 2022 and 2021, our losses paid included amounts paid upon commutation of coverage on pools of non-performing loans. As a result of these payments 289 items were removed from the delinquency inventory with an amount paid of $4.6 million in 2022. During 2021, 695 items were removed from delinquency inventory with an amount paid of $13.8 million.

Historically as a delinquency ages it is more likely to result in a claim. The number of consecutive months that a borrower has been delinquent is shown in table 8.4 below.


Primary delinquency inventory - consecutive months delinquent
Table	8.4
		December 31,
		2022		2021		2020
3 months or less		8,820		7,586		11,542
4 - 11 months		8,217		7,990		34,620
12 months or more (1)		9,350		17,714		11,548
Total		26,387		33,290		57,710

3 months or less		33	%	23	%	20	%
4 - 11 months		31	%	24	%	60	%
12 months or more		36	%	53	%	20	%
Total		100	%	100	%	100	%

Primary claims received inventory included in ending delinquent inventory		267		211		159

(1)Approximately 36%, 20%, and 31% of the delinquent inventory that has been delinquent for 12 consecutive months or more has been delinquent for at least 36 consecutive months as of December 31, 2022, 2021 and 2020, respectively.

COVID-19 Pandemic Delinquencies

We experienced an increase in new delinquency notices in the second and third quarters of 2020 because of the impacts of the COVID-19 pandemic, including the high level of unemployment and economic uncertainty resulting from measures to reduce the transmission of COVID-19. Forbearance programs enacted by the GSEs provided for payment forbearance on mortgages to borrowers experiencing a hardship during the COVID-19 pandemic. Historically, forbearance plans have reduced the incidence of our losses on affected loans. Through December 31, 2022 the vast majority of the delinquencies received in the second and third quarter of 2020 have cured.

POOL INSURANCE DEFAULT INVENTORY

Pool insurance default inventory was 391 at December 31, 2022, 498 at December 31, 2021, and 680 at December 31, 2020.

PREMIUM REFUNDS

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 $25.5 million and $37.3 million at December 31, 2022 and 2021, respectively. The decrease is driven by a decrease in delinquency inventory as well as a decrease inventory that is twelve or more months delinquent.