Loss Reserves

3 Months Ended

Mar. 31, 2023

We establish case reserves and 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. Even in a stable environment, changes to our estimates could result in a material impact to our consolidated results of operations and financial position. 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 March 31, 2023, 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 +/- $9 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 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 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 for the three months ended March 31, 2023, compared to the same period last year. The increase is primarily due to an increase in estimated severity on current year delinquencies.

For the three months ended March 31, 2023 and March 31, 2022 we experienced favorable loss development of $40.8 million and $55.7 million, respectively, on previously received delinquencies. The favorable development for both periods primarily resulted from a decrease in the expected claim rate on previously received delinquencies. Home price appreciation experienced in recent years has allowed borrowers to cure their delinquencies through the sale of their property.

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. Foreclosure moratoriums and forbearance plans in place have increased the average time it takes to receive a claim.

Table 11.1 provides a reconciliation of beginning and ending loss reserves as of and for the three months ended March 31, 2023 and 2022.


Development of reserves for losses and loss adjustment expenses
Table	11.1
		Three Months Ended March 31,
(In thousands)		2023		2022
Reserve at beginning of period		$	557,988	$	883,522
Less reinsurance recoverable		28,240		66,905
Net reserve at beginning of period		529,748		816,617

Losses incurred:
Losses and LAE incurred in respect of delinquency notices received in:
Current year		47,212		36,344
Prior years (1)		(40,766)		(55,658)
Total losses incurred		6,446		(19,314)

Losses paid:
Losses and LAE paid in respect of delinquency notices received in:
Current year		—		—
Prior years		10,440		10,748

Total losses paid		10,440		10,748
Net reserve at end of period		525,754		786,555
Plus reinsurance recoverable		32,761		64,717
Reserve at end of period		$	558,515	$	851,272

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

The prior year loss reserve development for the three months of March 31, 2023 and 2022 is shown in table 11.2 below.


Reserve development on previously received delinquencies
Table	11.2
		Three Months Ended March 31,
(In thousands)		2023		2022
Increase (decrease) in estimated claim rate on primary defaults		$	(43,431)	$	(55,777)

Change in estimates related to severity on primary defaults, pool reserves, LAE reserves, reinsurance, and other		2,665		119
Total prior year loss development (1)		$	(40,766)	$	(55,658)

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

Delinquency inventory

A rollforward of our primary delinquency inventory for the three months ended March 31, 2023 and 2022 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.


Delinquency inventory rollforward
Table	11.3
		Three Months Ended March 31,
		2023	2022
Delinquency inventory at beginning of period		26,387	33,290
New notices		11,297	10,703
Cures		(12,607)	(13,200)
Paid claims		(311)	(322)
Rescissions and denials		(9)	(9)

Delinquency inventory at end of period		24,757	30,462

Table 11.4 below shows the number of consecutive months a borrower is delinquent. Historically as a delinquency ages it is more likely to result in a claim.


Primary delinquency inventory - consecutive months delinquent
Table	11.4
		March 31, 2023		December 31, 2022		March 31, 2022
3 months or less		7,573		8,820		7,382
4-11 months		8,563		8,217		8,131
12 months or more (1)		8,621		9,350		14,949
Total		24,757		26,387		30,462
3 months or less		31	%	33	%	24	%
4-11 months		34	%	31	%	27	%
12 months or more		35	%	36	%	49	%
Total		100	%	100	%	100	%
Primary claims received inventory included in ending delinquent inventory		296		267		217

(1)Approximately 38%, 36%, and 23% of the primary delinquency inventory delinquent for 12 consecutive months or more has been delinquent for at least 36 consecutive months as of March 31, 2023, December 31, 2022, and March 31, 2022, respectively.

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 $24.2 million and $25.5 million at March 31, 2023 and December 31, 2022, respectively.