Loss Reserves (Policies)

3 Months Ended

Mar. 31, 2012

Loss reserves [Abstract]

Loss Reserves

The development of the reserves in the first quarter of 2012 and 2011 is reflected in the "Prior years" line in the table above. The $56 million increase in losses incurred in the first quarter of 2012 that was related to defaults that occurred in prior years resulted primarily from an increase in the estimated claim rate on primary defaults (approximately $50 million). The increase in the claim rate was based on a re-estimation of amounts to be ultimately paid on defaults remaining in inventory from the end of the prior year. Recent experience has increased our estimate of the claim rate on defaults that are 12 months or more delinquent. The remaining increase in losses incurred that was related to defaults that occurred in prior years (approximately $6 million) related to pool reserves, LAE reserves and reinsurance.

The $37 million decrease in losses incurred in the first quarter of 2011 that was related to defaults that occurred in prior years resulted primarily from a slight decrease in severity on primary defaults (approximately $28 million) as well as a slight decrease in the expected claim rate on primary defaults (approximately $16 million). The decrease in the severity and claim rate was based on the resolution of approximately 22% of the prior year default inventory, as well as a re-estimation of amounts to be ultimately paid on defaults remaining in inventory from the end of the prior year. The offsetting increase in losses incurred related to prior years (approximately $7 million) related to pool reserves, LAE reserves and reinsurance.

The "Losses paid" section of the table above shows the breakdown between claims paid on default notices received in the current year and default notices received in prior years. It has historically taken, prior to the last few years, on average, approximately twelve months for a default which is not cured to develop into a paid claim, therefore, most losses paid relate to default notices received in prior years. Due to a combination of reasons that have slowed the rate at which claims are received and paid, including foreclosure moratoriums and suspensions, servicing delays, court delays, loan modifications, our fraud investigations and our claim rescissions and denials for misrepresentation, it is difficult to estimate how long it may take for current and future defaults that do not cure to develop into paid claims. In 2011, we experienced an increase in claims paid on default notices related to the current year due to fewer claim investigations and an increase in short sales. The "Losses paid" section of the table also includes a decrease in losses paid related to terminated reinsurance agreements as noted in footnote (4) of the table above.

The liability associated with our estimate of premiums to be refunded on expected claim payments is accrued for separately at March 31, 2012 and December 31, 2011 and approximated $120 million and $114 million, respectively. Separate components of this liability are included in "Other liabilities" and "Premium deficiency reserve" on our consolidated balance sheet. Changes in the liability affect premiums written and earned and change in premium deficiency reserve.