Loss Reserves (Tables)

9 Months Ended

Sep. 30, 2012

Loss Reserves [Abstract]

Reconciliation of beginning and ending loss reserves

The following table provides a reconciliation of beginning and ending loss reserves for the nine months ended September 30, 2012 and 2011:

	Nine Months Ended
	September 30,
	2012			2011
	(In thousands)
Reserve at beginning of year	$	4,557,512		$	5,884,171
Less reinsurance recoverable		154,607			275,290
Net reserve at beginning of year (1)		4,402,905			5,608,881
Losses incurred:
Losses and LAE incurred in respect of default notices related to:
Current year		1,091,326			1,328,906
Prior years (2)		287,291			(96,269	)
Subtotal (3)		1,378,617			1,232,637
Losses paid:
Losses and LAE paid in respect of default notices related to:
Current year		54,813			37,111
Prior years		1,840,992			2,218,490
Reinsurance terminations (4)		(425	)		(38,769	)
Subtotal (5)		1,895,380			2,216,832
Net reserve at end of period (6)		3,886,142			4,624,686
Plus reinsurance recoverables		117,859			166,874
Reserve at end of period	$	4,004,001		$	4,791,560

(1) At December 31, 2011 and 2010, the estimated reduction in loss reserves related to rescissions approximated $0.7 billion and $1.3 billion, respectively.

(2) A negative number for prior year losses incurred indicates a redundancy of prior year loss reserves, and a positive number for prior year losses incurred indicates a deficiency of prior year loss reserves.

(3) Rescissions did not have a significant impact on incurred losses in the nine months ended September 30, 2012 or 2011.

(4) In a termination, the reinsurance agreement is cancelled, with no future premium ceded and funds for any incurred but unpaid losses transferred to us. The transferred funds result in an increase in our investment portfolio (including cash and cash equivalents) and a decrease in net losses paid (reduction to losses incurred). In addition, there is an offsetting decrease in the reinsurance recoverable (increase in losses incurred), and thus there is no net impact to losses incurred.

(5) Rescissions mitigated our paid losses by an estimated $0.2 billion in the nine months ended September 30, 2012 and by an estimated $0.5 billion in the nine months ended September 30, 2011, which excludes amounts that may have been applied to a deductible.

(6) At September 30, 2012 and 2011, the estimated reduction in loss reserves related to rescissions approximated $0.5 billion and $0.8 billion, respectively.

Aging of the primary default inventory

The decrease in the primary default inventory experienced during 2012 and 2011 was generally across all markets and all book years. However, the percentage of loans in the inventory that have been in default for 12 or more consecutive months has increased, as shown in the table below. Historically as a default ages it becomes more likely to result in a claim. The percentage of loans that have been in default for 12 or more consecutive months has been affected by our suspended rescissions discussed below.

Aging of the Primary Default Inventory

	September 30,				December 31,				September 30,
	2012				2011				2011
Consecutive months in default
3 months or less		25,593	17	%		31,456	18	%		33,167	18	%
4 - 11 months		35,029	24	%		46,352	26	%		45,110	25	%
12 months or more		88,263	59	%		97,831	56	%		102,617	57	%
Total primary default inventory		148,885	100	%		175,639	100	%		180,894	100	%
Primary claims received inventory included in ending default inventory (1)		12,508	8	%		12,610	7	%		13,799	8	%

(1) As discussed in Note 5 – "Litigation and Contingencies" we are in mediation in an effort to resolve our dispute with Countrywide. In connection with that mediation, we have voluntarily suspended rescissions of coverage related to loans that we believe could be included in a potential resolution. As of September 30, 2012, coverage on approximately 1,700 loans, representing total potential claim payments of approximately $125 million, that we had determined was rescindable was affected by our decision to suspend such rescissions. Substantially all of these potential rescissions relate to claims received beginning in the first quarter of 2011 or later and, had we not suspended rescissions, most of these rescissions would have been processed in the first nine months of 2012. In addition, as of September 30, 2012, approximately 350 rescissions, representing total potential claim payments of approximately $23 million, were affected by our decision to suspend rescissions for customers other than Countrywide.

Number of payments delinquent

The length of time a loan is in the default inventory can differ from the number of payments that the borrower has not made or is considered delinquent. These differences typically result from a borrower making monthly payments that do not result in the loan becoming fully current. The number of payments that a borrower is delinquent is shown in the table below.

Number of Payments Delinquent

	September 30,				December 31,				September 30,
	2012				2011				2011
3 payments or less		35,130	24	%		42,804	24	%		43,312	24	%
4 - 11 payments		36,359	24	%		47,864	27	%		47,929	26	%
12 payments or more		77,396	52	%		84,971	49	%		89,653	50	%
Total primary default inventory		148,885	100	%		175,639	100	%		180,894	100	%

Estimate of impact of rescissions on loss reserves, paid and incurred losses

The table below represents our estimate of the impact rescissions have had on reducing our loss reserves, paid losses and losses incurred.

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2012		2011		2012		2011
	(In billions)
Estimated rescission reduction - beginning reserve	$	0.6	$	0.9	$	0.7	$	1.3
Estimated rescission reduction - losses incurred		-		-		-		-
Rescission reduction - paid claims		0.1		0.1		0.2		0.5
Amounts that may have been applied to a deductible		-		-		-		-
Net rescission reduction - paid claims		0.1		0.1		0.2		0.5
Estimated rescission reduction - ending reserve (1)	$	0.5	$	0.8	$	0.5	$	0.8

(1) As noted in Note 5 – "Litigation and Contingencies" we are in mediation in an effort to resolve our dispute with Countrywide. In connection with that mediation, we have voluntarily suspended rescissions of coverage related to loans that we believe could be included in a potential resolution. As of September 30, 2012, coverage on approximately 1,700 loans, representing total potential claim payments of approximately $125 million, that we had determined was rescindable was affected by our decision to suspend such rescissions. Substantially all of these potential rescissions relate to claims received beginning in the first quarter of 2011 or later and, had we not suspended rescissions, most of these rescissions would have been processed in the first nine months of 2012. In addition, as of September 30, 2012, approximately 350 rescissions, representing total potential claim payments of approximately $23 million, were affected by our decision to suspend rescissions for customers other than Countrywide. Although the loans with suspended rescissions are included in our delinquency inventory, for purposes of determining our reserve amounts, it is assumed that coverage on these loans will be rescinded, and thus are included in the estimated $0.5 million estimated rescission reduction to ending reserves at September 30, 2012. The decision to suspend these potential rescissions does not represent the only reason for the recent decline in the percentage of claims that have been resolved through rescissions and we continue to expect that our rescissions will continue to decline.

Rollforward of primary default inventory

A rollforward of our primary default inventory for the three and nine months ended September 30, 2012 and 2011 appears in the table 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 by transfers of servicing between loan servicers.

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2012			2011			2012			2011
Default inventory at beginning of period		153,990			184,452			175,639			214,724
Plus: New Notices		34,432			44,342			101,454			127,509
Less: Cures		(27,384	)		(34,335	)		(90,896	)		(115,806	)
Less: Paids (including those charged to a deductible or captive)		(11,344	)		(12,033	)		(34,991	)		(39,052	)
Less: Rescissions and denials		(809	)		(1,532	)		(2,321	)		(6,481	)
Default inventory at end of period		148,885			180,894			148,885			180,894