Loss Reserves (Tables)

12 Months Ended

Dec. 31, 2012

Reconciliation of beginning and ending loss reserves

The following table provides a reconciliation of beginning and ending loss reserves for each of the past three years:

	2012			2011			2010
	(In thousands)

Reserve at beginning of year	$	4,557,512		$	5,884,171		$	6,704,990
Less reinsurance recoverable		154,607			275,290			332,227
Net reserve at beginning of year (1)		4,402,905			5,608,881			6,372,763
Adjustment to reserves (2)		-			-			(92,000	)
Adjusted beginning reserves		4,402,905			5,608,881			6,280,763

Losses incurred:
Losses and LAE incurred in respect of default notices received in:
Current year		1,494,133			1,814,035			1,874,449
Prior years (3)		573,120			(99,328	)		(266,908	)
Subtotal (4)		2,067,253			1,714,707			1,607,541

Losses paid:
Losses and LAE paid in respect of default notices received in:
Current year		134,509			121,383			60,897
Prior years (5)		2,389,985			2,838,069			2,256,206
Reinsurance terminations (6)		(6,331	)		(38,769	)		(37,680	)
Subtotal (7)		2,518,163			2,920,683			2,279,423
Net reserve at end of year (8)		3,951,995			4,402,905			5,608,881
Plus reinsurance recoverables		104,848			154,607			275,290

Reserve at end of year	$	4,056,843		$	4,557,512		$	5,884,171

(1)

At December 31, 2011, 2010 and 2009 the estimated reduction in loss reserves related to rescissions approximated $0.7 billion, $1.3 billion and $2.1 billion, respectively.

(2)

In periods prior to 2010 an estimate of premium to be refunded in conjunction with claim payments was included in Loss Reserves. In 2010, we separately stated portions of this liability in Other liabilities and Premium deficiency reserve on the consolidated balance sheet.

(3)

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. See table below regarding prior year loss development.

(4)

Our estimated rescissions were reduced by approximately $0.2 billion in 2012 due to our probable settlement agreements (See Note 20 – "Litigation and Contingencies"), other rescissions had no significant impact on our losses incurred in 2012. Rescissions mitigated our incurred losses by an estimated $0.2 billion in 2010. Rescissions did not have a significant impact on incurred losses in 2011.

(5)

In 2012, includes $0.1 billion payment under the Freddie Mac settlement agreement (See Note 20 – "Litigation and Contingencies").

(6)

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. (See Note 11 – "Reinsurance")

(7)

Rescissions mitigated our paid losses by an estimated $0.3 billion, $0.6 billion and $1.0 billion in 2012, 2011 and 2010, respectively, which excludes amounts that may have been applied to a deductible.

(8)

At December 31, 2012, 2011 and 2010 the estimated reduction in loss reserves related to rescissions approximated $0.2 billion, $0.7 billion and $1.3 billion, respectively.

Prior year development of the reserves

The prior year development of the reserves in 2012, 2011 and 2010 is reflected in the table below.

	2012			2011			2010
	(In millions)
Prior year loss development:

Pool policy settlement (1)	$	267		$	-		$	-

Estimated probable rescission settlements (1)		100			-			-

Increase (decrease) in estimated claim rate on primary defaults		260			200			(432	)
Decrease in estimated severity on primary defaults		(70	)		(165	)		-
Change in estimates related to pool reserves, LAE reserves and reinsurance (2)		16			(134	)		165
Total prior year loss development	$	573		$	(99	)	$	(267	)

(1)

See Note 20 - "Litigation and Contingencies" for a discussion of our settlement with Freddie Mac and our probable settlements regarding rescissions.

(2)

Includes approximately ($114) million related to LAE reserves in 2011 and approximately $185 million related to pool reserves in 2010.

Rollforward of primary default inventory

A rollforward of our primary default inventory for the years ended December 31, 2012, 2011 and 2010 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.


	2012			2011			2010


Default inventory at beginning of period		175,639			214,724			250,440
New Notices		133,232			169,305			205,069
Cures		(120,248	)		(149,643	)		(183,017	)
Paids (including those charged to a deductible or captive)		(45,741	)		(51,138	)		(43,826	)
Rescissions and denials		(3,037	)		(7,609	)		(13,942	)
Default inventory at end of period		139,845			175,639			214,724

Aging of the primary default inventory

Aging of the Primary Default Inventory

	December 31,				December 31,				December 31,
	2012				2011				2010

Consecutive months in default
3 months or less		23,282	17	%		31,456	18	%		37,640	18	%
4 - 11 months		34,688	25	%		46,352	26	%		58,701	27	%
12 months or more		81,875	58	%		97,831	56	%		118,383	55	%

Total primary default inventory		139,845	100	%		175,639	100	%		214,724	100	%

Primary claims received inventory included in ending default inventory (1)		11,731	8	%		12,610	7	%		20,898	10	%

(1) Our claims received inventory includes suspended rescissions as discussed in Note 20 – "Litigation and Contingencies". In connection with the Countrywide proceedings, we have voluntarily suspended rescissions of coverage related to loans that we believe could be included in a potential resolution. As of December 31, 2012, coverage on approximately 2,150 loans, representing total potential claim payments of approximately $160 million, that we had determined was rescindable were 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. As of December 31, 2012, coverage on approximately 250 loans, representing total potential claim payments of approximately $17 million, were affected by our decision to suspend rescissions for another customer for which we also consider settlement probable. In addition, as of December 31, 2012, approximately 240 rescissions, representing total potential claim payments of approximately $16 million, were affected by our decision to suspend rescissions for customers other than those for which we consider settlement probable, as defined in ASC 450-20.

Number of payments delinquent

Number of Payments Delinquent

	December 31,				December 31,				December 31,
	2012				2011				2010


3 payments or less		34,245	24	%		42,804	24	%		51,003	24	%
4 - 11 payments		34,458	25	%		47,864	27	%		65,797	31	%
12 payments or more		71,142	51	%		84,971	49	%		97,924	45	%

Total primary default inventory		139,845	100	%		175,639	100	%		214,724	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.

	2012			2011		2010
	(In billions)

Estimated rescission reduction - beginning reserve	$	0.7		$	1.3	$	2.1

Estimated rescission reduction - losses incurred (1)		(0.2	)		-		0.2

Rescission reduction - paid claims		0.3			0.6		1.2
Amounts that may have been applied to a deductible		-			-		(0.2	)
Net rescission reduction - paid claims		0.3			0.6		1.0

Estimated rescission reduction - ending reserve	$	0.2		$	0.7	$	1.3

(1) As discussed in Note 20 – "Litigation and Contingencies" we have made substantial progress in reaching an agreement with Countrywide to settle the dispute we have concerning rescissions. We have determined that a settlement with Countrywide is probable and under this probable settlement agreement, we estimate that our rescission benefit in loss reserves was reduced by approximately $0.2 billion. This adjustment to loss reserves was partially offset by an estimated benefit of approximately $0.1 billion under the terms of the settlement agreements we consider probable, as defined in ASC 450-20. As a result, in the fourth quarter of 2012, we increased our loss reserve estimates by approximately $0.1 billion to reflect potential settlements we consider probable.

- Definition

Tabular disclosure of the reasons for the change in incurred claims and claim adjustment expenses recognized in the income statement attributable to insured events of prior fiscal years. Also includes disclosures of additional premiums or return premiums accrued as a result of changes in incurred claims and claim adjustment expenses.

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- Definition

Tabular disclosure of the activity in the reserve for settling insured claims and expenses incurred in the claims settlement process for the period. The estimated liability includes the amount of money that will be required for future payments of (a) claims that have been reported to the insurer, (b) claims related to insured events that have occurred but that have not been reported to the insurer as of the date the liability is estimated, and (c) claim adjustment expenses. Claim adjustment expenses include costs incurred in the claim settlement process such as legal fees; outside adjuster fees; and costs to record, process, and adjust claims.

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