Loss Reserves (Tables)

6 Months Ended

Jun. 30, 2013

Reconciliation of beginning and ending loss reserves

The following table provides a reconciliation of beginning and ending loss reserves for the six months ended June 30, 2013 and 2012:

	Six Months Ended
	June 30,
	2013			2012
	(In thousands)

Reserve at beginning of period	$	4,056,843		$	4,557,512
Less reinsurance recoverable		104,848			154,607
Net reserve at beginning of period (1)		3,951,995			4,402,905

Losses incurred:
Losses and LAE incurred in respect of default notices related to:
Current year		468,332			674,076
Prior years (2)		(5,850	)		214,420
Subtotal (3)		462,482			888,496

Losses paid:
Losses and LAE paid in respect of default notices related to:
Current year		5,137			12,502
Prior years		897,178			1,297,566
Reinsurance terminations (4)		(3,248	)		(425	)
Subtotal (5)		899,067			1,309,643

Net reserve at end of period (6)		3,515,410			3,981,758
Plus reinsurance recoverables		83,898			126,832

Reserve at end of period	$	3,599,308		$	4,108,590

(1)	At December 31, 2012 and 2011, the estimated reduction in loss reserves related to rescissions approximated $0.2 billion and $0.7 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 six months ended June 30, 2013 or 2012.

(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 $0.1 billion in each of the six months ended June 30, 2013 and 2012, which excludes amounts that may have been applied to a deductible.

(6)	At June 30, 2013 and 2012, the estimated reduction in loss reserves related to rescissions approximated $0.1 billion and $0.6 billion, respectively.

Prior year development of the reserves

The prior year development of the reserves in the first six months of 2013 and 2012 is reflected in the table below.

	Six months ended June 30,
	2013			2012
	(In millions)
Prior year loss development (1):

(Decrease) increase in estimated claim rate on primary defaults	$	-		$	230
Increase in estimated severity on primary defaults		1			-
Change in estimates related to pool reserves, LAE reserves and reinsurance		(7	)		(16	)
Total prior year loss development	$	(6	)	$	214

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

Rollforward of primary default inventory

A rollforward of our primary default inventory for the three and six months ended June 30, 2013 and 2012 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						Six Months Ended
	June 30,						June 30,
	2013			2012			2013			2012


Default inventory at beginning of period		126,610			160,473			139,845			175,639
New Notices		25,425			32,241			53,289			67,022
Cures		(25,450	)		(26,368	)		(56,572	)		(63,512	)
Paids (including those charged to a deductible or captive)		(9,051	)		(11,738	)		(18,496	)		(23,647	)
Rescissions and denials		(429	)		(618	)		(961	)		(1,512	)
Default inventory at end of period		117,105			153,990			117,105			153,990

Aging of the primary default inventory

Aging of the Primary Default Inventory

	June 30,				December 31,				June 30,
	2013				2012				2012

Consecutive months in default
3 months or less		18,760	16	%		23,282	17	%		24,488	16	%
4 - 11 months		26,377	23	%		34,688	25	%		38,400	25	%
12 months or more		71,968	61	%		81,875	58	%		91,102	59	%

Total primary default inventory		117,105	100	%		139,845	100	%		153,990	100	%

Primary claims received inventory included in ending default inventory (1)		10,637	9	%		11,731	8	%		13,421	9	%

(1) Our claims received inventory includes suspended rescission as discussed in Note 5 – “Litigation and Contingencies.” In connection with the Countrywide proceedings, we have voluntarily suspended rescissions of coverage related to loans that we believed would be included in a potential resolution. As of June 30, 2013, coverage on approximately 2,650 loans, representing total potential claim payments of approximately $195 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. As of June 30, 2013, coverage on approximately 310 loans, representing total potential claim payments of approximately $21 million, was affected by our decision to suspend rescissions for another customer for which we also consider settlement probable. In addition, as of June 30, 2013, coverage on approximately 300 loans, representing total potential claim payments of approximately $21 million, was 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

	June 30,				December 31,				June 30,
	2013				2012				2012

3 payments or less		27,498	24	%		34,245	24	%		33,677	22	%
4 - 11 payments		27,299	23	%		34,458	25	%		39,744	26	%
12 payments or more		62,308	53	%		71,142	51	%		80,569	52	%

Total primary default inventory		117,105	100	%		139,845	100	%		153,990	100	%

- 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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