Loss Reserves (Tables)

6 Months Ended

Jun. 30, 2014

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, 2014 and 2013:

	Six Months Ended June 30,
	2014			2013
	(In thousands)

Reserve at beginning of period	$	3,061,401		$	4,056,843
Less reinsurance recoverable		64,085			104,848
Net reserve at beginning of period		2,997,316			3,951,995

Losses incurred:
Losses and LAE incurred in respect of default notices related to:
Current year		306,386			468,332
Prior years (1)		(42,637	)		(5,850	)
Subtotal		263,749			462,482

Losses paid:
Losses and LAE paid in respect of default notices related to:
Current year		2,674			5,137
Prior years		640,560			897,178
Reinsurance terminations (2)		-			(3,248	)
Subtotal		643,234			899,067

Net reserve at end of period		2,617,831			3,515,410
Plus reinsurance recoverables		57,763			83,898

Reserve at end of period	$	2,675,594		$	3,599,308

(1)

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.

(2)

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.

Prior year development of the reserves

The prior year development of the reserves in the first six months of 2014 and 2013 is reflected in the table below.

	Six Months Ended June 30,
	2014			2013
	(In millions)
Prior year loss development (1):

Decrease in estimated claim rate on primary defaults	$	(25	)	$	-
(Decrease) increase in estimated severity on primary defaults		(8	)		1
Change in estimates related to pool reserves, LAE reserves and reinsurance		(10	)		(7	)
Total prior year loss development	$	(43	)	$	(6	)

(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, 2014 and 2013 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 transfers of servicing between loan servicers. Historically, losses incurred have followed a seasonal trend in which the second half of the year has weaker credit performance than the first half, with higher new notice activity and a lower cure rate.

	Three Months Ended June 30,						Six Months Ended June 30,
	2014			2013			2014			2013


Default inventory at beginning of period		91,842			126,610			103,328			139,845
New Notices		21,178			25,425			44,524			53,289
Cures		(21,182	)		(25,450	)		(48,500	)		(56,572	)
Paids (including those charged to a deductible or captive)		(6,068	)		(9,051	)		(13,132	)		(18,496	)
Rescissions and denials		(354	)		(429	)		(804	)		(961	)
Default inventory at end of period		85,416			117,105			85,416			117,105

Aging of the primary default inventory

The decrease in the primary default inventory experienced during 2014 and 2013 was generally across all markets and all book years. 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 and the number of loans in our primary claims received inventory have been affected by our suspended rescissions and the resolution of certain of those rescissions discussed below and in Note 5 – “Litigation and Contingencies.”

Aging of the Primary Default Inventory

	June 30, 2014				December 31, 2013				June 30, 2013

Consecutive months in default
3 months or less		15,297	18	%		18,941	18	%		18,760	16	%
4 - 11 months		19,362	23	%		24,514	24	%		26,377	23	%
12 months or more		50,757	59	%		59,873	58	%		71,968	61	%

Total primary default inventory		85,416	100	%		103,328	100	%		117,105	100	%

Primary claims received inventory included in ending default inventory (1)		5,398	6	%		6,948	7	%		10,637	9	%

(1) Our claims received inventory includes suspended rescissions, as we have voluntarily suspended rescissions of coverage related to certain loans that we believed would be included in a potential resolution. As of June 30, 2014, rescissions of coverage on approximately 1,558 loans had been voluntarily suspended.

Number of payments delinquent

The number of months 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

	June 30, 2014				December 31, 2013				June 30, 2013


3 payments or less		22,867	27	%		28,095	27	%		27,498	24	%
4 - 11 payments		19,666	23	%		24,605	24	%		27,299	23	%
12 payments or more		42,883	50	%		50,628	49	%		62,308	53	%

Total primary default inventory		85,416	100	%		103,328	100	%		117,105	100	%