Note 10 - Losses and Loss Adjustment Expense

6 Months Ended

Jun. 30, 2019

Our reserve for losses and LAE, at the end of each period indicated, consisted of:



(In thousands)	June 30, 2019		December 31, 2018
Mortgage insurance loss reserves	$	401,294	$	397,891
Services loss reserves (1)	3,984		3,470
Total reserve for losses and LAE	$	405,278	$	401,361

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(1)

A majority of this amount is subject to reinsurance, with the related reinsurance recoverables reported in other assets in our condensed consolidated balance sheets, and relates to Radian Title Insurance. For all periods presented, total incurred losses and paid claims for Radian Title Insurance were not material. See Note 8 of Notes to Consolidated Financial Statements in our 2018 Form 10-K for additional information about our use of reinsurance in our title insurance business.

The following table presents information relating to our mortgage insurance reserve for losses, including our IBNR reserve and LAE, but excluding our second-lien mortgage loan premium deficiency reserve, for the periods indicated:



	Six Months Ended June 30,
(In thousands)	2019			2018
Balance at beginning of period	$	397,891		$	507,588
Less: Reinsurance recoverables (1)	11,009			8,350
Balance at beginning of period, net of reinsurance recoverables	386,882			499,238
Add: Losses and LAE incurred in respect of default notices reported and unreported in:
Current year (2)	73,494			67,286
Prior years	(5,617		)	(11,311		)
Total incurred	67,877			55,975
Deduct: Paid claims and LAE related to:
Current year (2)	507			1,091
Prior years	66,510			115,369
Total paid	67,017			116,460
Balance at end of period, net of reinsurance recoverables	387,742			438,753
Add: Reinsurance recoverables (1)	13,552			9,341
Balance at end of period	$	401,294		$	448,094

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(1)	Related to ceded losses recoverable, if any, on reinsurance transactions. See Note 7 for additional information.


(2)	Related to underlying defaulted loans with a most recent default notice dated in the year indicated. For example, if a loan had defaulted in a prior year, but then subsequently cured and later re-defaulted in the current year, that default would be considered a current year default.

Reserve Activity

2019 Activity

Reserves established for new default notices were the primary driver of our total incurred losses for the six months ended June 30, 2019, and they were primarily impacted by the number of new primary default notices received in the period and our related gross Default to Claim Rate assumption applied to those new defaults, which was 8.0% as of June 30, 2019. Our provision for losses during the first six months of 2019 was positively impacted by favorable reserve development on prior year defaults. This favorable development was primarily driven by a reduction during the period in certain Default to Claim Rate assumptions for these prior year defaults compared to the assumptions used at December 31, 2018, partially offset by a $19.4 million increase in our IBNR reserve estimate in the three months ended June 30, 2019. The increase in our IBNR reserve

estimate is related to previously disclosed legal proceedings involving challenges from certain servicers regarding our Loss Mitigation Activities, which challenges may result in the reversal of certain decisions regarding prior Rescissions, Claim Denials or Claim Curtailments. See Note 12 for additional information.

Total claims paid decreased for the six months ended June 30, 2019, compared to the same period in 2018. The decrease in claims paid is consistent with the ongoing decline in the outstanding default inventory.

2018 Activity

Our mortgage insurance loss reserves at June 30, 2018 declined as compared to December 31, 2017, primarily as a result of the amount of paid claims outpacing losses incurred related to new default notices reported in the current year. Reserves established for new default notices were the primary driver of our total incurred loss for the six months ended June 30, 2018, and they were primarily impacted by the number of new primary default notices received in the period and our related gross Default to Claim Rate assumption applied to those new defaults, which was 9.0% as of June 30, 2018. The provision for losses during the first six months of 2018 was positively impacted by favorable reserve development on prior year defaults, which was primarily driven by a reduction during the period in certain Default to Claim Rate assumptions for these prior year defaults compared to the assumptions used at December 31, 2017. The reductions in Default to Claim Rate assumptions resulted from observed trends, primarily higher Cures than were previously estimated.

Mortgage Insurance Reserve Assumptions

Default to Claim Rate

Our aggregate weighted-average net Default to Claim Rate assumption (net of Claim Denials and Rescissions) used in estimating our primary reserve for losses was 33% at both June 30, 2019 and December 31, 2018. As of June 30, 2019 our gross Default to Claim Rate assumptions on our primary portfolio ranged from 8.0% for new defaults, up to 68% for defaults not in foreclosure stage, and 72% for Foreclosure Stage Defaults. See Notes 2 and 11 of Notes to Consolidated Financial Statements in our 2018 Form 10-K for additional information about our mortgage insurance reserve assumptions and Loss Mitigation Activities.