Note 11 - Losses and LAE Level 1 (Notes)

12 Months Ended

Dec. 31, 2019

Insurance Loss Reserves [Abstract]

Liability for Future Policy Benefits and Unpaid Claims Disclosure [Text Block]

Losses and Loss Adjustment Expenses

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

	Year Ended December 31,
(In thousands)	2019		2018
Mortgage Insurance loss reserves (1)	$	401,273	$	397,891
Services loss reserves (2)	3,492		3,470
Total reserve for losses and LAE	$	404,765	$	401,361

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(1) Primarily comprises first lien primary case reserves of $339.8 million and $361.7 million at December 31, 2019 and 2018, respectively.

(2) A majority of this amount is subject to reinsurance, with the related reinsurance recoverables reported in other assets in our consolidated balance sheet, and relates to Radian Title Insurance. For all periods presented, total incurred losses and paid claims for Radian Title Insurance were not material.

For the periods indicated, 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 PDR:

	Year Ended December 31,
(In thousands)	2019			2018			2017
Balance at January 1,	$	397,891		$	507,588		$	760,269
Less: Reinsurance recoverables (1)	11,009			8,350			6,851
Balance at January 1, net of reinsurance recoverables	386,882			499,238			753,418
Add: Losses and LAE incurred in respect of default notices reported and unreported in:
Current year (2)	146,733			135,291			185,486
Prior years	(14,709		)	(31,699		)	(49,286		)
Total incurred	132,024			103,592			136,200
Deduct: Paid claims and LAE related to:
Current year (2)	4,220			5,856			25,011
Prior years	128,007			210,092			365,369
Total paid	132,227			215,948			390,380			(3)
Balance at end of period, net of reinsurance recoverables	386,679			386,882			499,238
Add: reinsurance recoverables (1)	14,594			11,009			8,350
Balance at December 31,	$	401,273		$	397,891		$	507,588

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(1) Related to ceded losses recoverable, if any, on reinsurance transactions. See Note 8 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. For 2017, includes payments made on pool commutations, in some cases for loans not previously in default.

(3) Includes the payment of $54.8 million made in connection with the scheduled final settlement of the Freddie Mac Agreement in the third quarter of 2017.

Reserve Activity

Incurred Losses

For all periods presented, our case reserves established for new first-lien primary default notices were the primary driver of our total incurred losses, 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, as reflected in the Default to Claim Rate table below. Additionally, our provision for losses was positively impacted by favorable reserve development on prior year defaults. This favorable development in all periods was primarily driven by a reduction during the period in certain Default to Claim Rate assumptions for these prior year defaults based on observed trends. For 2019, this favorable development was partially offset by a $30.5 million increase in our IBNR reserve estimate. The increase in our IBNR reserve estimate is related to certain 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 13 for additional information.

Hurricane Impact 2018/2017. During the third quarter of 2017, Hurricanes Harvey and Irma caused extensive property damage to areas of Texas, Florida and Georgia, as well as other general disruptions including power outages and flooding. Following Hurricanes Harvey and Irma, we observed an increase in new primary defaults from FEMA Designated Areas associated with these hurricanes. As expected, most of these hurricane-related defaults cured by the end of 2018, and at higher cure rates than the rates for our general population of defaults. These incremental defaults did not have a material impact on our provision for losses in 2017 or 2018.

Default to Claim Rate. Our Default to Claim Rate estimates on defaulted loans are mainly developed based on the Stage of Default and Time in Default of the underlying defaulted loans grouped according to the period in which the default occurred,

as measured by the progress toward foreclosure sale and the number of months in default. Our estimate of expected Rescissions and Claim Denials (net of expected Reinstatements) embedded in our estimated Default to Claim Rate is generally based on our recent experience. Consideration is also given to differences in characteristics between those rescinded policies and denied claims and the loans remaining in our defaulted inventory. The following table shows our gross Default to Claim Rates on our primary portfolio based on the Time in Default and as of the dates indicated:

	December 31,
	2019		2018		2017
Default to Claim Rate on:
New defaults (1)	7.5	%	8.0	%	10.0	%
Defaults not in Foreclosure Stage:
Time in Default: <= 5 years (1) (2)	23.9	%	25.8	%	28.3	%
Time in Default: > 5 years	63.0	%	68.0	%	62.0	%
Foreclosure Stage Defaults	70.0	%	75.0	%	81.0	%

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(1) A 3% Default to Claim Rate assumption was assigned to the new primary defaults from FEMA Designated Areas associated with Hurricanes Harvey and Irma that were reported subsequent to those two natural disasters in 2017 and through February 2018.

(2) Represents the weighted average Default to Claim Rate for all defaults not in foreclosure stage that have been in default for up to five years, including new defaults. The estimated Default to Claim Rates applied to defaults within this population vary by Time in Default, and range from the Default to Claim Rates on new defaults shown above, up to 55.6%, 57.4% and 62.0% for more aged defaults in this category as of December 31, 2019, 2018, and 2017, respectively.

Claims Paid

Total claims paid continue to decrease consistent with the ongoing decline in the outstanding default inventory. Claims paid for 2017 were higher because they included payments that were made in connection with the scheduled final settlement of the Freddie Mac Agreement in the third quarter of 2017.

Concentration of Risk

As of December 31, 2019, California is the only state that accounted for more than 10% of our mortgage insurance business measured by primary RIF. California accounted for 11.2% of our Mortgage Insurance segment’s primary RIF at December 31, 2019, compared to 12.3% at December 31, 2018. California accounted for 10.6% of our Mortgage Insurance segment’s direct primary NIW for the year ended December 31, 2019, compared to 11.9% and 14.1% for the years ended December 31, 2018 and 2017, respectively.

Additional Disclosures

The following tables provide information as of and for the periods indicated about: (i) incurred losses, net of reinsurance; (ii) the total of IBNR liabilities plus expected development on reported claims, included within the net incurred loss amounts; (iii) the cumulative number of reported defaults; and (iv) cumulative paid claims, net of reinsurance. The default year represents the period that a new default notice is first reported to us by loan servicers, related to borrowers that missed two monthly payments.

The information about net incurred losses and paid claims development for the years ended prior to 2019 is presented as supplementary information.

	Incurred Losses, Net of Reinsurance
	Year Ended December 31,																				As of December 31, 2019
($ in thousands)																					Total of IBNR Liabilities Plus Expected Development on Reported Claims (1)		Cumulative Number of Reported Defaults (2)
	Unaudited
Default Year	2010		2011		2012		2013		2014		2015		2016		2017		2018		2019
2010	$	1,102,856	$	1,215,136	$	1,192,482	$	1,195,056	$	1,207,774	$	1,220,289	$	1,218,264	$	1,219,469	$	1,221,938	$	1,225,474	$	5,292	146,324
2011			1,058,625		1,152,016		1,052,277		1,050,555		1,062,579		1,061,161		1,059,116		1,060,376		1,064,054		5,020		118,972
2012					803,831		763,969		711,213		720,502		715,646		714,783		713,750		713,839		2,652		89,845
2013							505,732		405,334		401,444		404,333		402,259		400,243		399,356		1,172		71,749
2014									337,784		247,074		265,891		264,620		260,098		261,507		398		58,215
2015											222,555		198,186		178,042		183,952		183,546		160		49,825
2016													201,016		165,440		149,753		148,811		115		46,264
2017															180,851		151,802		133,357		264		47,283
2018																	131,513		116,634		650		39,598
2019																			143,475		3,117		42,884
																	Total		$	4,390,053

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(1) Represents reserves as of December 31, 2019 related to IBNR liabilities.

(2) Represents total number of new default notices received in each calendar year as compiled monthly based on reports received from loan servicers. As reflected in our Default to Claim Rate assumptions, a significant portion of reported defaults generally do not result in a claim. In certain instances, a defaulted loan may cure, and then re-default in a later period. Consistent with our reserving practice, each new event of default is treated as a unique occurrence and therefore certain loans that cure and re-default may be included as a reported default in multiple periods.

	Cumulative Paid Claims, Net of Reinsurance
	Year Ended December 31,
(In thousands)
	Unaudited
Default Year	2010		2011		2012		2013		2014		2015		2016		2017		2018		2019
2010	$	11,810	$	394,278	$	700,316	$	956,598	$	1,055,935	$	1,145,497	$	1,178,546	$	1,198,031	$	1,210,281	$	1,214,558
2011			40,392		323,216		756,820		892,959		982,830		1,016,855		1,038,582		1,048,966		1,052,688
2012					19,200		295,332		528,744		631,982		672,271		692,291		702,136		704,770
2013							34,504		191,040		307,361		357,087		379,036		388,688		392,818
2014									13,108		115,852		200,422		233,607		246,611		252,619
2015											10,479		84,271		142,421		163,916		172,645
2016													11,061		76,616		119,357		134,115
2017															24,653		66,585		99,678
2018																	5,584		36,066
2019																			4,220
																	Total		$	4,064,177
									All outstanding liabilities before 2010, net of reinsurance										51,883
									Liabilities for claims, net of reinsurance (1)										$	377,759

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(1) Calculated as follows:

(In thousands)
Incurred losses, net of reinsurance	$	4,390,053
Add: All outstanding liabilities before 2010, net of reinsurance	51,883
Less: Cumulative paid claims, net of reinsurance	4,064,177
Liabilities for claims, net of reinsurance	$	377,759

The following table provides a reconciliation of the net incurred losses and paid claims development tables above to the Mortgage Insurance reserve for losses and LAE at December 31, 2019:

(In thousands)	December 31, 2019
Net outstanding liabilities - Mortgage Insurance:
Reserve for losses and LAE, net of reinsurance	$	377,759
Reinsurance recoverables on unpaid claims	14,594
Unallocated LAE	8,920
Total gross reserve for losses and LAE (1)	$	401,273

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(1) Excludes Services reserve for losses and LAE of $3.5 million.

The following is supplementary information about average historical claims duration as of December 31, 2019, representing the average distribution of when claims are paid relative to the year of default:

	Average Annual Percentage Payout of Incurred Losses by Age, Net of Reinsurance (Unaudited)
Years	1	2	3	4	5	6	7	8	9	10
Mortgage Insurance	6.0%	35.2%	30.6%	13.6%	6.2%	3.6%	1.8%	1.0%	0.7%	0.3%