Note 10 - Losses and Loss Adjustment Expense

3 Months Ended

Mar. 31, 2020

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



(In thousands)	March 31, 2020		December 31, 2019
Mortgage insurance loss reserves (1)	$	414,678	$	401,273
Title insurance loss reserves (2)	3,524		3,492
Total reserve for losses and LAE	$	418,202	$	404,765

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(1)	Primarily comprises first lien primary case reserves of $353.2 million and $339.8 million at March 31, 2020 and December 31, 2019, respectively.


(2)	A portion of this amount is subject to reinsurance, with the related reinsurance recoverables reported in other assets in our condensed consolidated balance sheets. For all periods presented, total incurred losses and paid claims for title insurance were not material.

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:



	Three Months Ended March 31,
(In thousands)	2020			2019
Balance at beginning of period	$	401,273		$	397,891
Less: Reinsurance recoverables (1)	14,594			11,009
Balance at beginning of period, net of reinsurance recoverables	386,679			386,882
Add: Losses and LAE incurred in respect of default notices reported and unreported in:
Current year (2)	41,242			38,922
Prior years	(5,876		)	(18,173		)
Total incurred	35,366			20,749
Deduct: Paid claims and LAE related to:
Current year (2)	—			295
Prior years	23,391			34,294
Total paid	23,391			34,589
Balance at end of period, net of reinsurance recoverables	398,654			373,042
Add: Reinsurance recoverables (1)	16,024			12,319
Balance at end of period	$	414,678		$	385,361

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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

Incurred Losses

Reserves established for new default notices were the primary driver of our total incurred losses for the three months ended March 31, 2020, and 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. Our gross Default to Claim Rate assumption applied to new defaults of 7.5%, as well as our other Default to Claim Rate assumptions for prior year

defaults, were unchanged as of March 31, 2020 compared to December 31, 2019. While observed trends in claim submissions and Cures during the first quarter of 2020 were more favorable than previously estimated, favorable reserve development from prior year defaults was limited as we did not make any material adjustments to our reserve assumptions during the period due primarily to increased uncertainty that such favorable trends would persist given the potential impacts of the COVID-19 pandemic. See Note 1 for additional information on the elevated risks and uncertainties resulting from the COVID-19 pandemic to our business and Note 2 of Notes to Consolidated Financial Statements in our 2019 Form 10-K for discussion of the reserving methodology for the mortgage insurance industry, which requires that reserves for losses are generally not established until receipt of notification from servicers that a borrower has missed two payments.

Our gross default to claim rate assumption applied to new defaults was 8.0% as of March 31, 2019. Our provision for losses during the first three 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 periods in certain Default to Claim Rate assumptions for these prior year defaults based on observed trends, primarily higher Cures than previously estimated.

Claims Paid

Total claims paid decreased for the three months ended March 31, 2020, compared to the same period in 2019. The decrease in claims paid is consistent with the ongoing decline in the outstanding default inventory.

For additional information about our Reserve for Losses and LAE, including our accounting policies, see Notes 2 and 11 of Notes to Consolidated Financial Statements in our 2019 Form 10-K.