Note 11 - Losses and Loss Adjustment Expense (Note)

9 Months Ended

Sep. 30, 2020

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


(In thousands)	September 30, 2020		December 31, 2019
Mortgage insurance loss reserves (1)	$	821,708	$	401,273
Title insurance loss reserves	4,084		3,492
Total reserve for losses and LAE	$	825,792	$	404,765

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(1)Primarily comprises first lien primary case reserves of $744.6 million and $339.8 million at September 30, 2020 and December 31, 2019, respectively.

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:


	Nine Months Ended September 30,
(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)	448,584		107,866
Prior years	(21,494)		(10,579)
Total incurred	427,090		97,287
Deduct: Paid claims and LAE related to:
Current year (2)	2,841		1,784
Prior years	54,167		101,927
Total paid	57,008		103,711
Balance at end of period, net of reinsurance recoverables	756,761		380,458
Add: Reinsurance recoverables (1)	64,947		13,629
Balance at end of period	$	821,708	$	394,087

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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.

Reserve Activity

Incurred Losses

Case reserves established for new default notices were the primary driver of our total incurred losses for the nine months ended September 30, 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. For the nine months ended September 30, 2020, we experienced a significant increase in the number of new primary default notices, substantially all related to defaults of loans subject to forbearance programs implemented in response to the COVID-19 pandemic. Our gross Default to Claim Rate assumption applied to new defaults was 8.5% as of September 30, 2020, compared to 7.5% as of December 31, 2019. This increase reflects the estimated impact of a worsening macroeconomic environment, partially offset by the expected beneficial effects of mortgage relief options and other protections, including forbearance programs under the CARES Act.

While our other Default to Claim Rate assumptions for prior year defaults were not materially changed as of September 30, 2020 compared to December 31, 2019, our provision for losses during the first nine months of 2020 was positively impacted by favorable reserve development on prior year defaults, primarily due to higher Cures than previously estimated. 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 7.5% as of September 30, 2019. Our provision for losses during the first nine 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 nine months ended September 30, 2020, compared to the same period in 2019. The decrease in claims paid is primarily attributable to COVID-19-related hardship forbearance plans and suspensions of foreclosure and evictions.

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.