Note 11 - Losses and LAE (Note)

9 Months Ended

Sep. 30, 2021

Losses and LAE

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


Reserve for losses and LAE

(In thousands)	September 30, 2021		December 31, 2020
Mortgage insurance loss reserves (1)	$	888,021	$	844,107
Title insurance loss reserves	5,134		4,306
Total reserve for losses and LAE	$	893,155	$	848,413

(1)Primarily comprises first lien primary case reserves of $851.2 million and $799.5 million at September 30, 2021 and December 31, 2020, respectively.

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 premium deficiency reserve.


Rollforward of mortgage insurance reserve for losses

	Nine Months Ended September 30,
(In thousands)	2021		2020
Balance at beginning of period	$	844,107	$	401,273
Less: Reinsurance recoverables (1)	71,769		14,594
Balance at beginning of period, net of reinsurance recoverables	772,338		386,679
Add: Losses and LAE incurred in respect of default notices reported and unreported in:
Current year (2)	119,823		448,584
Prior years	(53,947)		(21,494)
Total incurred	65,876		427,090
Deduct: Paid claims and LAE related to:
Current year (2)	499		2,841
Prior years	24,431		54,167
Total paid	24,930		57,008
Balance at end of period, net of reinsurance recoverables	813,284		756,761
Add: Reinsurance recoverables (1)	74,737		64,947
Balance at end of period	$	888,021	$	821,708

(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, 2021 and 2020, 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, 2021, we experienced a 70% decrease in the number of new primary default notices, compared to the nine months ended September 30, 2020, substantially all of which related to defaults subject to forbearance programs implemented in response to the COVID-19 pandemic. Our gross Default to Claim Rate assumption applied to new defaults was 8.0% as of September 30, 2021, compared to 8.5% as of September 30, 2020. This combination of fewer new default notices and a lower Default to Claim Rate assumption on new defaults was the primary driver of the decrease in losses incurred related to current year defaults for the nine months ended September 30, 2021, as compared to the first nine months of 2020.

Our provision for losses during the first nine months of 2021 was positively impacted by favorable reserve development on prior year defaults, primarily as a result of more favorable trends in Cures than originally estimated, which resulted in, among other changes, a reduction from 8.5% to 8.0% in our Default to Claim Rate assumption for prior year default notices reported between April and December 2020 that was recorded as a change to our provision for losses during the second quarter of 2021. Our provision for losses during the first nine months of 2020 was also positively impacted by favorable reserve development on prior year defaults. The favorable development in 2020 was primarily driven by a reduction in certain Default to Claim Rate assumptions for those prior year defaults based on observed trends.

During the third quarter of 2021, Hurricane Ida caused extensive property damage to areas of Louisiana, New York, New Jersey and Pennsylvania, as well as other general disruptions including power outages and flooding. Although the Primary Mortgage Insurance we write protects lenders from a portion of losses resulting from mortgage defaults, it generally does not provide protection against property loss or physical damage, including damage caused by hurricanes or other severe weather events or natural disasters. As of September 30, 2021, we do not expect to incur any material losses due to current or future defaults in FEMA Designated Areas related to Hurricane Ida. However, the future impact to our reserves or PMIERs Cushion may be affected by various factors, including the pace of economic recovery in the FEMA Designated Areas.

See Note 1 for additional information on the elevated risks and uncertainties resulting from the COVID-19 pandemic to our business.

Claims Paid

Total claims paid decreased for the nine months ended September 30, 2021 compared to the same period in 2020. The decrease in claims paid is primarily attributable to COVID-19-related hardship forbearance plans and suspensions of foreclosures and evictions. Claims paid in 2021 include payments made to settle certain previously disclosed legal proceedings. See Note 13 for additional information about these legal proceedings.

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 2020 Form 10-K.