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Reserve for Losses and Loss Adjustment Expenses
6 Months Ended
Jun. 30, 2021
Liability for Future Policy Benefits and Unpaid Claims and Claims Adjustment Expense [Abstract]  
Reserve for Losses and Loss Adjustment Expenses Reserve for Losses and Loss Adjustment Expenses
 
The following table provides a reconciliation of the beginning and ending reserve balances for losses and loss adjustment expenses (“LAE”) for the six months ended June 30:
 
(In thousands)20212020
Reserve for losses and LAE at beginning of period$374,941 $69,362 
Less: Reinsurance recoverables19,061 71 
Net reserve for losses and LAE at beginning of period355,880 69,291 
Add provision for losses and LAE, net of reinsurance, occurring in:  
Current period72,600 197,195 
Prior years(30,627)(13,255)
Net incurred losses and LAE during the current period41,973 183,940 
Deduct payments for losses and LAE, net of reinsurance, occurring in:  
Current period128 289 
Prior years3,139 9,813 
Net loss and LAE payments during the current period3,267 10,102 
Net reserve for losses and LAE at end of period394,586 243,129 
Plus: Reinsurance recoverables27,286 7,761 
Reserve for losses and LAE at end of period$421,872 $250,890 
 
For the six months ended June 30, 2021, $3.1 million was paid for incurred claims and claim adjustment expenses attributable to insured events of prior years. There has been a $30.6 million favorable prior year development during the six months ended June 30, 2021. Reserves remaining as of June 30, 2021 for prior years are $322.1 million as a result of re-estimation of unpaid losses and loss adjustment expenses. For the six months ended June 30, 2020, $9.8 million was paid for incurred claims and claim adjustment expenses attributable to insured events of prior years. There was a $13.3 million favorable prior year development during the six months ended June 30, 2020. Reserves remaining as of June 30, 2020 for prior years were $46.2 million as a result of re-estimation of unpaid losses and loss adjustment expenses. In both periods, the favorable prior years' loss development was the result of a re-estimation of amounts ultimately to be paid on prior year defaults in the default inventory, including the impact of previously identified defaults that cured. Original estimates are increased or decreased as additional information becomes known regarding individual claims.

    Due to business restrictions, stay-at-home orders and travel restrictions initially implemented in March 2020 as a result of COVID-19, unemployment in the United States increased significantly in the second quarter of 2020 and remained elevated at June 30, 2021. As unemployment is one of the most common reasons for borrowers to default on their mortgage, the increase in unemployment has increased the number of delinquencies on the mortgages that we insure and has the potential to increase
claim frequencies on defaults. As of June 30, 2021, insured loans in default totaled 23,504 and included 21,648 defaults classified as COVID-19 defaults. For borrowers that have the ability to begin to pay their mortgage at the end of the forbearance period, we expect that mortgage servicers will work with them to modify their loans at which time the mortgage will be removed from delinquency status. We believe that the forbearance process could have a favorable effect on the frequency of claims that we ultimately pay. Based on the forbearance programs in place and the credit characteristics of the defaulted loans, we expect the ultimate number of COVID-19-related defaults notices received in April 2020 through September 2020 ("Early COVID Defaults") that result in claims will be less than our historical default-to-claim experience. Accordingly, we recorded a reserve equal to approximately 7% of the risk in force for the Early COVID Defaults. We have not adjusted the loss reserves associated with the Early COVID Defaults as we continue to believe that these reserves represent the best estimate of the ultimate loss. The credit characteristics of defaults reported in October 2020 through June 2021 have trended towards those of the pre-pandemic periods and we have observed the normalization of other default patterns during this period. In addition, beginning in the fourth quarter of 2020 we observed a normalization of the proportion of unemployment claims related to permanent layoffs as compared to a higher proportion of temporary layoffs during the second and third quarters of 2020. We believe that while defaults in October 2020 through June 2021 were impacted by the pandemic's effect on the economy, the underlying credit performance of these defaults may not be the same as the expected performance for the Early COVID Defaults that occurred following the onset of the pandemic and defaults after September 30, 2020 are more likely to transition like pre-pandemic defaults. Accordingly, beginning in the fourth quarter of 2020, we resumed establishing reserves for defaults reported after September 30, 2020 using our normal reserve methodology. The reserve for losses and LAE on COVID-19 defaults was $380.7 million at June 30, 2021 and includes $244.0 million of reserves for Early COVID Defaults. It is reasonably possible that our estimate of the losses for the COVID-19 defaults could change in the near term as a result of the continued impact of the pandemic on the economic environment, the results of existing and future governmental programs designed to assist individuals and businesses impacted by the virus and the performance of the COVID-19 defaults in the forbearance programs. A 100 basis point increase or decrease in the reserve rate applied to Early COVID Defaults would result in a corresponding increase or decrease in our reserve for losses and LAE of approximately $35 million as of June 30, 2021. The impact on our reserves in future periods will be dependent upon the amount of delinquent notices received from loan servicers, the performance of COVID-19 defaults and our expectations for the amount of ultimate losses on these delinquencies.