Loss Reserves (Tables)

6 Months Ended

Jun. 30, 2016

Reconciliation of beginning and ending loss reserves

The following table provides a reconciliation of beginning and ending loss reserves for the six months ended June 30, 2016 and 2015:



	Six months ended June 30,
(In thousands)	2016			2015
Reserve at beginning of period	$	1,893,402		$	2,396,807
Less reinsurance recoverable	44,487			57,841
Net reserve at beginning of period	1,848,915			2,338,966

Losses incurred:
Losses and LAE incurred in respect of defaults related to:
Current year	196,543			223,564
Prior years ⁽¹⁾	(64,941		)	(51,541		)
Subtotal	131,602			172,023

Losses paid:
Losses and LAE paid in respect of defaults related to:
Current year	1,396			2,382
Prior years	392,007			451,317
Reinsurance terminations ⁽²⁾	(4		)	(15		)
Subtotal	393,399			453,684

Net reserve at end of period	1,587,118			2,057,305
Plus reinsurance recoverables	45,215			53,456

Reserve at end of period	$	1,632,333		$	2,110,761


⁽¹⁾	A negative number for prior year losses incurred indicates a redundancy of prior year loss reserves.

⁽²⁾

In a termination or commutation, the reinsurance agreement is cancelled, with no future premium ceded and funds for any incurred but unpaid losses transferred to us. The transferred funds result in an increase in our investment portfolio (including cash and cash equivalents) and a decrease in net losses paid (reduction in losses incurred). In addition, there is an offsetting decrease in the reinsurance recoverable (increase in losses incurred), and thus there is no net impact to losses incurred.

Prior year development of the reserves

The prior year development of the reserves in the first six months of 2016 and 2015 is reflected in the following table.



	Six months ended June 30,
(In millions)	2016			2015
Decrease in estimated claim rate on primary defaults	$	(76	)	$	(59	)
Increase in estimated severity on primary defaults	17			15
Change in estimates related to pool reserves, LAE reserves and reinsurance	(6		)	(8		)
Total prior year loss development ⁽¹⁾	$	(65	)	$	(52	)


⁽¹⁾	A negative number for prior year loss development indicates a redundancy of prior year loss reserves, and a positive number indicates a deficiency of prior year loss reserves.

Rollforward of primary default inventory

A rollforward of our primary default inventory for the three and six months ended June 30, 2016 and 2015 appears in the following table. The information concerning new notices and cures is compiled from monthly reports received from loan servicers. The level of new notice and cure activity reported in a particular month can be influenced by, among other things, the date on which a servicer generates its report, the number of business days in a month and transfers of servicing between loan servicers.



	Three months ended June 30,				Six months ended June 30,
	2016		2015		2016		2015
Default inventory at beginning of period	55,590		72,236		62,633		79,901
New notices	16,080		17,451		32,811		36,347
Cures	(15,640	)	(17,897	)	(34,693	)	(39,664	)
Paids (including those charged to a deductible or captive)	(3,195	)	(4,140	)	(6,568	)	(8,713	)
Rescissions and denials	(142	)	(172	)	(352	)	(393	)
Other items removed from inventory	(135	)	(1,121	)	(1,273	)	(1,121	)
Default inventory at end of period	52,558		66,357		52,558		66,357

Aging of the primary default inventory

As of June 30, 2016 the percentage of loans in the inventory that have been in default for 12 or more consecutive months remained consistent compared with the prior year end and declined compared to one year prior, as shown in the following table. Historically as a default ages it becomes more likely to result in a claim. The percentage of loans that have been in default for 12 or more consecutive months and the number of loans in our primary claims received inventory have been affected by our suspended rescissions and the resolution of certain of those rescissions discussed below and in Note 5 – “Litigation and Contingencies.”



Consecutive months in default	June 30, 2016			December 31, 2015			June 30, 2015
3 months or less	11,547	22	%	13,053	21	%	12,545	19	%
4 - 11 months	12,680	24	%	15,763	25	%	15,487	23	%
12 months or more ⁽¹⁾	28,331	54	%	33,817	54	%	38,325	58	%
Total primary default inventory	52,558	100	%	62,633	100	%	66,357	100	%

Primary claims received inventory included in ending default inventory	1,829	3	%	2,769	4	%	3,440	5	%


⁽¹⁾	Approximately 49%, 50%, and 51% of the primary default inventory in default for 12 consecutive months or more has been in default for at least 36 consecutive months as of June 30, 2016, December 31, 2015, and June 30, 2015, respectively.

Number of payments delinquent

The number of payments that a borrower is delinquent is shown in the table below.



Number of payments delinquent	June 30, 2016			December 31, 2015			June 30, 2015
3 payments or less	17,299	33	%	20,360	33	%	19,274	29	%
4 - 11 payments	12,746	24	%	15,092	24	%	15,710	24	%
12 payments or more	22,513	43	%	27,181	43	%	31,373	47	%
Total primary default inventory	52,558	100	%	62,633	100	%	66,357	100	%