Loss Reserves (Tables)

12 Months Ended

Dec. 31, 2013

Reconciliation of beginning and ending loss reserves

The following table provides a reconciliation of beginning and ending loss reserves for each of the past three years:

	2013			2012			2011
	(In thousands)

Reserve at beginning of year	$	4,056,843		$	4,557,512		$	5,884,171
Less reinsurance recoverable		104,848			154,607			275,290
Net reserve at beginning of year (1)		3,951,995			4,402,905			5,608,881

Losses incurred:
Losses and LAE incurred in respect of default notices received in:
Current year		898,413			1,494,133			1,814,035
Prior years (2)		(59,687	)		573,120			(99,328	)
Subtotal (3)		838,726			2,067,253			1,714,707

Losses paid:
Losses and LAE paid in respect of default notices received in:
Current year		73,470			134,509			121,383
Prior years (4)		1,722,923			2,389,985			2,838,069
Reinsurance terminations (5)		(2,988	)		(6,331	)		(38,769	)
Subtotal (6)		1,793,405			2,518,163			2,920,683
Net reserve at end of year (7)		2,997,316			3,951,995			4,402,905
Plus reinsurance recoverables		64,085			104,848			154,607

Reserve at end of year	$	3,061,401		$	4,056,843		$	4,557,512

(1)

At December 31, 2012, 2011 and 2010 the estimated reduction in loss reserves related to rescissions approximated $0.2 billion, $0.7 billion and $1.3 billion, respectively.

(2)

A negative number for prior year losses incurred indicates a redundancy of prior year loss reserves, and a positive number for prior year losses incurred indicates a deficiency of prior year loss reserves. See table below regarding prior year loss development.

(3)

Rescissions did not have a significant impact on our losses incurred in 2013 or 2011. Our estimated rescissions were reduced by approximately $0.2 billion in 2012 due to probable settlement agreements (See Note 20 – “Litigation and Contingencies”), other rescissions had no significant impact on our losses incurred in 2012.

(4)

2013 and 2012, include $41 million and $100 million, respectively, paid under the terms of our settlement agreement with Freddie Mac as discussed below.

(5)

In a termination, 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 to 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. (See Note 11 – “Reinsurance”)

(6)

Rescissions mitigated our paid losses by an estimated $0.1 billion, $0.3 billion and $0.6 billion in 2013, 2012 and 2011, respectively, which excludes amounts that may have been applied to a deductible.

(7)

At December 31, 2013, 2012 and 2011 the estimated reduction in loss reserves related to rescissions approximated $0.1 billion, $0.2 billion and $0.7 billion, respectively.

Prior year development of the reserves

The prior year development of the reserves in 2013, 2012 and 2011 is reflected in the table below.

	2013			2012			2011
	(In millions)
Prior year loss development:

Pool policy settlement (1)	$	-		$	267		$	-

Increase in estimated claim rate on primary defaults		10			260			200
Decrease in estimated severity on primary defaults		(50	)		(70	)		(165	)
Change in estimates related to pool reserves, LAE reserves, reinsurance and other (2)		(20	)		116			(134	)
Total prior year loss development	$	(60	)	$	573		$	(99	)

(1) See below for a discussion of our settlement with Freddie Mac.

(2) Includes approximately $100 million related to probable settlements regarding our claims paying practices in 2012 and ($114) million related to LAE reserves in 2011.

Rollforward of primary default inventory

A rollforward of our primary default inventory for the years ended December 31, 2013, 2012 and 2011 appears in the table below. 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 by transfers of servicing between loan servicers.

	2013			2012			2011


Default inventory at beginning of period		139,845			175,639			214,724
New Notices		106,823			133,232			169,305
Cures		(104,390	)		(120,248	)		(149,643	)
Paids (including those charged to a deductible or captive)		(34,738	)		(45,741	)		(51,138	)
Rescissions and denials		(1,939	)		(3,037	)		(7,609	)
Items removed from inventory resulting from the Countrywide settlement on GSE loans		(2,273	)		-			-
Default inventory at end of period		103,328			139,845			175,639

Aging of the primary default inventory

The decrease in the primary default inventory experienced during 2013 and 2012 was generally across all markets and all book years. In 2012, the percentage of loans in the inventory that had been in default for 12 or more consecutive months had increased, as shown in the table below. 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 has been affected by our suspended rescissions discussed below.

Aging of the Primary Default Inventory

	December 31,				December 31,				December 31,
	2013				2012				2011

Consecutive months in default
3 months or less		18,941	18	%		23,282	17	%		31,456	18	%
4 - 11 months		24,514	24	%		34,688	25	%		46,352	26	%
12 months or more		59,873	58	%		81,875	58	%		97,831	56	%

Total primary default inventory		103,328	100	%		139,845	100	%		175,639	100	%

Primary claims received inventory included in ending default inventory (1)		6,948	7	%		11,731	8	%		12,610	7	%

(1) Our claims received inventory includes suspended rescissions, as we have voluntarily suspended rescissions of coverage related to loans that we believed would be included in a potential resolution. As of December 31, 2013, rescissions of coverage on approximately 1,500 loans had been voluntarily suspended.

Number of payments delinquent

The length of time a loan is in the default inventory can differ from the number of payments that the borrower has not made or is considered delinquent. These differences typically result from a borrower making monthly payments that do not result in the loan becoming fully current. The number of payments that a borrower is delinquent is shown in the table below.

Number of Payments Delinquent

	December 31,				December 31,				December 31,
	2013				2012				2011

3 payments or less		28,095	27	%		34,245	24	%		42,804	24	%
4 - 11 payments		24,605	24	%		34,458	25	%		47,864	27	%
12 payments or more		50,628	49	%		71,142	51	%		84,971	49	%

Total primary default inventory		103,328	100	%		139,845	100	%		175,639	100	%

- Definition

Tabular disclosure of the reasons for the change in incurred claims and claim adjustment expenses recognized in the income statement attributable to insured events of prior fiscal years. Also includes disclosures of additional premiums or return premiums accrued as a result of changes in incurred claims and claim adjustment expenses.

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- Definition

Tabular disclosure of the activity in the reserve for settling insured claims and expenses incurred in the claims settlement process for the period. The estimated liability includes the amount of money that will be required for future payments of (a) claims that have been reported to the insurer, (b) claims related to insured events that have occurred but that have not been reported to the insurer as of the date the liability is estimated, and (c) claim adjustment expenses. Claim adjustment expenses include costs incurred in the claim settlement process such as legal fees; outside adjuster fees; and costs to record, process, and adjust claims.

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