Note 10 - Losses and Loss Adjustment Expense

9 Months Ended

Sep. 30, 2019

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



(In thousands)	September 30, 2019		December 31, 2018
Mortgage Insurance loss reserves	$	394,087	$	397,891
Services loss reserves (1)	4,054		3,470
Total reserve for losses and LAE	$	398,141	$	401,361

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(1)

The Services loss reserves relate to Radian Title Insurance and the majority is subject to reinsurance, with the related reinsurance recoverables reported in other assets in our condensed consolidated balance sheets. For all periods presented, total incurred losses and paid claims for Radian Title Insurance were not material. See Note 8 of Notes to Consolidated Financial Statements in our 2018 Form 10-K for additional information about our use of reinsurance in our title insurance business.

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)	2019			2018
Balance at beginning of period	$	397,891		$	507,588
Less: Reinsurance recoverables (1)	11,009			8,350
Balance at beginning of period, net of reinsurance recoverables	386,882			499,238
Add: Losses and LAE incurred in respect of default notices reported and unreported in:
Current year (2)	107,866			100,047
Prior years	(10,579		)	(24,075		)
Total incurred	97,287			75,972
Deduct: Paid claims and LAE related to:
Current year (2)	1,784			2,316
Prior years	101,927			173,911
Total paid	103,711			176,227
Balance at end of period, net of reinsurance recoverables	380,458			398,983
Add: Reinsurance recoverables (1)	13,629			9,997
Balance at end of period	$	394,087		$	408,980

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(1)	Related to ceded losses recoverable, if any, on reinsurance transactions. See Note 7 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

2019 Activity

Reserves established for new default notices were the primary driver of our total incurred losses for the nine months ended September 30, 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, which 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 period in certain Default to Claim Rate assumptions for these prior year defaults compared to the assumptions used at December 31, 2018, partially offset by an increase in our IBNR reserve estimate in the nine months ended September 30, 2019 related to previously disclosed legal proceedings. See Note 12 for additional information.

Total claims paid decreased for the nine months ended September 30, 2019, compared to the same period in 2018. The decrease in claims paid is consistent with the ongoing decline in the outstanding default inventory.

2018 Activity

Our mortgage insurance loss reserves at September 30, 2018 declined as compared to December 31, 2017, primarily as a result of the amount of paid claims outpacing losses incurred related to new default notices reported in the current year. Reserves established for new default notices were the primary driver of our incurred loss for the nine months ended September 30, 2018, 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, which was 8.5% as of September 30, 2018. The provision for losses during the first nine months of 2018 was positively impacted by favorable reserve development on prior year defaults, which was primarily driven by a reduction during the period in certain Default to Claim Rate assumptions for these prior year defaults compared to the assumptions used at December 31, 2017. The reductions in Default to Claim Rate assumptions resulted from observed trends, primarily higher Cures than were previously estimated.

Mortgage Insurance Reserve Assumptions

Default to Claim Rate

As of September 30, 2019 our gross Default to Claim Rate assumptions on our primary portfolio ranged from 7.5% for new defaults, up to 65% for defaults not in foreclosure stage, and 72% for Foreclosure Stage Defaults. See Notes 2 and 11 of Notes to Consolidated Financial Statements in our 2018 Form 10-K for additional information about our mortgage insurance reserve assumptions and Loss Mitigation Activities.