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Note 11 - Losses and LAE - Level 1 (Notes)
 12 Months Ended
Dec. 31, 2020
Insurance Loss Reserves [Abstract]  
Liability for Future Policy Benefits and Unpaid Claims Disclosure [Text Block] Losses and Loss Adjustment Expenses
Our reserve for losses and LAE, at the end of each period indicated, consisted of the following.
Year Ended December 31,
(In thousands)20202019
Mortgage insurance loss reserves (1)
$844,107 $401,273 
Title insurance loss reserves4,306 3,492 
Total reserve for losses and LAE$848,413 $404,765 
(1)Primarily comprises first lien primary case reserves of $799.5 million and $339.8 million at December 31, 2020 and 2019, 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 PDR.
Year Ended December 31,
(In thousands)202020192018
Balance at January 1,$401,273 $397,891 $507,588 
Less: Reinsurance recoverables (1)
14,594 11,009 8,350 
Balance at January 1, net of reinsurance recoverables386,679 386,882 499,238 
Add: Losses and LAE incurred in respect of default notices reported and unreported in:
Current year (2)
517,807 146,733 135,291 
Prior years(34,547)(14,709)(31,699)
Total incurred483,260 132,024 103,592 
Deduct: Paid claims and LAE related to:
Current year (2)
4,148 4,220 5,856 
Prior years93,453 128,007 210,092 
Total paid97,601 132,227 215,948 
Balance at end of period, net of reinsurance recoverables772,338 386,679 386,882 
Add: reinsurance recoverables (1)
71,769 14,594 11,009 
Balance at December 31,$844,107 $401,273 $397,891 
(1)Related to ceded losses recoverable 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
For all periods presented, case reserves established for new default notices were the primary driver of our total incurred losses, 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 year ended December 31, 2020, we experienced a significant increase in the number of new primary default notices, substantially all related to defaults of loans subject to forbearance programs implemented in response to the COVID-19 pandemic. New primary default notices totaled 108,025 for the year ended December 31, 2020, compared to 40,985 for the year ended December 31, 2019. Our gross Default to Claim Rate assumption applied to new defaults was 8.5% as of December 31, 2020, compared to 7.5% as of December 31, 2019. This increase reflects the estimated impact of a worsening macroeconomic environment, partially offset by the expected beneficial effects of mortgage relief options and other protections, including forbearance programs under the CARES Act.
For all periods presented, our provision for losses was also impacted by favorable reserve development on prior year defaults, primarily due to higher Cures than previously estimated. For 2019, this favorable development was partially offset by a $30.5 million increase in our IBNR reserve estimate related to legal proceedings involving challenges from certain servicers regarding our Loss Mitigation Activities. See Note 13 for additional information.
See also Note 1 for additional information on the elevated risks and uncertainties resulting from the COVID-19 pandemic to our business and Note 2 for discussion of the reserving methodology for the mortgage insurance industry, which requires that reserves for losses are generally not established until receipt of notification from servicers that a borrower has missed two payments.
Default to Claim Rate. Our Default to Claim Rate estimates on defaulted loans are mainly developed based on the Stage of Default and Time in Default of the underlying defaulted loans grouped according to the period in which the default occurred, as measured by the progress toward foreclosure sale and the number of months in default. Our estimate of expected Rescissions and Claim Denials (net of expected Reinstatements) embedded in our estimated net Default to Claim Rate is generally based on our recent experience. Consideration is also given to differences in characteristics between those rescinded policies and denied
claims and the loans remaining in our defaulted inventory. The following table shows our gross Default to Claim Rates on our primary portfolio based on the Time in Default and as of the dates indicated.
December 31,
202020192018
Default to Claim Rate on:
New defaults8.5 %7.5 %8.0 %
Defaults not in Foreclosure Stage:
Time in Default: < 2 years (1)
21.0 %22.0 %23.0 %
Time in Default: 2 - 5 years62.5 %48.0 %52.0 %
Time in Default: > 5 years70.0 %63.0 %68.0 %
Foreclosure Stage Defaults75.0 %70.0 %75.0 %
(1)Represents the weighted average Default to Claim Rate for all defaults not in foreclosure stage that have been in default for up to two years, including new defaults. The estimated Default to Claim Rates applied to defaults within this population vary by Time in Default, and range from the Default to Claim Rates on new defaults shown above, up to 55.0%, 55.6% and 57.4% for more aged defaults in this category as of December 31, 2020, 2019, and 2018, respectively.
Claims Paid
The decrease in claims paid in 2020 is primarily attributable to COVID-19-related forbearance plans and suspensions of foreclosures and evictions. Claims paid in 2020 include payments made to settle certain previously disclosed legal proceedings. See Note 13 for additional information about these legal proceedings. The decrease in total claims paid is consistent with the decline in outstanding default inventory prior to 2020.
Concentration of Risk
As of December 31, 2020, there was no state that accounted for more than 10% of our mortgage insurance business measured by primary RIF. As of December 31, 2019, California, at 11.2%, was the only state to account for more than 10% of primary RIF. California also accounted for 10.4% of our direct NIW for the year ended December 31, 2020, compared to 10.6% and 11.9% for the years ended December 31, 2019 and 2018, respectively.
Additional Disclosures
The following tables provide information as of and for the periods indicated about: (i) incurred losses, net of reinsurance; (ii) the total of IBNR liabilities plus expected development on reported claims, included within the net incurred loss amounts; (iii) the cumulative number of reported defaults; and (iv) cumulative paid claims, net of reinsurance. The default year represents the period that a new default notice is first reported to us by loan servicers, related to borrowers that missed two monthly payments.
The information about net incurred losses and paid claims development for the years ended prior to 2020 is presented as supplementary information.
Incurred Losses, Net of Reinsurance
($ in thousands)
Total of IBNR Liabilities Plus Expected Development on Reported Claims (1)
Cumulative Number of Reported Defaults (2)
Year Ended December 31,
Default Year2011201220132014201520162017201820192020
UnauditedAs of December 31, 2020
2011$1,058,625 $1,152,016 $1,052,277 $1,050,555 $1,062,579 $1,061,161 $1,059,116 $1,060,376 $1,064,054 $1,062,826 $578 117,019 
2012803,831 763,969 711,213 720,502 715,646 714,783 713,750 713,839 713,146 313 88,555 
2013505,732 405,334 401,444 404,333 402,259 400,243 399,356 399,317 150 70,723 
2014337,784 247,074 265,891 264,620 260,098 261,507 261,377 73 57,541 
2015222,555 198,186 178,042 183,952 183,546 184,066 69 49,255 
2016201,016 165,440 149,753 148,811 148,640 75 45,824 
2017180,851 151,802 133,357 130,274 144 46,956 
2018131,513 116,634 95,534 279 39,341 
2019143,475 136,860 809 42,884 
2020504,160 4,540 109,411 
Total$3,636,200 
(1)Represents reserves as of December 31, 2020 related to IBNR liabilities.
(2)Represents total number of new default notices received in each calendar year as compiled monthly based on reports received from loan servicers. As reflected in our Default to Claim Rate assumptions, a significant portion of reported defaults generally do not result in a claim. In certain instances, a defaulted loan may cure, and then re-default in a later period. Consistent with our reserving practice, each new event of default is treated as a unique occurrence and therefore certain loans that cure and re-default may be included as a reported default in multiple periods.
Cumulative Paid Claims, Net of Reinsurance
Year Ended December 31,
(In thousands)Unaudited
Default Year2011201220132014201520162017201820192020
2011$40,392 $323,216 $756,820 $892,959 $982,830 $1,016,855 $1,038,582 $1,048,966 $1,052,688 $1,057,199 
201219,200 295,332 528,744 631,982 672,271 692,291 702,136 704,770 708,528 
201334,504 191,040 307,361 357,087 379,036 388,688 392,818 395,093 
201413,108 115,852 200,422 233,607 246,611 252,619 255,742 
201510,479 84,271 142,421 163,916 172,645 174,812 
201611,061 76,616 119,357 134,115 137,306 
201724,653 66,585 99,678 108,484 
20185,584 36,066 54,625 
20194,220 18,703 
20204,148 
 Total$2,914,640 
All outstanding liabilities before 2011, net of reinsurance30,257 
Liabilities for claims, net of reinsurance (1)
$751,817 
(1)Calculated as follows:
(In thousands)
Incurred losses, net of reinsurance$3,636,200 
All outstanding liabilities before 2011, net of reinsurance30,257 
Cumulative paid claims, net of reinsurance(2,914,640)
Liabilities for claims, net of reinsurance$751,817 
The following table provides a reconciliation of the net incurred losses and paid claims development tables above to the mortgage insurance reserve for losses and LAE at December 31, 2020.
(In thousands)December 31, 2020
Net outstanding liabilities - mortgage insurance:
Reserve for losses and LAE, net of reinsurance$751,817 
Reinsurance recoverables on unpaid claims71,769 
Unallocated LAE20,521 
Total gross reserve for losses and LAE (1)
$844,107 
(1)Excludes title insurance reserve for losses and LAE of $4.3 million.
The following is supplementary information about average historical claims duration as of December 31, 2020, representing the average distribution of when claims are paid relative to the year of default.
Average Annual Percentage Payout of Incurred Losses by Age, Net of Reinsurance (Unaudited)
Years12345678910
Mortgage insurance6.2%33.6%30.0%11.5%5.2%2.4%1.4%0.6%0.4%0.4%