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)	2020		2019
Mortgage insurance loss reserves (1)	$	844,107	$	401,273
Title insurance loss reserves	4,306		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)	2020		2019		2018
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 recoverables	386,679		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 incurred	483,260		132,024		103,592
Deduct: Paid claims and LAE related to:
Current year (2)	4,148		4,220		5,856
Prior years	93,453		128,007		210,092
Total paid	97,601		132,227		215,948
Balance at end of period, net of reinsurance recoverables	772,338		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,
	2020		2019		2018
Default to Claim Rate on:
New defaults	8.5	%	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 years	62.5	%	48.0	%	52.0	%
Time in Default: > 5 years	70.0	%	63.0	%	68.0	%
Foreclosure Stage Defaults	75.0	%	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 Year	2011		2012		2013		2014		2015		2016		2017		2018		2019		2020
	Unaudited																				As 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
2012			803,831		763,969		711,213		720,502		715,646		714,783		713,750		713,839		713,146		313		88,555
2013					505,732		405,334		401,444		404,333		402,259		400,243		399,356		399,317		150		70,723
2014							337,784		247,074		265,891		264,620		260,098		261,507		261,377		73		57,541
2015									222,555		198,186		178,042		183,952		183,546		184,066		69		49,255
2016											201,016		165,440		149,753		148,811		148,640		75		45,824
2017													180,851		151,802		133,357		130,274		144		46,956
2018															131,513		116,634		95,534		279		39,341
2019																	143,475		136,860		809		42,884
2020																			504,160		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 Year	2011		2012		2013		2014		2015		2016		2017		2018		2019		2020
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
2012			19,200		295,332		528,744		631,982		672,271		692,291		702,136		704,770		708,528
2013					34,504		191,040		307,361		357,087		379,036		388,688		392,818		395,093
2014							13,108		115,852		200,422		233,607		246,611		252,619		255,742
2015									10,479		84,271		142,421		163,916		172,645		174,812
2016											11,061		76,616		119,357		134,115		137,306
2017													24,653		66,585		99,678		108,484
2018															5,584		36,066		54,625
2019																	4,220		18,703
2020																			4,148
Total																			$	2,914,640
All outstanding liabilities before 2011, net of reinsurance																			30,257
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 reinsurance	30,257
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 claims	71,769
Unallocated LAE	20,521
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)
Years	1	2	3	4	5	6	7	8	9	10
Mortgage insurance	6.2%	33.6%	30.0%	11.5%	5.2%	2.4%	1.4%	0.6%	0.4%	0.4%