Commutations, recaptures and other negotiated terminations of our insured risks in both our mortgage insurance and  financial guaranty segments provide us with an opportunity to exit exposures for an agreed upon payment, or payments, often at  an amount less than the previously estimated ultimate liability . Once all exposures relating to such policies are extinguished, all  reserves for losses and LAE and other balances relating to the insured or reinsured policy generally are eliminated. Upon  completion of a commutation, recapture or other negotiated termination, all such related balances, including deferred policy  acquisition costs and unearned premiums, are reversed, with any remaining net gain or loss typically recorded through  provision for losses. We take into consideration the specific contractual and economic terms for each individual agreement  when accounting for our commutations, recaptures or other negotiated terminations, which may result in dif ferences in the  accounting between transactions, or between the statutory financial statements of our insurance subsidiaries and our financial  statements presented on a GAAP basis.  In the mortgage insurance segment, the default and claim cycle begins with the receipt of a default notice from the  servicer. Reserves for losses are established upon receipt of notification by servicers that a borrower has missed two monthly  payments, which is when we consider a loan to be in default for financial statement and internal tracking purposes.  We also  establish reserves for associated LAE, consisting of the estimated cost of the claims administration process, including legal and  other fees and expenses associated with administering the claims process.  We maintain an extensive database of claim payment  history and use models, based on a variety of loan characteristics, including the status of the loan as reported by its servicer and  the type of loan product to determine the likelihood that a default will reach claim status. Our process includes forecasting the  impact of our loss mitigation ef forts in protecting us against fraud, underwriting negligence, breach of representation and  warranties, inadequate documentation of submitted claims and other items that may give rise to insurance rescissions and claim  denials, to help determine the default to claim rate. Lastly , we project the amount that we will pay if a default becomes a claim  (referred to as “claim severity”), which is also impacted by claim curtailments.  When there is a claim under primary mortgage  insurance, the coverage percentage is applied to the claim amount, which consists of the unpaid loan principal, plus past due  interest (for which our liability is contractually capped at a maximum of two years) and certain expenses associated with the  default, to determine our maximum liability . Based on these estimates at a given point in time, we arrive at our estimate of loss  reserves as of that time. With respect to loans that are in default, considerable judgment is exercised as to the adequacy of reserve levels. Loss  reserves are increased as defaulted loans age, because they are considered to be closer to foreclosure and more likely to result in  a claim payment. In the past, as the default proceeded towards foreclosure, there was generally more certainty around these  estimates. However, in the current environment in which many foreclosures have been delayed, significant uncertainty remains  with respect to the ultimate resolution of aged defaults.  This uncertainty requires management to use considerable judgment in  estimating the rate at which these loans will result in claims. If a default cures, the reserve for that loan is removed from the  reserve for losses and LAE. We also establish reserves for defaults that we estimate have been incurred but have not been reported  to us on a timely  basis by the servicer and for defaults related to previously rescinded policies and denied claims, which we estimate will be  reinstated and subsequently paid. We generally give the insured up to 90 days to rebut our decision to rescind coverage before  we consider a policy to be rescinded and remove it from our default inventory; therefore, we currently expect only a limited  percentage of policies that were rescinded to be reinstated.  We currently expect a significant percentage of claims that were  denied to ultimately be resubmitted as a perfected claim and paid. Most often, a claim denial is the result of the servicer ’s  inability to provide the loan origination file or other servicing documents for review . Under the terms of our master insurance  policy with our lending customers, our insureds have up to one year after the acquisition of borrower ’s title to provide to us the  necessary documents to perfect a claim.  All estimates are periodically reviewed and adjustments are made as they become  necessary. We do not establish reserves for loans that are in default if we believe that we will not be liable for the payment of a claim  with respect to that default. For example, for those defaults in which we are in a  second loss position, we initially calculate the  reserve for defaulted loans in the transaction as if there were no deductible. If the existing deductible for a given structured  transaction is greater than the reserve amount for the defaults contained within the transaction, we do not establish a reserve for  the defaults, or if appropriate, we record a partial reserve.  We do not establish loss reserves for expected future claims on  insured mortgages that are not in default. See “ Reserve for Premium Deficiency ” below for an exception to this general  principle.  144 Mortgage Insurance