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So, just becuase you breed 2 High Papered horses together doesnt gaurentee an intact foal ; actually quite the opposite. the higher the generation you go the harder it is to get foals consistantly better than their parents, becuase the bar is that much higher. Also, the same goes for papering, there is no gaurentee the foal will paper higher than either parent. your best bet for an intact foal is to breed similar quality horses with the mare having the 30 day pasture bonus. hope this helps :)

Both your questions pretty much have the same answer. Each mare and stallion has a range of breeding abilities that they can pass on to there babies. It’s a roll of the dice for each baby they produce. The baby can be worse, the same, or better. When the baby is much worse they can drop a paper level, or several in extreme cases. Just like If they are better the usually will paper up (unless star/gold). That little lady just inherited the lowest numbers from her parents. The pairing looks pretty good and you could get an intact baby next year. But it’s just chance either way.

@FramerVille, have you read the Resource guides? Some of them may help with your questions ; although we are always happy to answer any you have !
this might also help you a bit :

https://www.huntandjump.com/forum/discussion/31645/basic-information-for-new-players#Item_21