Reserves

The following table provides reserve information of the Company’s major product lines at the dates shown:



	December 31, 2015								December 31, 2014
					Claims and Benefits Payable								Claims and Benefits Payable
	Future Policy Benefits and Expenses		Unearned Premiums		Case Reserves		Incurred But Not Reported Reserves		Future Policy Benefits and Expenses		Unearned Premiums		Case Reserves		Incurred But Not Reported Reserves
Long Duration Contracts:
Preneed funeral life insurance policies and investment-type annuity contracts	$	4,670,977	$	134,534	$	13,644	$	6,324	$	4,618,505	$	4,872	$	14,696	$	6,456
Life insurance no longer offered	407,360		427		2,360		1,070		418,672		570		2,272		1,301
Universal life and other products no longer offered	153,801		118		773		1,674		168,808		136		704		1,959
FFG, LTC and other disposed businesses	4,129,233		47,132		973,614		103,652		4,153,741		46,585		881,514		97,524
Medical	68,353		742		1,465		2,321		87,563		7,254		1,959		7,886
All other	36,970		404		12,855		10,836		36,383		382		13,863		9,803
Short Duration Contracts:
Group term life	—		2,431		166,920		30,857		—		2,905		169,006		28,786
Group disability	—		1,984		1,092,841		100,155		—		1,564		1,127,068		107,961
Medical	—		25,401		235,516		253,295		—		130,185		137,370		240,830
Dental	—		4,244		1,587		16,454		—		4,013		2,251		17,037
Property and warranty	—		2,223,589		182,095		507,310		—		2,386,719		130,517		546,979
Credit life and disability	—		181,466		25,966		35,718		—		241,092		34,581		43,298
Extended service contracts	—		3,669,859		7,258		33,928		—		3,568,352		6,780		42,054
All other	—		131,389		18,961		57,270		—		135,046		5,375		18,776
Total	$	9,466,694	$	6,423,720	$	2,735,855	$	1,160,864	$	9,483,672	$	6,529,675	$	2,527,956	$	1,170,650

The following table provides a rollforward of the Company’s product lines with the most significant claims and benefits payable balances: group term life, group disability, medical and property and warranty lines of business. Claims and benefits payable is comprised of case and IBNR reserves.



	Group Term Life			Group Disability			Short Duration Medical (2)			Long Duration Medical (2)			Property and Warranty
Balance as of December 31, 2012, gross of reinsurance (3)	$	203,757		$	1,309,087		$	247,758		$	16,847		$	1,167,058
Less: Reinsurance ceded and other (1)	(2,817		)	(38,166		)	(16,447		)	(736		)	(715,058		)
Balance as of January 1, 2013, net of reinsurance	200,940			1,270,921			231,311			16,111			452,000
Incurred losses related to:
Current year	121,708			284,005			1,097,313			110,933			1,140,500
Prior year’s interest	7,773			56,705			—			—			—
Prior year (s)	(14,300		)	(29,975		)	(42,063		)	(3,971		)	(23,801		)
Total incurred losses	115,181			310,735			1,055,250			106,962			1,116,699
Paid losses related to:
Current year	75,119			70,236			894,533			98,183			802,130
Prior year (s)	43,694			278,559			184,824			11,869			310,660
Total paid losses	118,813			348,795			1,079,357			110,052			1,112,790
Balance as of December 31, 2013, net of reinsurance (3)	197,308			1,232,861			207,204			13,021			455,909
Plus: Reinsurance ceded and other (1)	2,463			38,990			14,978			618			183,315
Balance as of December 31, 2013, gross of reinsurance (3)	$	199,771		$	1,271,851		$	222,182		$	13,639		$	639,224
Less: Reinsurance ceded and other (1) (4)	(2,463		)	(38,990		)	(14,978		)	(618		)	(229,038		)
Balance as of January 1, 2014, net of reinsurance	197,308			1,232,861			207,204			13,021			410,186
Incurred losses related to:
Current year	124,228			285,095			1,782,891			128,093			1,401,187
Prior year’s interest	7,548			53,657			—			—			—
Prior year(s)	(16,560		)	(36,003		)	(51,352		)	(4,044		)	(2,848		)
Total incurred losses	115,216			302,749			1,731,539			124,049			1,398,339
Paid losses related to:
Current year	77,113			80,172			1,424,448			118,842			988,075
Prior year (s)	41,028			262,023			151,298			8,829			323,795
Total paid losses	118,141			342,195			1,575,746			127,671			1,311,870
Balance as of December 31, 2014, net of reinsurance (3)	194,383			1,193,415			362,997			9,399			496,655
Plus: Reinsurance ceded and other (1)	3,409			41,614			15,203			446			180,841
Balance as of December 31, 2014, gross of reinsurance (3)	$	197,792		$	1,235,029		$	378,200		$	9,845		$	677,496
Less: Reinsurance ceded and other (1)	(3,409		)	(41,614		)	(15,203		)	(446		)	(180,841		)
Balance as of January 1, 2015, net of reinsurance	194,383			1,193,415			362,997			9,399			496,655
Incurred losses related to:
Current year	132,330			264,077			2,404,632			80,845			1,105,991
Prior year’s interest	7,317			51,798			—			—			—
Prior year (s)	(17,513		)	(18,540		)	(36,795		)	(2,483		)	(43,619		)
Total incurred losses	122,134			297,335			2,367,837			78,362			1,062,372
Paid losses related to:
Current year	82,847			76,000			2,016,726			77,427			752,752
Prior year (s)	38,643			263,412			318,327			6,709			317,589
Total paid losses	121,490			339,412			2,335,053			84,136			1,070,341
Balance as of December 31, 2015, net of reinsurance (3)	195,027			1,151,338			395,781			3,625			488,686
Plus: Reinsurance ceded and other (1)	2,750			41,658			93,030			161			200,719
Balance as of December 31, 2015, gross of reinsurance (3)	$	197,777		$	1,192,996		$	488,811		$	3,786		$	689,405

(1)

Reinsurance ceded and other includes claims and benefits payable balances that have either been (a) reinsured to third parties, (b) established for claims related expenses whose subsequent payment is not recorded as a paid claim, or (c) reserves established for obligations that would persist even if contracts were cancelled (such as extension of benefits), which cannot be analyzed appropriately under a roll-forward approach.


(2)	Short duration and long duration medical methodologies used for settling claims and benefits payable are similar.


(3)	The Company’s net retained credit life and disability claims and benefits payable were $33,852, $45,096 and $54,483 at December 31, 2015, 2014 and 2013.


(4)	Includes the reclassification of assets held for sale as described in Note 4.

Short Duration Contracts

The Company’s short duration contracts are comprised of group term life, group disability, medical, dental, property and warranty, credit life and disability, extended service contract and all other. The principal products and services included in these categories are described in the summary of significant accounting polices (see Note 2).

Case and IBNR reserves are developed using actuarial principles and assumptions that consider, among other things, contractual requirements, historical utilization trends and payment patterns, benefit changes, medical inflation, seasonality, membership, product mix, legislative and regulatory environment, economic factors, disabled life mortality and claim termination rates and other relevant factors. The Company consistently applies the principles and assumptions listed above from year to year, while also giving due consideration to the potential variability of these factors.

Since case and IBNR reserves include estimates developed from various actuarial methods, the Company’s actual losses incurred may be more or less than the Company’s previously developed estimates. As shown in the table above, if the amounts listed on the line labeled “Incurred losses related to: Prior years” are negative (redundant) this means that the Company’s actual losses incurred related to prior years for these lines were less than the estimates previously made by the Company. If the line labeled “Incurred losses related to: Prior years” are positive (deficient) this means that the Company’s actual losses incurred related to prior years for these lines were greater than the estimates previously made by the Company.

Medical reserves established for obligations that would persist even if contracts were cancelled (such as extension of benefits) have been excluded from the incurred loss roll-forwards because they cannot be analyzed appropriately under a rollforward approach. Affordable Care Act risk mitigation accruals and payments have also been excluded as they involve other receivable accounts which would be inconsistent with this reserve rollforward approach.

Group Term Life case and IBNR reserves redundancies in all years are due to actual mortality rates running below those assumed in prior year reserves, and actual recovery rates running higher than those assumed in prior year reserves.

Group Disability case and IBNR reserves show redundancies in all years due to actual claim recovery rates exceeding those assumed in prior year reserves.

The redundancies in our Medical lines case and IBNR reserves were caused by the Company’s claims and other case reserves developing more favorably than expected. The Company’s actual claims experience reflected lower medical provider utilization and lower medical inflation than assumed in the Company’s prior-year pricing and reserving processes.

The Company’s group disability products include short and long term disability coverage. Case and IBNR reserves for long-term disability claims have been discounted at 5.25% for claims incurred in 2010 and prior years, and between 4.25% and 4.75% for claims incurred after 2010. The December 31, 2015 and 2014 liabilities net of reinsurance include $1,192,996 and $1,235,029, respectively, of such reserves. The amount of discounts deducted from outstanding reserves as of December 31, 2015 and 2014 are $343,954 and $362,207, respectively.

In 2015, the Company’s Property and Warranty case and IBNR reserves reflected an increased degree of favorable development on prior accident years compared to 2014 and 2013. Unfavorable development on lender-placed products in 2014 led to a lower redundancy level than seen in prior years. In 2015, reserve redundancies returned to long-term historical norms due to improvements in non-catastrophe loss experience for lender-placed products as well as reserve strengthening taken in 2014. In 2013, adverse development of $6,500 from Super Storm Sandy lowered the reserve redundancy compared to 2012. For the longer-tail Property and Warranty coverages (e.g. asbestos, environmental, and other general liability), for all years presented, there were no material changes in estimated amounts for incurred claims in prior years.

Long Duration Contracts

The Company’s long duration contracts are primarily comprised of preneed life insurance and annuity policies, life insurance policies (no longer offered), universal life and annuities (no longer offered), FFG and LTC disposed businesses and medical policies. The principal products and services included in these categories are described in the summary of significant accounting policies. See Note 2 for further information.

The Assurant Solutions segment manages preneed insurance products through two separate divisions: the independent division and the American Memorial Life Insurance Company (“AMLIC”) division. The Company signed an agreement with Forethought Life Insurance Company on November 9, 2005 whereby the Company discontinued writing new preneed insurance policies in the U.S. via independent funeral homes. The reserve assumptions for future policy benefits and expenses for pre-funded funeral life and annuity contracts and traditional life insurance (no longer offered) by the preneed business differ by division and are established based upon the following:

Preneed Business – Independent Division

Interest and discount rates for preneed life insurance issued prior to 2009 vary by year of issuance and product, are based on pricing assumptions and modified to allow for provisions for adverse deviation. For preneed life insurance with discretionary death benefit growth issued after 2008, interest and discount rates are based upon current assumptions without provisions for adverse deviation. During 2015 and 2014, interest and discount rates ranged between 3.3% and 7.3%.

Interest and discount rates for traditional life insurance (no longer offered) vary by year of issuance and products and were 7.5% grading to 5.3% over 20 years in 2015 and 2014 with the exception of a block of pre-1980 business which had a level 8.8% discount rate in 2015 and 2014.

Mortality assumptions for business issued prior to 2009 are based upon pricing assumptions and modified to allow for provisions for adverse deviation. For business issued after 2008, mortality assumptions are based upon pricing assumptions without provisions for adverse deviation. Surrender rates vary by product and are based upon pricing assumptions.

Future assumed policy benefit increases on preneed life insurance issued prior to 2009 ranged from 1.0% to 7.0% in 2015 and 2014. Some policies have future policy benefit increases, which are guaranteed or tied to equal some measure of inflation. The inflation assumption for most of these inflation-linked benefits was 3.0% in both 2015 and 2014 with the exception of most policies issued in 2005 through 2007 where the assumption was 2.3%. Future policy benefit increases for business issued in 2015 are based on current assumptions.

The reserves for annuities issued by the independent division are based on assumed interest rates credited on deferred annuities, which vary by year of issue, and ranged from 1.0% to 5.5% in 2015 and 2014. Withdrawal charges, if any, generally range from 7.0% to 0.0% and grade to zero over a period of seven years for business issued in the U.S. Canadian annuity products have a surrender charge that varies by product series and premium paying period.

PreNeed Business – AMLIC Division

Interest and discount rates for preneed life insurance issued or acquired after September 2000 and prior to 2009 vary by year of issuance and are based on pricing assumptions and modified to allow for provisions for adverse deviation. For preneed life insurance with discretionary death benefit growth issued after 2008, interest and discount rates are based on current assumptions without provisions for adverse deviation. Discount rates for 2015 and 2014 issues ranged from 1.5% to 4.3%. Preneed insurance issued prior to October 2000 and all traditional life insurance issued by the AMLIC division use discount rates, which vary by issue year and product, ranging from 0.0% to 7.5% in 2015 and 2014.

Mortality assumptions for preneed life insurance issued or acquired after September 2000 and prior to 2009 are based upon pricing assumptions, which approximate actual experience, and modified to allow for provisions for adverse deviation. For preneed life insurance with discretionary death benefit growth issued after 2008, mortality assumptions are based upon pricing assumptions, which approximate actual experience, without provisions for adverse deviation. Surrender rates for preneed life insurance issued or acquired in October 2000 and beyond vary by product and are based upon pricing assumptions. Mortality assumptions for all preneed life insurance and traditional life insurance acquired by the AMLIC division prior to October 2000 are based on statutory valuation requirements, which approximate GAAP, with no explicit provision for lapses.

Future policy benefit increases for preneed life insurance products are based upon pricing assumptions. First-year guaranteed benefit increases were 0.0% in 2015 and 2014. Renewal guaranteed benefit increases ranged from 0.0% to 3.0% in 2015 and 2014. For contracts with minimum benefit increases associated with an inflation index, assumed benefit increases equaled the discount rate less 3.0% in 2015 and 2014.

The reserves for annuities issued by the AMLIC division are based on assumed interest rates credited on deferred annuities and ranged from 1.0% to 6.5% in 2015 and 2014. Withdrawal charges ranged from 0.0% to 8.0% grading to zero over eight years for United States products. Canadian annuity products have a flat 35% surrender charge. Nearly all the deferred annuities contracts have a 3.0% guaranteed interest rate.

Universal Life and Annuities – No Longer Offered

The reserves for universal life and annuity products (no longer offered) in the Assurant Solutions segment have been established based on the following assumptions: Interest rates credited on annuities, which vary by product and time when funds were received, ranged from 3.5% to 4.0% with guaranteed credited rates that ranged from 3.5% to 4.0% in 2015 and 2014, except for a limited number of policies with credited rates of 4.5% with guaranteed credited rate of 4.5%. Annuities are also subject to surrender charges, which vary by contract year and grade to zero over a period no longer than seven years. Surrender values on annuities will never be less than the amount of paid-in premiums (net of prior withdrawals) regardless of the surrender charge. Credited interest rates on universal life funds vary by product and time when funds were received and ranged from 4.0% to 4.1% in 2015 and 2014. Guaranteed crediting rates where present were 4.0%. Additionally, universal life funds are subject to surrender charges that vary by product, age, sex, year of issue, risk class, face amount and grade to zero over a period not longer than 20 years.

FFG and LTC

Reserves for previously disposed FFG and LTC businesses are included in the Company’s reserves in accordance with the insurance guidance. The Company maintains an offsetting reinsurance recoverable related to these reserves. See Note 14 for further information.