XML 40 R18.htm IDEA: XBRL DOCUMENT

Insurance and Contractholder Liabilities

12 Months Ended

Dec. 31, 2020

Insurance and Contractholder Liabilities

A.Account Balances – Insurance and Contractholder Liabilities

As of December 31, 2020 and December 31, 2019, the Company’s insurance and contractholder liabilities were comprised of the following:


	December 31, 2020						December 31, 2019
(In millions)	Current		Non-current		Total		Current		Non-current		Total
Contractholder deposit funds	$	350	$	6,823	$	7,173	$	600	$	7,139	$	7,739
Future policy benefits	327		9,317		9,644		553		9,281		9,834
Unearned premiums	485		394		879		453		360		813
Unpaid claims and claim expenses
U.S. Medical	3,166		18		3,184		2,875		17		2,892
Other segments	980		292		1,272		2,529		3,474		6,003
Total							7,010		20,271		27,281
Insurance and contractholder liabilities classified as liabilities of business held for sale (1)							(2,089)		(4,219)		(6,308)
Total insurance and contractholder liabilities	$	5,308	$	16,844	$	22,152	$	4,921	$	16,052	$	20,973

(1)Amounts classified as Liabilities of business held for sale primarily include $4.9 billion of unpaid claims, $717 million of contractholder deposit funds and $653 million of future policy benefits as of December 31, 2019.

Insurance and contractholder liabilities expected to be paid within one year are classified as current.

Accounting Policy - Contractholder Deposit Funds. Liabilities for contractholder deposit funds primarily include deposits received from customers for investment-related and universal life products and investment earnings on their fund balances. These liabilities are adjusted to reflect administrative charges and, for universal life fund balances, mortality charges. In addition, this caption includes: 1) premium stabilization reserves under group health insurance contracts representing experience refunds left with the Company to pay future premiums; 2) deposit administration funds used to fund non-pension retiree insurance programs; 3) retained asset accounts and 4) annuities or supplementary contracts without significant life contingencies. Interest credited on these funds is accrued ratably over the contract period.

Accounting Policy - Future Policy Benefits. Future policy benefits represent the present value of estimated future obligations under long-term life and supplemental health insurance policies and annuity products currently in force. These obligations are estimated using actuarial methods and consist primarily of reserves for annuity contracts, life insurance benefits, GMDB contracts (GMDB contracts are fully reinsured, see Note 10 for additional information) and certain health, life and accident insurance products of our International Markets segment.

Obligations for annuities represent specified periodic benefits to be paid to an individual or groups of individuals over their remaining lives. Obligations for life insurance policies and GMDB contracts represent benefits expected to be paid to policyholders, net of future premiums expected to be received. Management estimates these obligations based on assumptions as to premiums, interest rates, mortality or morbidity, future claim adjudication expenses and surrenders, allowing for adverse deviation as appropriate. Mortality, morbidity and surrender assumptions are based on the Company’s own experience and published actuarial tables. Interest rate assumptions are based on management’s judgment considering the Company’s experience and future expectations, and range from 1% to 9%. Obligations for the direct and assumed run-off settlement annuity business include adjustments for realized and unrealized investment returns consistent with GAAP when a premium deficiency exists. As of December 31, 2020, approximately 20% of the liability for future policy benefits was supported by assets held in trust for the benefit of the ceding company under reinsurance agreements.

Accounting Policy - Unearned Premium. The unrecognized portion of premiums received is recorded as unearned premiums included in insurance and contractholder liabilities.

B.Unpaid Claims and Claim Expenses – U.S. Medical

This liability reflects estimates of the ultimate cost of claims that have been incurred but not reported, including expected development on reported claims, those that have been reported but not yet paid (reported claims in process) and other medical care expenses and services payable that are primarily comprised of accruals for incentives and other amounts payable to health care professionals and facilities.

Accounting policy. The Company uses actuarial principles and assumptions that are consistently applied each reporting period and recognizes the actuarial best estimate of the ultimate liability along with a margin for adverse deviation. This approach is consistent with actuarial standards of practice that the liabilities be adequate under moderately adverse conditions.

The Company compares key assumptions used to establish the medical costs payable to actual experience for each reporting period. The unpaid claims liability is adjusted through current period shareholders’ net income when actual experience differs from these assumptions. Additionally, the Company evaluates expected future developments and emerging trends that may impact key assumptions. The process used to determine this liability requires the Company to make critical accounting estimates that involve considerable judgment, reflecting the variability inherent in forecasting future claim payments. These estimates are highly sensitive to changes in the Company’s key assumptions, specifically completion factors and medical cost trend.

The liability is primarily calculated using “completion factors” developed by comparing the claim incurral date to the date claims were paid. Completion factors are impacted by several key items including changes in: 1) electronic (auto-adjudication) versus manual claim processing; 2) frequency and timeliness of provider claims submissions; 3) membership and 4) the mix of products. The Company uses historical completion factors combined with an analysis of current trends and operational factors to develop current estimates of completion factors. The Company estimates the liability for claims incurred in each month by applying the current estimates of completion factors to the current paid claims data. This approach implicitly assumes that historical completion rates will be a useful indicator for the current period.

The Company relies more heavily on medical cost trend analysis that reflects expected claim payment patterns and other relevant operational considerations for more recent months. Medical cost trend is primarily impacted by medical service utilization and unit costs that are affected by changes in the level and mix of health benefits offered, including inpatient, outpatient and pharmacy, the impact of copays and deductibles, changes in provider practices and changes in consumer demographics and consumption behavior.

The total of incurred but not reported liabilities plus expected development on reported claims, including reported claims in process, was $2.9 billion at December 31, 2020 and $2.7 billion at December 31, 2019.

Activity, net of intercompany transactions, in the unpaid claims liability for the U.S. Medical segment for the years ended December 31 was as follows:



(In millions)	2020		2019		2018
Beginning balance	$	2,892	$	2,697	$	2,420
Less: Reinsurance and other amounts recoverable	303		264		262
Beginning balance, net	2,589		2,433		2,158
Acquired, net	—		—		40
Incurred costs related to:
Current year	25,889		24,368		21,331
Prior years	(115)		(165)		(173)
Total incurred	25,774		24,203		21,158
Paid costs related to:
Current year	23,005		21,851		18,978
Prior years	2,398		2,196		1,945
Total paid	25,403		24,047		20,923
Ending balance, net	2,960		2,589		2,433
Add: Reinsurance and other amounts recoverable	224		303		264
Ending balance	$	3,184	$	2,892	$	2,697

Reinsurance and other amounts recoverable reflect amounts due from reinsurers and policyholders to cover incurred but not reported and pending claims of certain business for which the Company administers the plan benefits without any right of offset. See Note 10 for additional information on reinsurance.

Variances in incurred costs related to prior years’ unpaid claims and claim expenses that resulted from the differences between actual experience and the Company’s key assumptions for the years ended December 31 were as follows:


	Year Ended
(Dollars in millions)	December 31, 2020				December 31, 2019
	$		%(1)		$		%(2)
Actual completion factors	$	42	0.2	%	$	90	0.4	%
Medical cost trend	73		0.3		75		0.4

Total favorable variance	$	115	0.5	%	$	165	0.8	%

(1)Percentage of current year incurred costs as reported for the year ended December 31, 2019.

(2)Percentage of current year incurred costs as reported for the year ended December 31, 2018.

The following table depicts the incurred and paid claims development as of December 31, 2020 (net of reinsurance), claims frequency metrics and incurred but not reported liabilities reported in the U.S. Medical segment. The information about incurred and paid claims development for the year ended December 31, 2019 is presented as supplementary information and is unaudited.


	Incurred Costs
Incurral Year	2019 (Unaudited)		2020		Unpaid Claims & Claim Expenses	Claims Frequency
(In millions)
2019	$	23,306	$	23,211	60	3.5	million
2020			24,927		2,764	3.7	million
Cumulative incurred costs for the periods presented			$	48,138

	Cumulative Costs Paid
Incurral Year	2019 (Unaudited)		2020
2019	$	20,920	$	23,151
2020			22,163
Cumulative paid costs for the periods presented			$	45,314

Outstanding liabilities for the periods presented, net of reinsurance			$	2,824
Other long-duration liabilities not included in development table above			136
Net unpaid claims and claims expenses - U.S. Medical			2,960
Reinsurance and other amounts recoverable			224
Unpaid claims and claim expenses - U.S. Medical			$	3,184

More than 95% of health claims incurred in a calendar year are paid within one year of their incurred date.

There is no single or common claim frequency metric used in the health care industry. The Company believes a relevant metric for its health insurance business is the number of customers for whom an insured medical claim was paid. Customers for whom no insured medical claim was paid are excluded from the calculation. Claims that did not result in a liability are not included in the frequency metric.

Unpaid Claims and Claim Expenses – Group Disability and Other and International MarketsAccounting policy. Liabilities for unpaid claims and claim expenses are established by book of business within Group Disability and Other and International Markets. Unpaid claims and claim expenses within the Group Disability and Other and International Markets segments consist of (1) case or claims reserves for reported claims that are unpaid as of the balance sheet date; (2) incurred but not reported reserves for claims when the insured event has occurred but has not been reported to the Company and (3) loss adjustment expense reserves for the expected costs of settling these claims. The Company consistently estimates incurred but not yet reported losses using actuarial principles and assumptions based on historical and projected claim incidence patterns, claim size and the expected payment period. The Company recognizes the actuarial best estimate of the ultimate liability within a level of confidence, consistent with actuarial standards of practice that the liabilities be adequate under moderately adverse conditions. The Company immediately records an adjustment in Medical costs and other benefit expenses when estimates of these liabilities change.

See Note 5 for a discussion of the divestiture of the Group Disability and Life business on December 31, 2020. For the year ended December 31, 2019, liabilities for unpaid claims and claim expenses within the Group Disability and Life business reflect the following primary products: long-term and short-term disability, life insurance and accident coverages and the majority of the Company’s liability for disability claims consisted of “disabled life reserves”, measured as the present value of estimated future benefit payments, including expected development, for each reported claim that is currently receiving benefit payments over the expected disability period or pending a decision on eligibility for benefits. The Company projected the expected disability period by using historical resolution rates combined with an analysis of current trends and operational factors to develop current estimates of resolution rates. Expected claim resolution rates may vary based upon the Company’s experience for the anticipated disability period, the covered benefit period, the cause of disability, the benefit design and the claimant’s age, gender and income level. The gross monthly benefit is reduced (offset) by disability income received under other benefit programs, most commonly Social Security Disability Income, workers’ compensation, statutory disability or other group benefit plans. The Company estimated the probability and amount of future offset awards and lapses based on the Company’s experience for certain offsets not yet finalized.

The Company also establishes a liability for the expected present value of future benefit payments for known claims that have recently been resolved but may reopen in the future, based on Company experience. Prior to a claim becoming known, the Company establishes a liability for incurred but not reported claims using standard actuarial techniques and calculations based on completion factors and loss ratio assumptions using the Company’s experience combined with an analysis of current trends and operational factors. Completion factors are impacted by several key items including changes in claim inventory levels, claim payment patterns, changes in business volume and other factors. Loss ratio assumptions are developed using historical Company experience, adjusted prospectively for expected changes in the underlying business including rate actions, persistency and inforce growth.

Liability balance details. The liability details for unpaid claims and claim expenses for the years ended December 31 are as follows:


(In millions)	2020		2019 (1)
Group Disability and Other
Group Disability and Life	$	150	$	4,972
Other Operations	159		187
Total Group Disability and Other	309		5,159
International Markets	963		844
Unpaid claims and claim expenses Group Disability and Other and International Markets	$	1,272	$	6,003

(1)Includes unpaid claim amounts classified as Liabilities of business held for sale, see Note 5.

Group Disability and Life balances as of December 31, 2020 include reserves associated with retained business and amounts reinsured to New York Life as part of the sale of the Group Disability and Life business.

The Company discounts certain liabilities, predominantly long-term disability liabilities, because benefits payments are made over extended periods. Discount rate assumptions for these liabilities are based on projected investment returns for the supporting asset portfolios.

Details of the Company’s Group Disability and Life unpaid claim discounted liability balance as of December 31, 2019 were as follows:


(In billions)	2019 (1)
Discounted liabilities		$	4.5
Aggregate amount of discount		$	1.2
Range of discount rates				4.0	%	—	5.2	%

(1)Includes unpaid claims amounts classified as Liabilities held for sale.

Activity in the Company’s liabilities for unpaid claims and claim expenses, excluding Other Operations, are presented in the following table. Liabilities associated with Other Operations are excluded because they pertain to obligations for long-duration insurance contracts or, if short-duration, the liabilities have been fully reinsured.



(In millions)	2020		2019 (1)		2018
Beginning balance	$	5,816	$	5,432	$	5,274
Less: Reinsurance	184		156		140
Beginning balance, net	5,632		5,276		5,134
Incurred claims related to:
Current year	5,810		5,616		5,350
Prior years:
Interest accretion	154		152		156
All other incurred	19		(40)		(147)
Total incurred	5,983		5,728		5,359
Paid claims related to:
Current year	3,595		3,488		3,391
Prior years	2,015		1,873		1,808
Total paid	5,610		5,361		5,199
Acquisitions	—		—		23
Foreign currency	42		(11)		(41)
Divestiture of Group Disability and Life business	(5,093)		—		—
Ending balance, net	954		5,632		5,276
Add: Reinsurance	159		184		156
Ending balance	$	1,113	$	5,816	$	5,432

(1)Includes unpaid claims amounts classified as Liabilities of business held for sale.

Reinsurance in the table above reflects amounts due from reinsurers related to unpaid claims liabilities. The Company’s insurance subsidiaries enter into agreements with other companies primarily to limit losses from large exposures and to permit recovery of a portion of incurred losses. See Note 10 for additional information on reinsurance.

Following the sale of the Company's Group Disability and Life business (see Note 5 for further information), the majority of the liability for unpaid claims and claim expenses relates to products sold in the International Markets segment. Prior to the sale, the majority of the liability for unpaid claims and claim expenses related to disability claims with long-tailed payouts. The rollforward above reflects activity inclusive of these reserves, which were sold on December 31, 2020. Interest earned on assets backing these liabilities is an integral part of pricing and reserving. Therefore, interest accreted on prior year balances is shown as a separate component of prior year incurred claims and reported in Medical costs and other benefit expenses in the Consolidated Statements of Income. This interest is calculated by applying the average discount rate used in determining the liability balance to the average liability balance over the period. The remaining prior year incurred claims amount primarily reflects updates to the Company’s liability estimates and variances between actual experience during the period relative to the assumptions and expectations reflected in determining the liability. Assumptions reflect the Company’s expectations over the life of the book of business and will vary from actual experience in any period, both favorably and unfavorably, with variation in resolution rates being the most significant driver for the long-term disability business. Favorable prior year incurred claims for the year ended December 31, 2019 primarily reflected favorable long-term disability resolution rate experience relative to expectations reflected in the prior year reserve and favorable reserve development for life, accident and voluntary driven by lower than expected incidence. Development for the year ended December 31, 2020 was immaterial.