Future Policy Benefits Reserves

9 Months Ended

Sep. 30, 2024

Future policy benefits reserves are associated with the Company's run-off long-term care business, included in the Life & Group segment, and relate to policyholders that are currently receiving benefits, including claims that have been incurred but are not yet reported, as well as policyholders that are not yet receiving benefits. Future policy benefits reserves are comprised of the liability for future policyholder benefits (LFPB) which is reflected as Insurance reserves: Future policy benefits on the Condensed Consolidated Balance Sheet.

The determination of Future policy benefits reserves requires management to make estimates and assumptions about expected policyholder experience over the remaining life of the policy. Since policies may be in force for several decades, these assumptions are subject to significant estimation risk. As a result of this variability, the Company’s future policy benefits reserves may be subject to material increases if actual experience develops adversely to the Company’s expectations.

Annually in the third quarter, actuarial analysis is performed on policyholder morbidity, persistency, premium rate increases and expense experience. This analysis, combined with judgment, informs the setting of updated cash flow assumptions used to estimate the LFPB. Actuarial analysis includes predictive modeling, actual to expected experience comparisons and trend analysis. Applicable industry research is also considered.

The cash flow assumption updates for the third quarter of 2024 resulted in a $15 million pretax increase in the LFPB. Included in the assumption updates was a favorable impact from outperformance on premium rate assumptions and unfavorable impact from higher cost of care inflation.

The cash flow assumption updates for the third quarter 2023 resulted in an $8 million pretax increase to the LFPB. Persistency updates were unfavorable due to revisions to lapse rates. Morbidity updates were favorable driven by claim severity assumption updates, and there was a favorable impact from outperformance on premium rate assumptions.

See Note A to the Consolidated Financial Statements within CNAF's Annual Report on Form 10-K for the year ended December 31, 2023 for further information on the long-term care reserving process.

The following table summarizes balances and changes in the LFPB.


	(In millions)		2024				2023
	Present value of future net premiums
	Balance, January 1		$	3,710			$	3,993
Effect of changes in discount rate	(125)				(74)
Balance, January 1, at original locked in discount rate	3,585				3,919
Effect of changes in cash flow assumptions (1)	111				28
Effect of actual variances from expected experience (1)	(40)				(112)
Adjusted balance, January 1	3,656				3,835
Interest accrual	139				153
Net premiums: earned during period	(317)				(332)
Balance, end of period at original locked in discount rate	3,478				3,656
Effect of changes in discount rate	147				(67)
Balance, September 30	$	3,625			$	3,589

	Present value of future benefits & expenses
	Balance, January 1		$	17,669			$	17,472
Effect of changes in discount rate	(578)				(125)
Balance, January 1, at original locked in discount rate	17,091				17,347
Effect of changes in cash flow assumptions (1)	126				36
Effect of actual variances from expected experience (1)	33				(45)
Adjusted balance, January 1	17,250				17,338
Interest accrual	693				723
Benefit & expense payments	(883)				(945)
Balance, end of period at original locked in discount rate	17,060				17,116
Effect of changes in discount rate	612				(873)
Balance, September 30	$	17,672			$	16,243




	Net LFPB		$	14,047			$	12,654

(1) As of September 30, 2024 and 2023 the re-measurement gain (loss) of $(88) million and $(75) million presented parenthetically on the Condensed Consolidated Statement of Operations is comprised of the effect of changes in cash flow assumptions and the effect of actual variances from expected experience.

The following table presents earned premiums and interest expense associated with the Company’s long-term care business recognized on the Condensed Consolidated Statement of Operations.


Periods ended September 30	Three Months			Nine Months
(In millions)		2024		2023		2024		2023
Earned premiums		$	110	$	112	$	329	$	340
Interest expense		185		191		554		570

The following table presents undiscounted expected future benefit and expense payments, and undiscounted expected future gross premiums.


	As of September 30
(In millions)	2024		2023
Expected future benefit and expense payments	$	32,009	$	33,217
Expected future gross premiums	5,305		5,557

Discounted expected future gross premiums at the upper-medium grade fixed income instrument yield discount rate were $3,792 million and $3,711 million as of September 30, 2024 and 2023.

The weighted average effective duration of the LFPB calculated using the original locked in discount rate was 11 years and 12 years as of September 30, 2024 and 2023.

The weighted average interest rates in the table below are calculated based on the rate used to discount all future cash flows.


	As of September 30		As of December 31
	2024		2023		2023
Original locked in discount rate	5.20	%	5.24	%	5.22	%
Upper-medium grade fixed income instrument discount rate	4.90		5.78		4.94

For the three and nine months ended September 30, 2024, immediate charges to net income resulting from adverse development that caused the Net Premium Ratio (NPR) to exceed 100% for certain cohorts were $84 million and $128 million. For the three and nine months ended September 30, 2023, immediate charges to net income resulting from adverse development that caused the NPR to exceed 100% were $109 million and $152 million.

For the three and nine months ended September 30, 2024, the portion of losses recognized in a prior period due to NPR exceeding 100% for certain cohorts which, due to favorable development, was reversed through net income was $20 million and $28 million. For the three and nine months ended September 30, 2023, the portion of losses recognized in a prior period due to NPR exceeding 100% which, due to favorable development, was reversed through net income was $26 million and $37 million.