INVESTMENT CONTRACTS, INSURANCE LIABILITIES AND INSURANCE ANNUITY BENEFITS

Insurance and investment contract liabilities comprise mainly obligations to policyholders and annuitants in our run-off insurance activities.



(In millions)	September 30, 2017			December 31, 2016

Future policy benefit reserves(a)
Life insurance and other contracts	$	10,125		$	10,053
Long-term care insurance contracts	9,031			8,688
	19,156			18,741
Investment contracts	2,606			2,813
Claim reserves(b)	4,927			4,606
Unearned premiums and other	416			386
	27,105			26,546
Eliminations	(508		)	(460		)
Total	$	26,597		$	26,086


(a)	Future policy benefit reserves are accounted for mainly by a net-level premium method using estimated yields generally ranging from 3.0% to 8.5% in both 2017 and 2016.


(b)	Includes $3,431 million and $3,129 million related to long term-care insurance contracts at September 30, 2017 and December 31, 2016, respectively.

Future policy benefit reserves represent the present value of such benefits less the present value of future net premiums and are based on actuarial assumptions established at the time the policies were issued or acquired. These assumptions include, but are not limited to interest rates, health care experience (including type and cost of care), mortality, and the length of time a policy will remain in force. Our annual premium deficiency testing assesses the adequacy of future policy benefit reserves, net of capitalized acquisition costs using current assumptions. Should the net liability for future policy benefits plus the present value of expected future premiums be insufficient to provide for the present value of expected future policy benefits and expenses, we would be required to reduce remaining capitalized acquisition costs and, to the extent a shortfall still exists, increase our existing future policy benefit reserves. We have recently experienced elevated claim experience for a portion of our long-term care insurance contracts and are conducting a comprehensive review of premium deficiency assumptions across all insurance contracts, including a reassessment of future claim projections for long-term care contracts that will be incorporated within our annual test of future policy benefit reserves for premium deficiencies in the fourth quarter of 2017. We would record a charge to earnings for any premium deficiencies in the fourth quarter of 2017 upon completion of this review.

Claim reserves are established when a claim is incurred or is estimated to have been incurred and represents our best estimate of the ultimate obligations for future claim payments and claim adjustment expenses. Key inputs include actual known facts about the claims, such as the benefits available and cause of disability of the claimant, as well as assumptions derived from our actual historical experience and expected future changes in experience factors. Claim reserves are evaluated periodically for potential changes in loss

estimates with the support of qualified actuaries and any changes are recorded in the period in which they are determined.

When insurance affiliates cede insurance risk to third parties, such as reinsurers, they are not relieved of their primary obligation to policyholders. When losses on ceded risks give rise to claims for recovery, we establish allowances for probable losses on such receivables from reinsurers as required. Reinsurance recoverables are included in the caption “Other receivables” on our Consolidated Statement of Financial Position, and amounted to $2,182 million and $2,038 million at September 30, 2017 and December 31, 2016, respectively.

We recognize reinsurance recoveries as a reduction of the Consolidated Statement of Earnings caption “Investment contracts, insurance losses and insurance annuity benefits.” Reinsurance recoveries were $104 million and $339 million for the three and nine months ended September 30, 2017, respectively, and $78 million and $225 million for the three and nine months ended September 30, 2016, respectively.

See Note 1 to the consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2016 for further information.