Future Policy Benefits Reserves

12 Months Ended

Dec. 31, 2023

Future Policy Benefits Reserves

Future policy benefits reserves are associated with CNA’s run-off long-term care business, which is included in Other Insurance Operations, 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.

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, CNA’s future policy benefits reserves may be subject to material increases if actual experience develops adversely to its expectations.

The LFPB is computed using the net level premium method, which incorporates cash flow assumptions and discount rate assumptions. As a result of the modified retrospective adoption of ASU 2018-12, the NPR calculation incorporates the original locked in discount rate and the reserve balance as of the transition date of January 1, 2021.

The key cash flow assumptions used to estimate the LFPB are morbidity, persistency (inclusive of mortality), anticipated future premium rate increases and expenses. The carried LFPB discount rate is determined using the upper-medium grade fixed income instrument yield curve.

CNA has elected to update the NPR and the LFPB for actual experience on a quarterly basis. A quarterly assessment is also made as to whether evidence suggests that cash flow assumptions should be updated. Annually in the third quarter, actuarial analysis is performed on policyholder morbidity, persistency, premium rate increases and expense experience, which, combined with judgment, informs the setting of updated cash flow assumptions used to estimate the LFPB.

The cash flow assumption updates completed in the third quarter of 2023 resulted in an $8 million pretax increase in 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.

Adjusted to reflect the application of ASU 2018-12, the cash flow assumption updates completed in the third quarter of 2022 resulted in a $186 million pretax increase to the LFPB, primarily driven by the unfavorable impact of increased cost of care inflation offset by favorable premium rate assumptions.

The following table summarizes balances and changes in the LFPB.


	2023		2022		2021
(In millions)

Present value of future net premiums
Balance, January 1	$	3,991	$	4,735	$	5,086
Effect of changes in discount rate	(74)		(880)		(1,140)
Balance, January 1, at original locked in discount rate	3,917		3,855		3,946
Effect of changes in cash flow assumptions (a)	28		352		173
Effect of actual variances from expected experience (a)	(126)		(49)		(24)
Adjusted balance, January 1	3,819		4,158		4,095
Interest accrual	202		216		219
Net premiums: earned during period	(436)		(457)		(459)
Balance, end of period at original locked in discount rate	3,585		3,917		3,855
Effect of changes in discount rate	125		74		880
Balance, December 31	$	3,710	$	3,991	$	4,735

Present value of future benefits & expenses
Balance, January 1	$	17,471	$	22,745	$	23,955
Effect of changes in discount rate	(125)		(5,942)		(7,395)
Balance, January 1, at original locked in discount rate	17,346		16,803		16,560
Effect of changes in cash flow assumptions (a)	36		538		176
Effect of actual variances from expected experience (a)	(46)		(21)		(19)
Adjusted balance, January 1	17,336		17,320		16,717
Interest accrual	962		979		973
Benefit & expense payments	(1,207)		(953)		(887)
Balance, end of period at original locked in discount rate	17,091		17,346		16,803
Effect of changes in discount rate	578		125		5,942
Balance, December 31	$	17,669	$	17,471	$	22,745


Net LFPB, December 31	$	13,959	$	13,480	$	18,010


(a)			As of December 31, 2023, 2022 and 2021 the re-measurement loss of $(88), $(214) and $(8) presented parenthetically on the 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 long-term care business recognized on the Consolidated Statement of Operations.


Year Ended December 31	2023		2022		2021

(In millions)

Earned premiums	$	451	$	473	$	491
Interest expense	760		763		754

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


	December 31,
	2023		2022
(In millions)

Expected future benefit and expense payments	$	32,851	$	34,261
Expected future gross premiums	5,414		5,910

Discounted expected future gross premiums at the upper-medium grade fixed income instrument yield discount rate were $3.8 billion and $4.1 billion as of December 31, 2023 and 2022.

The weighted average effective duration of the LFPB calculated using the original locked in discount rate was 11 years and 12 years as of December 31, 2023 and 2022.

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


	December 31,
	2023		2022


Original locked in discount rate	5.22	%	5.27	%
Upper-medium grade fixed income instrument discount rate	4.94		5.23

For the years ended December 31, 2023 and 2022, immediate charges to net income resulting from adverse development that caused the NPR to exceed 100% for certain cohorts were $164 million and $178 million. For the years ended December 31, 2023 and 2022, 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 were $42 million and $12 million.