Note 10. Policy Benefits and Claims

12 Months Ended

Dec. 31, 2016

Notes

Note 10. Policy Benefits and Claims

Note 10.          Policy Benefits and Claims

Policy benefits and claims is the liability for unpaid loss and loss adjustment expenses. It is comprised of unpaid claims and estimated IBNR reserves. Summarized below are the changes in the total liability for policy benefits and claims for the periods indicated (in thousands).

		2016		2015		2014
Balance at beginning of year	$	245,443	$	236,803	$	237,754
Less: reinsurance recoverable		65,362		78,531		72,772
Net balance at beginning of year		180,081		158,272		164,982
Amount assumed		-		10,343		-
Amount incurred, related to:
Current year		155,044		294,390		303,973
Prior years		(5,496)		(8,488)		(4,552)
Total incurred		149,548		285,902		299,421
Amount paid, related to:
Current year		78,159		169,488		192,001
Prior years		121,210		104,948		114,130
Total paid		199,369		274,436		306,131
Net balance at end of year		130,260		180,081		158,272
Plus:  reinsurance recoverable		88,853		65,362		78,531
Balance at end of year	$	219,113	$	245,443	$	236,803

Since unpaid loss and loss adjustment expenses are estimates, actual losses incurred may be more or less than the Company’s previously developed estimates and is referred to as either unfavorable or favorable development, respectively. The overall net favorable development of $5,496,000 in 2016 related to prior years consists of favorable developments of $1,392,000 in the Specialty Health reserves, $2,728,000 in the group disability reserves and $1,728,000 in the other individual life, annuities and other reserves, partially offset by an unfavorable development of $352,000 in Medical Stop-Loss reserves.  The overall net favorable development of $8,488,000 in 2015 related to prior years consists of favorable developments of $7,977,000 in the Specialty Health reserves and $4,464,000 in the group disability reserves, partially offset by an unfavorable development of $3,628,000 in Medical Stop-Loss reserves and $325,000 in other individual accident and health reserves. The overall net favorable development of $4,552,000 in 2014 related to prior years consists of favorable developments of $3,830,000 in the group disability reserves, $448,000 in other individual accident and health reserves and $378,000 in the Specialty Health reserves partially offset by an unfavorable development of $104,000 in Medical Stop-Loss reserves.

Specialty Health Segment

The following tables provide undiscounted information about net incurred and paid claims development by accident year for significant short-duration contract liabilities for policy benefits and claims in our Specialty Health segment.  All amounts are shown net of reinsurance. In addition, the tables present the total IBNR plus expected development on reported claims by accident year  and the cumulative number of reported claims (in thousands, except number of reported claims). Refer to Note 1 for information on the methods we use to estimate IBNR plus expected development, as well as changes to those methodologies and assumptions. Five years of claims development data is presented for lines that are included  in our Specialty Health segment since a majority of the claims are fully developed in that time. Certain information about incurred and paid claims is presented as supplementary information and unaudited where indicated.

Specialty Health Segment –Claims Development
									December 31, 2016
		Incurred Claims and Claim Adjustment Expenses, Net of Reinsurance							Incurred But	Cumulative
		For the years ended December 31,							Not Reported	Number of
Accident		2012	2013	2014	2015				Plus Expected	Reported
Year		(unaudited)	(unaudited)	(unaudited)	(unaudited)		2016		Development	Claims
										(Actual)
2012	$	96,634	97,949	98,250	98,379	$	98,376	$	58	337,650
2013			180,649	181,454	180,595		181,114		594	447,761
2014				146,060	140,139		141,869		2,707	397,097
2015					104,497		100,988		6,231	434,050
2016							85,426		39,972	226,608
Total						$	607,773

Specialty Health Segment –Claims Development
	Cumulative Paid Claims and Claim Adjustment Expenses, Net of Reinsurance
	For the years ended December 31,
Accident			2012	2013	2014	2015
Year			(unaudited)	(unaudited)	(unaudited)	(unaudited)		2016
2012		$	70,746	97,138	98,008	98,180	$	98,318
2013				131,801	179,023	179,750		180,520
2014					103,064	134,557		139,162
2015						70,090		94,757
2016								45,454
Total							$	558,211
Outstanding policy benefits and claims payable before 2012, net of reinsurance								-
Total policy benefits and claims, net of reinsurance							$	49,562

The claim frequency information consists of the count of claims submitted. Each claim was counted as one claim whether or not multiple claim lines were submitted with that claim, and each claim was counted whether or not it resulted in a liability.  For those portions of business that did not have claim records readily available, a reasonable count assumption was made based on a comparison to the known records of a similar business type. Cumulative claim count information is not a precise tool for calculating claim severity. Factors, such as changes in provider billing practices, the mix of services, benefit designs or processing systems could impact this type of analysis. The Company does not necessarily use the cumulative number of reported claims disclosed above in its claims analysis but has provided this information to comply with new accounting standards.

The following is required supplementary information about the average historical policy claims duration for the Specialty Health segment as of December 31, 2016:

Average Annual Percentage Payout of Incurred Claims by Age, Net of Reinsurance (unaudited)
	Year 1	Year 2	Year 3	Year 4	Year 5
Specialty Health Segment	68.0%	24.9%	1.5%	0.3%	0.1%

The liability for policy benefits and claims associated with the Company’s health insurance lines are embedded within the Specialty Health segment. The table below summarizes the components of the change in the liability for policy benefits and claims that are specific to the health insurance claims that are included in our Specialty Health segment for the periods indicated (in thousands).

		Specialty Health Segment
		Health Insurance Claims
		2016		2015		2014
				(unaudited)		(unaudited)
Balance at beginning of year	$	23,425	$	35,620	$	48,687
Less: reinsurance recoverable		1,362		3,584		4,856
Net balance at beginning of year		22,063		32,036		43,831
Amount incurred, related to:
Current year		44,243		63,122		107,460
Prior years		(4,702)		(8,410)		(600)
Total incurred		39,541		54,712		106,860
Amount paid, related to:
Current year		19,371		42,419		76,678
Prior years		16,229		22,266		41,977
Total paid		35,600		64,685		118,655
Net balance at end of year		26,004		22,063		32,036
Plus:  reinsurance recoverable		1,179		1,362		3,584
Balance at end of year	$	27,183	$	23,425	$	35,620

The liability for the IBNR plus expected development on reported claims associated with the Company’s health insurance claims was $26,004,000 at December 31, 2016.

Group Disability; Life and DBL Segment

The following tables provide undiscounted information about net incurred and paid claims development by accident year for significant short-duration contract liabilities for policy benefits and claims related to our DBL and group disability policy claims (in thousands).  All amounts are shown net of reinsurance. Refer to Note 1 for information on the methods we use to estimate IBNR plus expected development, as well as changes to those methodologies.

One year of claims development data is presented for our DBL claim liabilities since claims are developed in less than six months. The liability for IBNR plus expected development related to our DBL business was $6,243,000 at December 31, 2016. The cumulative number of reported claims was approximately 11,000 at December 31, 2016 and consists of the number of claims either paid or accrued.

Group disability; life and DBL Segment – DBL Claims Development
Incurred Claims and Claim Adjustment Expenses, Net of Reinsurance
For the year ended December 31,
Accident
Year			2016
2016	Total	$	19,812

Group disability; life and DBL Segment – DBL Claims Development
Cumulative Paid Claims and Claim Adjustment Expenses, Net of Reinsurance
For the year ended December 31,
Accident
Year			2016
2016	Total	$	13,569
	Total policy benefits and claims, net of reinsurance	$	6,243

Seven years of undiscounted claims development data is presented for our group disability contract liabilities (in thousands) and we will add one year going forward for each subsequent year until we reach ten years of disclosure. In addition, total IBNR plus expected development on reported claims by accident year is presented with the cumulative number of reported claims (in thousands, except number of reported claims). Certain information about incurred and paid claims is presented as supplementary information and unaudited where indicated.

Group disability; life and DBL Segment – Group Disability Claims Development
											December 31, 2016
		Incurred Claims and Claim Adjustment Expenses, Net of Reinsurance									Incurred But	Cumulative
		For the years ended December 31,									Not Reported	Number of
Accident		2010	2011	2012	2013	2014	2015				Plus Expected	Reported
Year		(unaudited)	(unaudited)	(unaudited)	(unaudited)	(unaudited)	(unaudited)		2016		Development	Claims
												(Actual)
2010	$	12,329	11,218	7,142	5,222	5,049	4,220	$	7,925	$	46	2,311
2011			18,669	17,301	16,569	15,699	16,179		17,157		137	2,337
2012				15,510	13,999	12,522	12,535		12,965		201	2,263
2013					33,143	31,323	30,546		32,888		249	2,628
2014						16,469	13,678		15,228		434	2,776
2015							25,621		19,929		3,032	3,211
2016									28,907		7,273	2,664
Total								$	134,999

Group disability; life and DBL Segment – Group Disability Claims Development
		Cumulative Paid Claims and Claim Adjustment Expenses, Net of Reinsurance
		For the years ended December 31,
Accident		2010	2011	2012	2013	2014	2015
Year		(unaudited)	(unaudited)	(unaudited)	(unaudited)	(unaudited)	(unaudited)		2016
2010	$	3,288	8,456	10,135	10,700	11,135	11,678	$	12,219
2011			3,463	8,544	10,025	10,613	11,186		11,847
2012				3,222	7,294	8,367	8,949		9,377
2013					5,645	13,032	17,077		20,246
2014						3,818	8,823		10,355
2015							7,111		14,715
2016									8,790
Total								$	87,549
Outstanding policy benefits and claims payable before 2010, net of reinsurance									24,219
Total policy benefits and claims, net of reinsurance								$	71,669

The incurred claims and claim adjustment expenses, net, for the 2013 accident year include the acquisition of $15,384,000 of disability policy benefits and claims liabilities from a Receivership.

Claim frequency information consists of the count of unique claims where a benefit has been paid, whether that benefit was paid for one month or multiple months.  Any claims where a benefit has not been paid are not in the count. Cumulative claim count information is not a precise tool for calculating claim severity. Changes in reinsurance and other factors, such as those described in Note 1, could impact this type of analysis with regards to our group disability business. The Company does not necessarily use the cumulative number of reported claims disclosed above in its claims analysis but has provided this information to comply with new accounting standards.

Unpaid claim liabilities related to our group disability policies is presented at present value. The following is additional information on unpaid claims liabilities presented at present value (in thousands):

		Carrying Value of				Aggregate Amount
		Unpaid Claim Liabilities				of Discount
		December 31,				December 31
		2016		2015		2016		2015
				(unaudited)				(unaudited)
Group disability	$	60,194	$	47,604	$	11,475	$	13,277

            Discount rates for each of the years ended December 31, 2016 and 2015 ranged from 3% to 6%. Insurance benefits, claims and reserves on the Consolidated Statements of Income for the years ended December 31, 2016, 2015 and 2014, include the accretion of interest amounting to $1,571,000, $1,451,000 and $1,556,000, respectively.

The following is required supplementary information about the average historical claims duration for our group disability business as of December 31, 2016:

Average Annual Percentage Payout of Incurred Claims by Age, Net of Reinsurance (unaudited)
	Year 1	Year 2	Year 3	Year 4	Year 5	Year 6	Year 7
Group disability	20.2%	23.5%	7.9%	4.2%	2.5%	3.1%	3.4%

            The following table reconciles the above disclosures of undiscounted net incurred and paid claims development for significant short-duration contract liabilities to the liability for policy benefits and claims on the consolidated balance sheet (in thousands).

		December 31, 2016
Net outstanding balances:
Specialty Health Segment	$	49,562
DBL		6,243
Group disability		71,669
Other short-duration insurance lines		13,417
Policy benefits and claims, net of reinsurance		140,891
Reinsurance recoverable on unpaid claims:
Specialty Health Segment		1,358
DBL		932
Group disability		27,414
Other short-duration insurance lines		52,971
Reinsurance recoverable on unpaid claims		82,675
Insurance lines other than short-duration		7,022
Aggregate discount		(11,475)
Total policy benefit and claims	$	219,113