Note 3.

Insurance Reserves and Policyholder Funds

The following table presents the Company’s reserves for life, accident and health, and property and casualty losses, claims and loss adjustment expenses at December 31, 2017 and 2016.

					Amount of Insurance In Force, Net
	2017		2016		2017		2016
Future policy benefits
Life insurance policies:
Ordinary	$	54,752	$	54,554	$	238,534	$	245,017
Mass market		1,693		2,003		2,070		2,463
Individual annuities		50		84		—		—
		56,495		56,641	$	240,604	$	247,480
Accident and health insurance policies		25,940		18,202
		82,435		74,843
Unearned premiums		23,449		23,208
Losses, claims and loss adjustment expenses		65,689		62,562
Other policy liabilities		2,010		2,066
Total insurance reserves and policyholder funds	$	173,583	$	162,679

Annualized premiums for accident and health insurance policies were $105,422 and $95,956 at December 31, 2017 and 2016, respectively.

Future Policy Benefits

Liabilities for life insurance future policy benefits are based upon assumed future investment yields, mortality rates, and withdrawal rates after giving effect to possible risks of unexpected claim experience. The assumed mortality and withdrawal rates are based upon the Company’s experience. The interest rates assumed for life, accident and health future policy benefits are generally: (i) 2.5% to 5.5% for issues prior to 1977, (ii) 7% graded to 5.5% for 1977 through 1979 issues, (iii) 9% for 1980 through 1987 issues, (iv) 5% to 7% for 1988 through 2009 issues, (v) 4% for 2010 through 2012 issues, and (vi) 3.5% to 4.0% for 2013 through 2017 issues.

Loss and Claim Reserves

Loss and claim reserves represent estimates of projected ultimate losses and are based upon: (a) management’s estimate of ultimate liability and claims adjusters’ evaluations for unpaid claims reported prior to the close of the accounting period, (b) estimates of incurred but not reported (“IBNR”) claims based on past experience, and (c) estimates of loss adjustment expenses. The estimated liability is periodically reviewed by management and updated, with changes to the estimated liability recorded in the statement of operations in the year in which such changes are known.

Activity in the liability for unpaid loss and claim reserves is summarized as follows:

	2017			2016
Balance at January 1	$	62,562		$	63,870
Less: Reinsurance recoverable on unpaid losses		(10,796	)		(11,741	)
Net balance at January 1		51,766			52,129

Incurred related to:
Current year		114,099			103,252
Prior years		(1,765	)		(3,377	)
Total incurred		112,334			99,875

Paid related to:
Current year		82,092			71,980
Prior years		28,287			28,258
Total paid		110,379			100,238
Net balance at December 31		53,721			51,766
Plus: Reinsurance recoverable on unpaid losses		11,968			10,796
Balance at December 31	$	65,689		$	62,562

Prior years’ development was primarily the result of better than expected development on prior years loss and claim reserves for certain lines of business in American Southern.

Following is a reconciliation of total incurred losses to total insurance benefits and losses incurred:

	2017		2016
Total incurred losses	$	112,334	$	99,875
Cash surrender value and matured endowments		1,442		1,278
Benefit reserve changes		3,739		2,044
Total insurance benefits and losses incurred	$	117,515	$	103,197

Liability for Unpaid Losses, Claims and Loss Adjustment Expenses

The following is information, by significant product lines, about incurred and paid claims development as of December 31, 2017, net of reinsurance, as well as the cumulative number of reported claims and the total of IBNR reserves plus expected development on reported claims included within the net incurred claims amounts.

The information about incurred and paid claims development for the years ended December 31, 2008 to 2017 is presented as supplementary information.

Medicare Supplement

	For the Years Ended December 31,
	(Unaudited)																				As of December 31, 2017
	Incurred Losses, Claims and Allocated Loss Adjustment Expenses, Net of Reinsurance																				IBNR Reserves		Cumulative Number of Reported Claims
Accident Year	2008		2009		2010		2011		2012		2013		2014		2015		2016		2017		IBNR Reserves		Cumulative Number of Reported Claims
2008	$	29,344	$	28,698	$	28,721	$	28,712	$	28,688	$	28,687	$	28,683	$	28,683	$	28,682	$	28,682	$	—		533,112
2009				31,124		30,455		30,481		30,447		30,438		30,432		30,431		30,430		30,430		—		560,430
2010						34,849		34,328		34,323		34,303		34,282		34,272		34,268		34,265		—		625,695
2011								38,188		38,296		38,360		38,327		38,316		38,302		38,299		—		664,049
2012										50,021		50,996		51,021		50,998		50,989		50,987		—		867,047
2013												56,974		56,970		57,034		57,023		57,021		—		957,350
2014														57,179		56,938		56,981		56,981		—		939,444
2015																55,482		54,939		54,993		—		898,270
2016																		58,849		59,851		100		1,034,900
2017																				67,960		9,822		1,303,865
																			$	479,469

	Cumulative Paid Losses, Claims and Allocated Loss Adjustment Expenses, Net of Reinsurance
Accident Year	2008		2009		2010		2011		2012		2013		2014		2015		2016		2017
2008	$	24,055	$	28,698	$	28,721	$	28,712	$	28,688	$	28,687	$	28,683	$	28,683	$	28,682	$	28,682
2009				29,866		30,455		30,481		30,447		30,438		30,432		30,431		30,430		30,430
2010						29,127		34,328		34,323		34,303		34,282		34,272		34,268		34,265
2011								31,720		38,296		38,360		38,327		38,316		38,302		38,299
2012										42,267		50,996		51,021		50,998		50,989		50,987
2013												47,770		56,970		57,034		57,023		57,021
2014														48,024		56,938		56,981		56,981
2015																45,430		54,876		54,993
2016																		49,165		59,747
2017																				57,696
																			$	469,101
			Liabilities for losses, claims and loss adjustment expenses, net of reinsurance																$	10,368

The cumulative number of reported claims for the Medicare Supplement line of business is the number of distinct claims incurred and submitted to Medicare for payment in the given year. Multiple payments on the same claim are not counted in the frequency information. Estimated ultimate claims incurred, using claims data reported during each month of any given year, are calculated using the chain ladder method modified to use seasonality and trend-adjusted expected claims for the final two months. Additional adjustments to the estimated ultimate claims incurred are then applied to account for seasonal changes in billing and payment frequencies. The IBNR reserve is calculated as estimated ultimate claims less paid claims and claims in course of settlement. Thirty-six months of loss data are used to develop the estimated ultimate incurred claims. Similar approaches are used for other less significant health products, subject to modifications to account for unique aspects of the product.

Automobile Liability

	For the Years Ended December 31,
	(Unaudited)																				As of December 31, 2017
	Incurred Losses, Claims and Allocated Loss Adjustment Expenses, Net of Reinsurance																				IBNR Reserves		Cumulative Number of Reported Claims
Accident Year	2008		2009		2010		2011		2012		2013		2014		2015		2016		2017		IBNR Reserves		Cumulative Number of Reported Claims
2008	$	9,723	$	7,011	$	6,627	$	6,374	$	6,124	$	6,112	$	6,106	$	6,104	$	6,105	$	6,105	$	—		1,534
2009				10,817		8,891		8,659		8,558		8,245		8,123		8,155		8,154		8,153		—		1,755
2010						10,752		10,818		10,547		9,937		10,068		10,185		10,202		10,201		—		1,947
2011								12,263		13,802		13,235		13,289		13,281		13,495		13,385		30		2,132
2012										12,980		15,007		14,108		13,707		13,313		13,343		22		3,340
2013												18,664		20,702		21,096		21,823		21,352		162		3,260
2014														20,812		21,881		22,041		22,353		816		3,536
2015																18,521		19,857		20,017		1,904		3,492
2016																		20,549		21,275		3,049		3,755
2017																				22,179		7,311		3,385
																			$	158,363

	Cumulative Paid Losses, Claims and Allocated Loss Adjustment Expenses, Net of Reinsurance
Accident Year	2008		2009		2010		2011		2012		2013		2014		2015		2016		2017
2008	$	2,426	$	4,202	$	5,077	$	5,695	$	5,839	$	6,065	$	6,104	$	6,104	$	6,105	$	6,105
2009				3,250		5,208		6,353		7,502		7,995		8,123		8,155		8,154		8,153
2010						3,211		6,274		8,291		9,382		9,725		10,056		10,090		10,206
2011								4,205		7,934		9,858		12,071		13,039		13,106		13,199
2012										4,627		8,791		11,507		12,932		13,197		13,211
2013												5,144		12,193		16,782		19,407		20,382
2014														6,822		13,807		17,554		20,177
2015																6,226		11,878		14,938
2016																		6,796		13,141
2017																				7,401
																			$	126,913
			Liabilities for losses, claims and loss adjustment expenses, net of reinsurance																$	31,450

Automobile Physical Damage

	For the Years Ended December 31,
	(Unaudited)										As of December 31, 2017
	Incurred Losses, Claims and Allocated Loss Adjustment Expenses, Net of Reinsurance										IBNR Reserves		Cumulative Number of Reported Claims
Accident Year	2013		2014		2015		2016		2017		IBNR Reserves		Cumulative Number of Reported Claims
2013	$	6,039	$	5,515	$	5,536	$	5,599	$	5,599	$	—		1,598
2014				8,079		7,657		7,583		7,562		—		1,635
2015						8,287		7,955		7,887		—		1,588
2016								6,877		6,386		3		1,261
2017										6,257		105		1,238
									$	33,691

	Cumulative Paid Losses, Claims and Allocated Loss Adjustment Expenses, Net of Reinsurance
Accident Year	2013		2014		2015		2016		2017
2013	$	4,778	$	5,486	$	5,466	$	5,599	$	5,599
2014				6,437		7,619		7,570		7,562
2015						6,745		7,937		7,885
2016								5,804		6,353
2017										5,215
									$	32,614
	All outstanding liabilities before 2013, net of reinsurance									33
Liabilities for losses, claims and loss adjustment expenses, net of reinsurance									$	1,110

General Liability

	For the Years Ended December 31,
	(Unaudited)																				As of December 31, 2017
	Incurred Losses, Claims and Allocated Loss Adjustment Expenses, Net of Reinsurance																				IBNR Reserves		Cumulative Number of Reported Claims
Accident Year	2008		2009		2010		2011		2012		2013		2014		2015		2016		2017		IBNR Reserves		Cumulative Number of Reported Claims
2008	$	5,386	$	4,359	$	2,858	$	2,685	$	2,479	$	2,489	$	2,507	$	2,548	$	2,647	$	2,853	$	23		393
2009				3,392		2,215		1,944		1,730		1,702		1,727		1,828		1,832		1,888		8		290
2010						4,114		2,699		2,269		2,337		2,258		2,400		2,423		2,473		4		289
2011								3,022		1,723		1,452		1,338		1,174		1,242		1,327		11		201
2012										4,055		1,305		1,269		1,270		1,214		1,333		26		157
2013												3,461		728		926		817		865		18		187
2014														3,744		501		557		476		40		192
2015																4,421		1,037		1,227		348		143
2016																		3,119		1,148		440		81
2017																				1,490		1,241		58
																			$	15,080

	Cumulative Paid Losses, Claims and Allocated Loss Adjustment Expenses, Net of Reinsurance
Accident Year	2008		2009		2010		2011		2012		2013		2014		2015		2016		2017
2008	$	534	$	1,091	$	1,637	$	1,861	$	2,023	$	2,123	$	2,418	$	2,506	$	2,564	$	2,755
2009				476		941		1,082		1,410		1,629		1,662		1,796		1,816		1,855
2010						284		678		1,374		1,542		2,037		2,368		2,382		2,457
2011								295		412		582		835		1,161		1,169		1,278
2012										371		707		847		1,034		1,113		1,219
2013												104		339		579		811		791
2014														171		299		331		369
2015																98		259		464
2016																		116		203
2017																				75
																			$	11,466
All outstanding liabilities before 2008, net of reinsurance																				288
Liabilities for losses, claims and loss adjustment expenses, net of reinsurance																			$	3,902

Surety

	For the Years Ended December 31,
	(Unaudited)																				As of December 31, 2017
	Incurred Losses, Claims and Allocated Loss Adjustment Expenses, Net of Reinsurance																				IBNR Reserves		Cumulative Number of Reported Claims
Accident Year	2008		2009		2010		2011		2012		2013		2014		2015		2016		2017		IBNR Reserves		Cumulative Number of Reported Claims
2008	$	3,883	$	2,098	$	2,420	$	2,312	$	2,312	$	2,360	$	2,360	$	2,324	$	2,324	$	2,324	$	—		62
2009				4,920		5,025		4,239		3,951		3,616		4,636		4,916		4,664		4,667		—		83
2010						3,995		4,624		3,618		3,396		3,607		3,549		3,563		3,534		—		95
2011								4,422		4,786		5,080		5,092		4,966		5,031		5,112		—		126
2012										4,979		4,767		5,396		5,345		4,869		4,880		—		87
2013												3,060		2,007		2,743		2,947		2,866		13		57
2014														3,214		3,130		2,990		2,760		4		51
2015																1,902		1,630		1,400		78		49
2016																		3,314		1,812		39		45
2017																				4,677		2,043		52
																			$	34,032

	Cumulative Paid Losses, Claims and Allocated Loss Adjustment Expenses, Net of Reinsurance
Accident Year	2008		2009		2010		2011		2012		2013		2014		2015		2016		2017
2008	$	503	$	1,369	$	2,261	$	2,232	$	2,311	$	2,359	$	2,360	$	2,324	$	2,324	$	2,324
2009				103		1,595		2,640		3,205		3,410		3,760		3,757		4,663		4,666
2010						928		2,193		2,780		2,943		3,252		3,545		3,560		3,534
2011								1,031		3,207		4,622		4,748		4,939		5,022		5,109
2012										2,257		4,581		4,856		5,331		4,869		4,880
2013												323		1,010		1,369		2,763		2,789
2014														1,331		2,327		2,727		2,739
2015																641		856		1,127
2016																		1,054		1,732
2017																				1,971
																			$	30,871
Liabilities for losses, claims and loss adjustment expenses, net of reinsurance																			$	3,161

For the property and casualty lines of business, the number of claims presented above equals the number of occurrences by type of claim reported to the Company. The number of claims reported during a given year corresponds to the number of claims records opened during the year. Frequency information is maintained on a cumulative basis by accident year by line of business. For automobile claims, a claim count is separately maintained for bodily injury, property damage and physical damage claims. The Company has consistently monitored claim frequency on this basis, and believes this provides more meaningful information than using claimant count which can change over the course of settling a claim.

In general, when a claim is reported, claims representatives establish a “case reserve” for the estimated amount of the ultimate payment based on the known information of the claim at that time. Claims managers review and monitor all property and casualty claims in excess of $25,000. As new information becomes available or payments are made on a claim, the case reserve is adjusted to reflect the revised estimate of the ultimate amount to be paid out. Estimates and assumptions pertaining to individual claims are based on complex and subjective judgments and subject to change at any time as new information becomes available.

In addition to case reserves, IBNR reserves are established to provide for claims which have not been reported to the Company as of the reporting date as well as potential adverse development on known case reserves. IBNR reserve estimates are derived through a number of analytical techniques. Actuarial data is analyzed by line of business, coverage and accident year. Qualitative factors are also considered in determining IBNR reserves and include such factors as judicial decisions, general economic trends such as inflation, changes in policy forms, and underwriting changes. Reserves are reviewed quarterly and any indicated adjustments are made.

Because of the inherent uncertainties in establishing both case and IBNR reserves, ultimate loss experience may prove better or worse than indicated by the combined claim reserves. Adjustments to claim reserves are reflected in the period recognized and could increase or decrease earnings for the period.

The following is supplementary information about average historical claims duration as of December 31, 2017.

Average Annual Percentage Payout of Incurred Claims by Age, Net of Reinsurance (Unaudited)
Reserve Line	1st Year			2nd Year			3rd Year			4th Year			5th Year			6th Year			7th Year			8th Year			9th Year			10th Year
Medicare Supplement		83.7	%		16.4	%		0.1	%		-0.1	%		0.0	%		0.0	%		0.0	%		0.0	%		0.0	%		0.0	%
Automobile Liability		32.8	%		29.4	%		17.1	%		12.3	%		4.3	%		1.8	%		0.5	%		0.4	%		0.0	%		0.0	%
Automobile Physical Damage		86.0	%		13.0	%		-0.6	%		1.1	%		0.0	%
General Liability		17.7	%		18.8	%		16.2	%		14.3	%		10.9	%		5.4	%		6.6	%		2.4	%		2.0	%		6.7	%
Surety		32.2	%		34.2	%		19.6	%		11.0	%		2.0	%		3.9	%		0.5	%		5.7	%		0.0	%		0.0	%

The reconciliation of the net incurred and paid claims development tables to the liability for losses, claims and loss adjustment expenses is as follows:

	December 31, 2017
Net outstanding liabilities:
Medicare Supplement	$	10,368
Automobile Liability		31,450
Automobile Physical Damage		1,110
General Liability		3,902
Surety		3,161
Other short-duration insurance lines		2,004
Liabilities for unpaid losses, claims and loss adjustment expenses, net of reinsurance		51,995

Reinsurance recoverable on unpaid losses:
Medicare Supplement		4,748
Automobile Liability		5,245
Automobile Physical Damage		116
General Liability		1,859
Total reinsurance recoverable on unpaid losses		11,968

Unallocated claims adjustment expenses		1,726

Total gross liability for unpaid losses, claims and loss adjustment expenses	$	65,689