Note 5. 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, 2018 and 2017.

					Amount of Insurance In Force, Net
	2018		2017		2018		2017
Future policy benefits
Life insurance policies:
Ordinary	$	54,599	$	54,752	$	218,371	$	238,534
Mass market		1,364		1,693		1,677		2,070
Individual annuities		39		50		-		-
		56,002		56,495	$	220,048	$	240,604
Accident and health insurance policies		34,255		25,940
		90,257		82,435
Unearned premiums		24,206		23,449
Losses, claims and loss adjustment expenses		72,612		65,689
Other policy liabilities		1,973		2,010
Total insurance reserves and policyholder funds	$	189,048	$	173,583

Annualized premiums for accident and health insurance policies were $116,404 and $105,422 at December 31, 2018 and 2017, 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 2018 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 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:

	2018			2017
Balance at January 1	$	65,689		$	62,562
Less: Reinsurance recoverable on unpaid losses		(11,968	)		(10,796	)
Net balance at January 1		53,721			51,766

Incurred related to:
Current year		128,242			114,099
Prior years		308	⁽¹⁾		(1,765	)⁽²⁾
Total incurred		128,550			112,334

Paid related to:
Current year		90,981			82,092
Prior years		33,032			28,287
Total paid		124,013			110,379
Net balance at December 31		58,258			53,721
Plus: Reinsurance recoverable on unpaid losses		14,354			11,968
Balance at December 31	$	72,612		$	65,689

(1)

Prior years’ development was primarily the result of unfavorable development in the loss and claim reserves for the Medicare supplement line of business in Bankers Fidelity, somewhat offset by better than expected development on prior years loss and claim reserves for certain lines of business in American Southern.

(2)

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:

	2018		2017
Total incurred losses	$	128,550	$	112,334
Cash surrender value and matured endowments		1,316		1,442
Benefit reserve changes		2,784		3,739
Total insurance benefits and losses incurred	$	132,650	$	117,515

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, 2018, 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 presented for the years ended December 31, 2015 and prior is presented as supplementary information and is unaudited.

Medicare Supplement
	For the Years Ended December 31,																				As of December 31, 2018
	Incurred Losses, Claims and Allocated Loss Adjustment Expenses, Net of Reinsurance																				IBNR Reserves		Cumulative Number of Reported Claims
Accident Year	2009		2010		2011		2012		2013		2014		2015		2016		2017		2018		IBNR Reserves		Cumulative Number of Reported Claims

2009	$	31,124	$	30,455	$	30,481	$	30,447	$	30,438	$	30,432	$	30,431	$	30,430	$	30,430	$	30,430	$	-		560,430
2010				34,849		34,328		34,323		34,303		34,282		34,272		34,268		34,265		34,264		-		625,698
2011						38,188		38,296		38,360		38,327		38,316		38,302		38,299		38,297		-		664,056
2012								50,021		50,996		51,021		50,998		50,989		50,987		50,985		-		867,050
2013										56,974		56,970		57,034		57,023		57,021		57,016		-		957,362
2014												57,179		56,938		56,981		56,981		56,976		-		939,472
2015														55,482		54,939		54,993		54,990		-		898,370
2016																58,849		59,851		63,226		-		1,036,748
2017																		67,960		69,655		130		1,510,485
2018																				79,140		11,584		1,781,051
																			$	534,979

	Cumulative Paid Losses, Claims and Allocated Loss Adjustment Expenses, Net of Reinsurance
Accident Year	2009		2010		2011		2012		2013		2014		2015		2016		2017		2018

2009	$	29,866	$	30,455	$	30,481	$	30,447	$	30,438	$	30,432	$	30,431	$	30,430	$	30,430	$	30,430
2010				29,127		34,328		34,323		34,303		34,282		34,272		34,268		34,265		34,264
2011						31,720		38,296		38,360		38,327		38,316		38,302		38,299		38,297
2012								42,267		50,996		51,021		50,998		50,989		50,987		50,985
2013										47,770		56,970		57,034		57,023		57,021		57,016
2014												48,024		56,938		56,981		56,981		56,976
2015														45,430		54,876		54,993		54,990
2016																49,165		59,747		63,226
2017																		57,696		69,517
2018																				66,565
																			$	522,266
Liabilities for losses, claims and loss adjustment expenses, net of reinsurance																			$	12,713

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,																				As of December 31, 2018
	Incurred Losses, Claims and Allocated Loss Adjustment Expenses, Net of Reinsurance																				IBNR Reserves		Cumulative Number of Reported Claims
Accident Year	2009		2010		2011		2012		2013		2014		2015		2016		2017		2018		IBNR Reserves		Cumulative Number of Reported Claims

2009	$	10,817	$	8,891	$	8,659	$	8,558	$	8,245	$	8,123	$	8,155	$	8,154	$	8,153	$	8,153	$	-		1,755
2010				10,752		10,818		10,547		9,937		10,068		10,185		10,202		10,201		10,209		-		1,947
2011						12,263		13,802		13,235		13,289		13,281		13,495		13,385		13,330		-		2,132
2012								12,980		15,007		14,108		13,707		13,313		13,343		13,357		12		2,343
2013										18,664		20,702		21,096		21,823		21,352		21,020		7		3,265
2014												20,812		21,881		22,041		22,353		21,682		134		3,541
2015														18,521		19,857		20,017		20,007		898		3,521
2016																20,549		21,275		21,846		2,043		3,822
2017																		22,179		24,212		2,961		3,719
2018																				24,284		7,466		3,205
																			$	178,100

	Cumulative Paid Losses, Claims and Allocated Loss Adjustment Expenses, Net of Reinsurance
Accident Year	2009		2010		2011		2012		2013		2014		2015		2016		2017		2018

2009	$	3,250	$	5,208	$	6,353	$	7,502	$	7,995	$	8,123	$	8,155	$	8,154	$	8,153	$	8,153
2010				3,211		6,274		8,291		9,382		9,725		10,056		10,090		10,206		10,210
2011						4,205		7,934		9,858		12,071		13,039		13,106		13,199		13,330
2012								4,627		8,791		11,507		12,932		13,197		13,211		13,288
2013										5,144		12,193		16,782		19,407		20,382		20,982
2014												6,822		13,807		17,554		20,177		20,878
2015														6,226		11,878		14,938		17,612
2016																6,796		13,141		16,397
2017																		7,401		16,317
2018																				6,989
																			$	144,156
Liabilities for losses, claims and loss adjustment expenses, net of reinsurance																			$	33,944

Automobile Physical Damage
	For the Years Ended December 31,															As of December 31, 2018
	Incurred Losses, Claims and Allocated Loss Adjustment Expenses, Net of Reinsurance															IBNR Reserves			Cumulative Number of Reported Claims
Accident Year	2014			2015			2016			2017			2018			IBNR Reserves			Cumulative Number of Reported Claims

2014		$	8,079		$	7,657		$	7,583		$	7,562		$	7,561		$	-		1,635
2015						8,287			7,955			7,887			7,896			-		1,588
2016									6,877			6,386			6,352			1		1,267
2017												6,257			5,933			2		1,316
2018															7,805			145		1,343
														$	35,547

	Cumulative Paid Losses, Claims and Allocated Loss Adjustment Expenses, Net of Reinsurance
Accident Year	2014		2015		2016		2017		2018

2014	$	6,437	$	7,619	$	7,570	$	7,562	$	7,561
2015				6,745		7,937		7,885		7,895
2016						5,804		6,353		6,349
2017								5,215		5,914
2018										6,344
									$	34,063
All outstanding liabilities before 2014, net of reinsurance										-
Liabilities for losses, claims and loss adjustment expenses, net of reinsurance									$	1,484

General Liability
	For the Years Ended December 31,																				As of December 31, 2018
	Incurred Losses, Claims and Allocated Loss Adjustment Expenses, Net of Reinsurance																				IBNR Reserves		Cumulative Number of Reported Claims
Accident Year	2009		2010		2011		2012		2013		2014		2015		2016		2017		2018		IBNR Reserves		Cumulative Number of Reported Claims

2009	$	3,392	$	2,215	$	1,944	$	1,730	$	1,702	$	1,727	$	1,828	$	1,832	$	1,888	$	1,921	$	0		290
2010				4,114		2,699		2,269		2,337		2,258		2,400		2,423		2,473		2,480		4		289
2011						3,022		1,723		1,452		1,338		1,174		1,242		1,327		1,335		12		204
2012								4,055		1,305		1,269		1,270		1,214		1,333		1,344		19		158
2013										3,461		728		926		817		865		820		4		187
2014												3,744		501		557		476		406		8		192
2015														4,421		1,037		1,227		1,044		143		144
2016																3,119		1,148		736		80		84
2017																		1,490		488		184		72
2018																				1,656		1,519		42
																			$	12,230

	Cumulative Paid Losses, Claims and Allocated Loss Adjustment Expenses, Net of Reinsurance
Accident Year	2009		2010		2011		2012		2013		2014		2015		2016		2017		2018

2009	$	476	$	941	$	1,082	$	1,410	$	1,629	$	1,662	$	1,796	$	1,816	$	1,855	$	1,921
2010				284		678		1,374		1,542		2,037		2,368		2,382		2,457		2,463
2011						295		412		582		835		1,161		1,169		1,278		1,285
2012								371		707		847		1,034		1,113		1,219		1,260
2013										104		339		579		811		791		803
2014												171		299		331		369		373
2015														98		259		464		664
2016																116		203		568
2017																		75		136
2018																				65
																			$	9,538
All outstanding liabilities before 2009, net of reinsurance																				402
Liabilities for losses, claims and loss adjustment expenses, net of reinsurance																			$	3,094

Surety
	For the Years Ended December 31,																				As of December 31, 2018
	Incurred Losses, Claims and Allocated Loss Adjustment Expenses, Net of Reinsurance																				IBNR Reserves		Cumulative Number of Reported Claims
Accident Year	2009		2010		2011		2012		2013		2014		2015		2016		2017		2018		IBNR Reserves		Cumulative Number of Reported Claims

2009	$	4,920	$	5,025	$	4,239	$	3,951	$	3,616	$	4,636	$	4,916	$	4,664	$	4,667	$	4,590	$	-		84
2010				3,995		4,624		3,618		3,396		3,607		3,549		3,563		3,534		3,530		-		95
2011						4,422		4,786		5,080		5,092		4,966		5,031		5,112		5,111		-		126
2012								4,979		4,767		5,396		5,345		4,869		4,880		4,892		2		89
2013										3,060		2,007		2,743		2,947		2,866		2,809		10		58
2014												3,214		3,130		2,990		2,760		2,685		4		53
2015														1,902		1,630		1,400		1,359		39		49
2016																3,314		1,812		1,865		27		46
2017																		4,677		3,671		203		57
2018																				3,528		1,872		59
																			$	34,040

	Cumulative Paid Losses, Claims and Allocated Loss Adjustment Expenses, Net of Reinsurance
Accident Year	2009		2010		2011		2012		2013		2014		2015		2016		2017		2018

2009	$	103	$	1,595	$	2,640	$	3,205	$	3,410	$	3,760	$	3,757	$	4,663	$	4,666	$	4,590
2010				928		2,193		2,780		2,943		3,252		3,545		3,560		3,534		3,530
2011						1,031		3,207		4,622		4,748		4,939		5,022		5,109		5,111
2012								2,257		4,581		4,856		5,331		4,869		4,880		4,878
2013										323		1,010		1,369		2,763		2,789		2,749
2014												1,331		2,327		2,727		2,739		2,664
2015														641		856		1,127		1,125
2016																1,054		1,732		1,772
2017																		1,971		3,255
2018																				1,157
																			$	30,831
All outstanding liabilities before 2009, net of reinsurance																				3
Liabilities for losses, claims and loss adjustment expenses, net of reinsurance																			$	3,212

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, 2018.

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		83.5	%		16.5	%		0.1	%		0.0	%		0.0	%		0.0	%		0.0	%		0.0	%		0.0	%		0.0	%
Automobile Liability		31.5	%		30.3	%		17.2	%		12.9	%		4.4	%		1.7	%		0.5	%		0.7	%		0.0	%		0.0	%
Automobile Physical Damage		86.2	%		12.8	%		-0.5	%		0.0	%		0.0	%		0.0	%		0.0	%		0.0	%		0.0	%		0.0	%
General Liability		18.5	%		19.3	%		20.6	%		16.2	%		10.0	%		5.0	%		4.7	%		1.5	%		1.1	%		3.4	%
Surety		34.6	%		34.1	%		15.3	%		11.3	%		0.9	%		3.3	%		0.5	%		6.3	%		0.0	%		-1.7	%

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, 2018
Net outstanding liabilities:
Medicare Supplement	$	12,713
Automobile Liability		33,944
Automobile Physical Damage		1,484
General Liability		3,094
Surety		3,212
Other short-duration insurance lines		2,118
Liabilities for unpaid losses, claims and loss adjustment expenses, net of reinsurance		56,565

Reinsurance recoverable on unpaid losses:
Medicare Supplement		7,926
Automobile Liability		4,777
Automobile Physical Damage		156
General Liability		1,495
Total reinsurance recoverable on unpaid losses		14,354

Unallocated claims adjustment expenses		1,693

Total gross liability for unpaid losses, claims and loss adjustment expenses	$	72,612