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, 2019 and 2018.

					Amount of Insurance In Force, Net
	2019		2018		2019			2018
Future policy benefits
Life insurance policies:
Ordinary life and annuities	$	55,403	$	55,965	$	212,774		$	219,955
Group life		93		37		33,508	⁽¹⁾		93
		55,496		56,002	$	246,282		$	220,048
Accident and health insurance policies		36,994		34,255
		92,490		90,257
Unearned premiums		26,035		24,206
Losses, claims and loss adjustment expenses		81,448		72,612
Other policy liabilities		1,933		1,973
Total insurance reserves and policyholder funds	$	201,906	$	189,048

⁽¹⁾

The group life in force amounts increased significantly during 2019. However, the impact on future policy benefits is not significant.

Annualized premiums for accident and health insurance policies were $112,734 and $116,404 at December 31, 2019 and 2018, 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 2019 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:

	2019			2018
Balance at January 1	$	72,612		$	65,689
Less: Reinsurance recoverable on unpaid losses		(14,354	)		(11,968	)
Net balance at January 1		58,258			53,721

Incurred related to:
Current year		137,305			128,242
Prior years		(80	)⁽¹⁾		308	⁽²⁾
Total incurred		137,225			128,550

Paid related to:
Current year		95,489			90,981
Prior years		36,885			33,032
Total paid		132,374			124,013
Net balance at December 31		63,109			58,258
Plus: Reinsurance recoverable on unpaid losses		18,339			14,354
Balance at December 31	$	81,448		$	72,612

(1)

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, somewhat offset by unfavorable development on prior years loss and claim reserves for the Medicare Supplement line of business in Bankers Fidelity.

(2)

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.

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

	2019		2018
Total incurred losses	$	137,225	$	128,550
Cash surrender value and matured endowments		1,362		1,316
Benefit reserve changes		638		2,784
Total insurance benefits and losses incurred	$	139,225	$	132,650

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, 2019, 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, 2019
	Incurred Losses, Claims and Allocated Loss Adjustment Expenses, Net of Reinsurance																				IBNR Reserves		Cumulative Number of Reported Claims
Accident Year	2010		2011		2012		2013		2014		2015		2016		2017		2018		2019		IBNR Reserves		Cumulative Number of Reported Claims

2010	$	34,849	$	34,328	$	34,323	$	34,303	$	34,282	$	34,272	$	34,268	$	34,265	$	34,264	$	$34,264	$	-		625,699
2011				38,188		38,296		38,360		38,327		38,316		38,302		38,299		38,297		38,297		-		664,057
2012						50,021		50,996		51,021		50,998		50,989		50,987		50,985		50,984		-		867,052
2013								56,974		56,970		57,034		57,023		57,021		57,016		57,015		-		957,369
2014										57,179		56,938		56,981		56,981		56,976		56,977		-		939,482
2015												55,482		54,939		54,993		54,990		54,984		-		898,387
2016														58,849		59,851		63,226		63,225		-		1,036,885
2017																67,960		69,655		69,643		-		1,512,117
2018																		79,140		80,404		182		2,049,554
2019																				88,765		16,432		1,976,968
																			$	594,558

	Cumulative Paid Losses, Claims and Allocated Loss Adjustment Expenses, Net of Reinsurance
Accident Year	2010		2011		2012		2013		2014		2015		2016		2017		2018		2019

2010	$	29,127	$	34,328	$	34,323	$	34,303	$	34,282	$	34,272	$	34,268	$	34,265	$	34,264	$	34,264
2011				31,720		38,296		38,360		38,327		38,316		38,302		38,299		38,297		38,297
2012						42,267		50,996		51,021		50,998		50,989		50,987		50,985		50,984
2013								47,770		56,970		57,034		57,023		57,021		57,016		57,015
2014										48,024		56,938		56,981		56,981		56,976		56,977
2015												45,430		54,876		54,993		54,990		54,984
2016														49,165		59,747		63,226		63,225
2017																57,696		69,517		69,643
2018																		66,565		80,222
2019																				72,333
																			$	577,944
Liabilities for losses, claims and loss adjustment expenses, net of reinsurance																			$	16,614

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, 2019
	Incurred Losses, Claims and Allocated Loss Adjustment Expenses, Net of Reinsurance																				IBNR Reserves		Cumulative Number of Reported Claims
Accident Year	2010		2011		2012		2013		2014		2015		2016		2017		2018		2019		IBNR Reserves		Cumulative Number of Reported Claims

2010	$	10,752	$	10,818	$	10,547	$	9,937	$	10,068	$	10,185	$	10,202	$	10,201	$	10,209	$	10,215	$	-		1,947
2011				12,263		13,802		13,235		13,289		13,281		13,495		13,385		13,330		13,329		-		2,132
2012						12,980		15,007		14,108		13,707		13,313		13,343		13,357		13,373		-		2,343
2013								18,664		20,702		21,096		21,823		21,352		21,020		20,972		-		3,267
2014										20,812		21,881		22,041		22,353		21,682		22,080		57		3,543
2015												18,521		19,857		20,017		20,007		20,086		88		3,528
2016														20,549		21,275		21,846		22,388		1,106		3,846
2017																22,179		24,212		23,766		1,413		3,777
2018																		24,284		25,682		3,991		3,524
2019																				25,241		8,649		3,205
																			$	197,132

	Cumulative Paid Losses, Claims and Allocated Loss Adjustment Expenses, Net of Reinsurance
Accident Year	2010		2011		2012		2013		2014		2015		2016		2017		2018		2019

2010	$	3,211	$	6,274	$	8,291	$	9,382	$	9,725	$	10,056	$	10,090	$	10,206	$	10,210	$	10,215
2011				4,205		7,934		9,858		12,071		13,039		13,106		13,199		13,330		13,329
2012						4,627		8,791		11,507		12,932		13,197		13,211		13,288		13,373
2013								5,144		12,193		16,782		19,407		20,382		20,982		20,972
2014										6,822		13,807		17,554		20,177		20,878		21,735
2015												6,226		11,878		14,938		17,612		19,557
2016														6,796		13,141		16,397		19,613
2017																7,401		16,317		20,221
2018																		6,989		15,647
2019																				7,305
																			$	161,967
Liabilities for losses, claims and loss adjustment expenses, net of reinsurance																			$	35,165

Automobile Physical Damage
	For the Years Ended December 31,										As of December 31, 2019
	Incurred Losses, Claims and Allocated Loss Adjustment Expenses, Net of Reinsurance										IBNR Reserves		Cumulative Number of Reported Claims
Accident Year	2015		2016		2017		2018		2019		IBNR Reserves		Cumulative Number of Reported Claims

2015	$	8,287	$	7,955	$	7,887	$	7,896	$	$7,884	$	-		1,588
2016				6,877		6,386		6,352		6,289		-		1,269
2017						6,257		5,933		5,857		-		1,321
2018								7,805		7,530		1		1,449
2019										8,526		202		1,355
									$	36,086

	Cumulative Paid Losses, Claims and Allocated Loss Adjustment Expenses, Net of Reinsurance
Accident Year	2015		2016		2017		2018		2019

2015	$	$6,745	$	7,937	$	7,885	$	7,895	$	$7,884
2016				5,804		6,353		6,349		6,289
2017						5,215		5,914		5,856
2018								6,344		7,510
2019										6,360
									$	33,899
All outstanding liabilities before 2015, net of reinsurance										-
Liabilities for losses, claims and loss adjustment expenses, net of reinsurance									$	2,187

General Liability
	For the Years Ended December 31,																				As of December 31, 2019
	Incurred Losses, Claims and Allocated Loss Adjustment Expenses, Net of Reinsurance																				IBNR Reserves		Cumulative Number of Reported Claims
Accident Year	2010		2011		2012		2013		2014		2015		2016		2017		2018		2019		IBNR Reserves		Cumulative Number of Reported Claims

2010	$	4,114	$	2,699	$	2,269	$	2,337	$	2,258	$	2,400	$	2,423	$	2,473	$	2,480	$	2,490	$	0		289
2011				3,022		1,723		1,452		1,338		1,174		1,242		1,327		1,335		1,400		18		208
2012						4,055		1,305		1,269		1,270		1,214		1,333		1,344		1,377		25		159
2013								3,461		728		926		817		865		820		945		33		195
2014										3,744		501		557		476		406		497		1		193
2015												4,421		1,037		1,227		1,044		867		1		146
2016														3,119		1,148		736		608		0		85
2017																1,490		488		513		70		77
2018																		1,656		333		127		73
2019																				1,916		1,598		61
																			$	10,946

	Cumulative Paid Losses, Claims and Allocated Loss Adjustment Expenses, Net of Reinsurance
Accident Year	2010		2011		2012		2013		2014		2015		2016		2017		2018		2019

2010	$	284	$	678	$	1,374	$	1,542	$	2,037	$	2,368	$	2,382	$	2,457	$	2,463	$	2,490
2011				295		412		582		835		1,161		1,169		1,278		1,285		1,325
2012						371		707		847		1,034		1,113		1,219		1,260		1,269
2013								104		339		579		811		791		803		805
2014										171		299		331		369		373		493
2015												98		259		464		664		863
2016														116		203		568		608
2017																75		136		365
2018																		65		90
2019																				41
																			$	8,349
All outstanding liabilities before 2010, net of reinsurance																				441
Liabilities for losses, claims and loss adjustment expenses, net of reinsurance																			$	3,038

Surety
	For the Years Ended December 31,																				As of December 31, 2019
	Incurred Losses, Claims and Allocated Loss Adjustment Expenses, Net of Reinsurance																				IBNR Reserves		Cumulative Number of Reported Claims
Accident Year	2010		2011		2012		2013		2014		2015		2016		2017		2018		2019		IBNR Reserves		Cumulative Number of Reported Claims

2010	$	3,995	$	4,624	$	3,618	$	3,396	$	3,607	$	3,549	$	3,563	$	3,534	$	3,530	$	3,525	$	-		95
2011				4,422		4,786		5,080		5,092		4,966		5,031		5,112		5,111		5,112		-		126
2012						4,979		4,767		5,396		5,345		4,869		4,880		4,892		4,925		2		89
2013								3,060		2,007		2,743		2,947		2,866		2,809		2,765		-		58
2014										3,214		3,130		2,990		2,760		2,685		2,617		5		54
2015												1,902		1,630		1,400		1,359		1,406		47		50
2016														3,314		1,812		1,865		1,876		-		46
2017																4,677		3,671		3,799		79		58
2018																		3,528		1,938		236		62
2019																				2,130		1,699		29
																			$	30,093

	Cumulative Paid Losses, Claims and Allocated Loss Adjustment Expenses, Net of Reinsurance
Accident Year	2010		2011		2012		2013		2014		2015		2016		2017		2018		2019

2010	$	928	$	2,193	$	2,780	$	2,943	$	3,252	$	3,545	$	3,560	$	3,534	$	3,530	$	3,525
2011				1,031		3,207		4,622		4,748		4,939		5,022		5,109		5,111		5,112
2012						2,257		4,581		4,856		5,331		4,869		4,880		4,878		4,916
2013								323		1,010		1,369		2,763		2,789		2,749		2,765
2014										1,331		2,327		2,727		2,739		2,664		2,593
2015												641		856		1,127		1,125		1,128
2016														1,054		1,732		1,772		1,873
2017																1,971		3,255		3,523
2018																		1,157		1,454
2019																				259
																			$	27,148
All outstanding liabilities before 2010, net of reinsurance																				-
Liabilities for losses, claims and loss adjustment expenses, net of reinsurance																			$	2,945

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, 2019.

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	83.0	%	16.8	%	0.1	%	0.0	%	0.0	%	0.0	%	0.0	%	0.0	%	0.0	%	0.0	%
Automobile Liability	30.2	%	31.3	%	17.4	%	12.9	%	5.0	%	2.1	%	0.4	%	0.9	%	0.0	%	0.0	%
Automobile Physical Damage	85.1	%	12.8	%	-0.6	%	-0.4	%	-0.1	%	0.0	%	0.0	%	0.0	%	0.0	%	0.0	%
General Liability	17.1	%	16.8	%	26.3	%	14.3	%	11.8	%	9.4	%	2.9	%	1.4	%	1.5	%	1.1	%
Surety	38.0	%	32.1	%	13.3	%	10.4	%	0.2	%	1.2	%	0.7	%	0.0	%	0.0	%	-0.1	%

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, 2019
Net outstanding liabilities:
Medicare Supplement	$	16,614
Automobile Liability		35,165
Automobile Physical Damage		2,187
General Liability		3,038
Surety		2,945
Other short-duration insurance lines		1,043
Liabilities for unpaid losses, claims and loss adjustment expenses, net of reinsurance		60,992

Reinsurance recoverable on unpaid losses:
Medicare Supplement		10,620
Automobile Liability		5,566
Automobile Physical Damage		143
General Liability		2,010
Total reinsurance recoverable on unpaid losses		18,339

Unallocated claims adjustment expenses		2,117

Total gross liability for unpaid losses, claims and loss adjustment expenses	$	81,448