RESERVES

Short Duration Contracts

The Company's short duration contracts are mainly comprised of disposed and run-off business. The principal products and services included in these categories are described in the summary of significant accounting policies. See Note 2 to the Financial Statements for further information.

Disposed and Run-off Short Duration Insurance Lines

Disposed business includes certain medical policies no longer offered and AEB policies disposed of via reinsurance. Reserves for previously disposed business are included in the Company’s reserves in accordance with the insurance guidelines. The Company maintains an offsetting reinsurance recoverable related to the AEB reserves. See Note 8 to the Financial Statements for further information.

Long Duration Contracts

The Company's long duration contracts are primarily comprised of preneed life insurance and annuity policies, life insurance policies (no longer offered), and AEB, FFG and LTC disposed businesses. The principal products and services included in these categories are described in the summary of significant accounting policies. See Note 2 for further information.

Disposed and Run-off Long Duration Insurance Lines

The Company’s universal life and annuity products are no longer offered and are in run-off. Reserves have been established based on the following assumptions. Interest rates credited on annuities were at guaranteed rates, ranging from 3.5% to 4.0%, except for a limited number of policies with guaranteed crediting rates of 4.5%. All annuity policies are past the surrender charge period. Crediting interest rates on universal life fund are at guaranteed rates of 4.0% to 4.1%. Universal life funds are subject to surrender charges that vary by product, age, sex, year of issue, risk class, face amount and grade to zero over a period not longer than 20 years.

Reserves for previously disposed AEB, FFG and LTC businesses are included in the Company’s reserves in accordance with the insurance guidance. The Company maintains an offsetting reinsurance recoverable related to these reserves. See Note 8 for further information.

Preneed Business

The Company's preneed life insurance products are in run-off and no longer offered. Interest and discount rates for preneed life insurance vary by year of issuance and product and ranged from 4.7% to 7.3% in 2019 and 2018 before provisions for adverse deviation, which ranged from 0.2% to 0.5% in 2019 and 2018.

Interest and discount rates for traditional life insurance vary by year of issuance and products and were 7.5% grading to 5.3% over 20 years in 2019 and 2018 with the exception of a block of pre-1980 business which had a level 8.8% discount rate in 2019 and 2018.

Mortality assumptions are based upon pricing assumptions and modified to allow for provisions for adverse deviation. Surrender rates vary by product and are based upon pricing assumptions.

Future policy benefit increases on preneed life insurance policies ranged from 0.0% to 7.0% in 2019 and 2018. Some policies have future policy benefit increases that are guaranteed or tied to equal some measure of inflation. The inflation assumption for most of these inflation-linked benefits was 3.0% in both 2019 and 2018 with the exception of most policies issued in 2005 through 2007 where the assumption was 2.3%.

The reserves for preneed annuities are based on assumed interest rates credited on deferred annuities, which vary by year of issue, and ranged from 1.0% to 5.5% in 2019 and 2018. Withdrawal charges, if any, can range up to 7.0% and grade to zero over a period of seven years.

Reserve Roll Forward

The following table provides a roll forward of the Company's beginning and ending claims and benefits payable balances. Claims and benefits payable is the liability for unpaid loss and loss adjustment expenses and is comprised of case and IBNR reserves.

Since unpaid loss and loss adjustment expenses are estimates, the Company's actual losses incurred may be more or less than the Company's previously developed estimates, which is referred to as either unfavorable or favorable development, respectively.

The best estimate of ultimate loss and loss adjustment expense is generally selected from a blend of methods that are applied consistently each period. There have been no significant changes in the methodologies and assumptions utilized in estimating the liability for unpaid loss and loss adjustment expenses for any of the periods presented.



	Years Ended December 31,
	2019			2018			2017
Claims and benefits payable, at beginning of year	$	1,190.5		$	1,266.1		$	1,412.9
Less: Reinsurance ceded and other	(1,179.2		)	(1,255.1		)	(1,401.8		)
Net claims and benefits payable, at beginning of year	11.3			11.0			11.1
Incurred losses and loss adjustment expenses related to:
Current year	56.5			63.4			32.0
Prior years	—			—			(0.1		)
Total incurred losses and loss adjustment expenses	56.5			63.4			31.9
Paid losses and loss adjustment expenses related to:
Current year	52.1			56.6			29.0
Prior years	5.8			6.5			3.0
Total paid losses and loss adjustment expenses	57.9			63.1			32.0
Net claims and benefits payable, at end of year	9.9			11.3			11.0
Plus: Reinsurance ceded and other	1,044.6			1,179.2			1,255.1
Claims and benefits payable, at end of year	$	1,054.5		$	1,190.5		$	1,266.1

$35