Liability for Unpaid Claims and Claim Adjustment Expenses

12 Months Ended

Dec. 31, 2018

Insurance [Abstract]

Liability for Unpaid Claims and Claim Adjustment Expenses

The liability for unpaid claims and claim adjustment expenses (“claims”) for health and property and casualty insurance is included in “Policy and contract claims” in the consolidated statements of financial position and is the amount estimated for incurred but not reported (“IBNR”) claims and claims that have been reported but not settled. Liability for unpaid claims are estimated based upon American National’s historical experience and actuarial assumptions that consider the effects of current developments, anticipated trends and risk management programs, less anticipated salvage and subrogation. The effects of the changes are included in the consolidated results of operations in the period in which the changes occur. The time value of money is not taken into account for the purposes of calculating the liability for unpaid claims. There have been no significant changes in methodologies or assumptions used to calculate the liability for unpaid claims and claim adjustment expenses.

Information regarding the liability for unpaid claims is shown below (in thousands):

	Years ended December 31,
	2018			2017			2016
Unpaid claims balance, beginning	$	1,199,233		$	1,140,723		$	1,104,302
Less reinsurance recoverables	237,439			216,903			217,337
Net beginning balance	961,794			923,820			886,965
Incurred related to
Current	1,193,216			1,097,730			1,055,796
Prior years	(19,852		)	(77,296		)	(36,788		)
Total incurred claims	1,173,364			1,020,434			1,019,008
Paid claims related to
Current	688,493			661,662			654,175
Prior years	411,463			320,798			327,978
Total paid claims	1,099,956			982,460			982,153
Net balance	1,035,373			961,794			923,820
Plus reinsurance recoverables	254,466			237,439			216,903
Unpaid claims balance, ending	$	1,289,839		$	1,199,233		$	1,140,723

The net and gross reserve calculations have shown favorable development as a result of favorable loss emergence compared to what was implied by the loss development patterns used in the original estimation of losses in prior years. Estimates for ultimate incurred claims attributable to insured events of prior years decreased by approximately $19,852,000, $77,296,000, $36,788,000 in 2018, 2017, and 2016, respectively. This was a reflection of lower-than-anticipated losses in 2018 related to accident years prior to 2018 in the workers compensation, other commercial, business owner and commercial package policy lines of business. The decrease during 2017 reflects lower-than-anticipated losses in the workers compensation, auto and business owner and commercial package policy lines of business. Lower-than-anticipated losses in the auto and multi-peril lines of business resulted in favorable development in 2016.

For short-duration health insurance claims, the total of IBNR plus expected development on reported claims included in the liability for unpaid claims and claim adjustment expenses at December 31, 2018 was $39,337,000.

The reconciliation of the net incurred and paid claims development tables to the liability for claims and claim adjustment expenses in the consolidated statement of financial position is as follows (in thousands):

	December 31, 2018
Net outstanding liabilities
Auto Liability	$	448,736
Non-Auto Liability	256,558
Commercial Multi-Peril	92,695
Homeowners	72,895
Short Tail Property	33,801
Credit	16,615
Health	40,361
Other	2,091
Liabilities for unpaid claims and claim adjustment expenses, net of reinsurance	963,752
Reinsurance recoverable on unpaid claims
Auto Liability	11,731
Non-Auto Liability	37,234
Commercial Multi-Peril	3,381
Homeowners	2,993
Short Tail Property	3,124
Credit	11,025
Health	173,329
Other	7,600
Total reinsurance recoverable on unpaid claims	250,417
Insurance lines other than short-duration	215,966
Unallocated claims adjustment expenses	51,159
	267,125
Total gross liability for unpaid claims and claim adjustment expense	$	1,481,294

Property and Casualty Reserving Methodology—The following methods are utilized:

• Initial Expected Loss Ratio—This method calculates an estimate of ultimate losses by applying an estimated loss ratio to actual earned premium for each calendar/accident year.

• Bornhuetter-Ferguson—This method uses as a starting point an assumed initial expected loss ratio method and blends in the loss ratio implied by the claims experience to date by using loss development patterns based on our historical experience.

• Loss or Expense Development (Chain Ladder)—This method uses actual loss or defense and cost containment expense data and the historical development profiles on older accident periods to project more recent, less developed periods to their ultimate total.

• Ratio of Paid Defense and Cost Containment Expense to Paid Loss Development—This method uses the ratio of paid defense and cost containment expense to paid loss data and the historical development profiles on older accident periods to project more recent, less developed periods to their ultimate total. In this method, an ultimate ratio of paid defense and cost containment expense to paid loss is selected for each accident period. The selected paid defense and cost containment expense to paid loss ratio is then applied to the selected ultimate loss for each accident period to estimate the ultimate defense and cost containment expense. Paid defense and cost containment expense is then subtracted from the ultimate defense and cost containment expense to calculate the unpaid defense and cost containment expense for that accident period.

• Calendar Year Paid Adjusting and Other Expense to Paid Loss—This method uses a selected prior calendar years’ paid expense to paid loss ratio to project ultimate loss adjustment expenses for adjusting and other expense. A percentage of the selected ratio is applied to the case reserves (depending on the line of insurance) and 100% to the indicated IBNR reserves. These ratios assume that a percentage of the expense is incurred when a claim is opened and the remaining percentage is paid throughout the claim’s life.

• Pegged Frequency and Severity—Uses actual claims count data and emergence patterns of older accident periods to project the ultimate number of reported claims for a given accident year. A similar process projects the ultimate average severity per claim so that the product of the 2 projections results in a projection of ultimate loss for a given accident year.

For most credit property and casualty products, IBNR liability is calculated as a percentage of pro rata unearned premium, with the specific percentage for a given product line determined by a completion factor method. For a large subset of GAP waiver and collateral protection insurance business, IBNR liability is the average monthly paid loss over the preceding 12 months.

The expected development on reported claims is the sum of a pay-to-current reserve and a future reserve. The pay-to-current reserve is calculated for each open claim having a monthly indemnity and contains the monies required to pay the open claim from the last payment date to the current valuation date. The future reserve is calculated by assigning to each open claim a fixed reserve amount based on the historical average severity. For debt cancellation products and involuntary unemployment insurance this reserve is calculated using published valuation tables.

Cumulative claim frequency information is calculated on a per claim basis. Claims that do not result in a liability are not considered in the determination of unpaid liabilities.

For any given line of business, none of these methods are relied on exclusively. With minor exception, we will typically run all of these methods for most lines. While we may not ultimately utilize a given method for a given line, we will review as a check for reasonableness of our selected result.

The following contains information about incurred and paid claims development as of December 31, 2018, net of reinsurance, as well as cumulative claim frequency and the total of incurred-but-not-reported liabilities 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, 2009 to 2017 is presented as supplementary information.

Auto Liability—Consists of personal and commercial auto. Claims and claim adjustment expenses are shown below (in thousands):

			Incurred Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance																		As of December 31, 2018
			For the Years Ended December 31,																		IBNR Plus  Expected Development		Cumulative  Number of Reported Claims
Accident Year	2009*		2010*		2011*		2012*		2013*		2014*		2015*		2016*		2017*		2018
2009	$	299,753	$	273,551	$	263,269	$	258,749	$	260,029	$	258,200	$	257,678	$	256,586	$	256,407	$	256,634	$	23	47,070
2010			288,166		270,935		266,223		265,949		264,104		263,040		261,930		261,092		261,207		111		47,099
2011					263,411		250,659		248,865		244,519		244,436		242,619		241,711		240,997		225		47,067
2012							251,593		242,255		231,312		228,013		229,426		228,559		228,864		489		44,713
2013									242,364		236,432		233,068		231,301		228,285		226,608		1,207		38,720
2014											232,146		223,386		217,819		215,419		214,870		2,355		35,966
2015													237,578		240,697		239,421		245,775		6,698		36,033
2016															259,177		256,080		261,400		17,057		36,904
2017																	269,803		280,012		39,501		38,087
2018																			314,467		94,962		34,697
																	Total		$	2,530,834

	Cumulative Paid Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance
	For the Years Ended December 31,
Accident Year	2009*		2010*		2011*		2012*		2013*		2014*		2015*		2016*		2017*		2018
2009	$	95,847	$	166,441	$	203,869	$	228,650	$	242,768	$	250,681	$	253,417	$	254,988	$	255,308	$	256,241
2010			92,589		164,298		208,531		237,540		250,647		257,021		259,173		259,966		260,404
2011					93,245		161,387		197,326		217,640		230,585		236,187		238,510		239,409
2012							82,531		150,323		183,448		204,980		214,467		219,170		222,117
2013									79,358		143,709		181,535		204,480		215,280		219,303
2014											72,838		134,376		166,947		187,375		204,057
2015													78,861		149,366		186,281		211,908
2016															86,492		153,911		198,326
2017																	88,357		175,175
2018																			95,777
																	Total		$	2,082,717
							All outstanding liabilities before 2009, net of reinsurance*												619
					Liabilities for claims and claim adjustment expenses, net of reinsurance														$	448,736

* Unaudited supplemental information

Non-Auto Liability—Consists of workers’ compensation and other liability occurrence. Claims and claim adjustment expenses are shown below (in thousands):

	Incurred Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance																				As of December 31, 2018
	For the Years Ended December 31,																				IBNR Plus  Expected Development		Cumulative  Number of Reported  Claims
Accident Year	2009*		2010*		2011*		2012*		2013*		2014*		2015*		2016*		2017*		2018
2009	$	83,773	$	75,857	$	70,905	$	72,267	$	72,490	$	72,077	$	71,003	$	71,517	$	69,099	$	69,696	$	1,632	13,275
2010			91,191		85,498		83,724		82,287		82,145		82,087		80,920		78,279		77,985		2,255		7,820
2011					86,409		76,038		75,390		74,372		73,647		71,423		68,248		67,979		2,480		5,656
2012							83,146		80,470		78,644		75,226		68,017		63,630		64,118		3,490		4,785
2013									74,183		75,815		70,772		67,841		65,096		64,564		4,085		4,435
2014											83,084		75,550		72,624		67,339		67,865		5,575		5,914
2015													83,897		78,968		76,724		67,548		10,626		5,344
2016															86,935		83,179		73,764		19,334		4,065
2017																	102,616		88,902		27,488		7,400
2018																			88,986		52,227		10,347
																	Total		$	731,407

	Cumulative Paid Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance
	For the Years Ended December 31,
Accident Year	2009*		2010*		2011*		2012*		2013*		2014*		2015*		2016*		2017*		2018
2009	$	15,389	$	28,725	$	41,424	$	49,895	$	55,391	$	61,277	$	63,039	$	64,755	$	65,441	$	66,047
2010			16,473		31,819		46,746		57,354		65,557		69,091		70,369		71,509		72,261
2011					13,848		31,943		41,814		52,003		56,791		60,706		62,414		63,121
2012							13,862		27,574		38,826		49,585		55,194		57,863		59,528
2013									12,794		22,743		32,474		42,504		47,987		51,672
2014											11,201		26,587		36,220		45,206		51,853
2015													11,979		23,488		37,059		46,285
2016															12,733		24,633		35,502
2017																	14,865		37,139
2018																			13,156
																	Total		$	496,564
			All outstanding liabilities before 2009, net of reinsurance*																21,715
					Liabilities for claims and claim adjustment expenses, net of reinsurance														$	256,558

* Unaudited supplemental information

Commercial Multi-Peril—Consists of business owners insurance and mortgage fire business. Claims and claim adjustment expenses are shown below (in thousands):

	Incurred Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance																				As of December 31, 2018
	For the Years Ended December 31,																				IBNR Plus  Expected Development		Cumulative  Number of Reported Claims
Accident Year	2009*		2010*		2011*		2012*		2013*		2014*		2015*		2016*		2017*		2018
2009	$	41,027	$	38,666	$	36,610	$	35,354	$	34,884	$	34,381	$	34,529	$	34,079	$	33,515	$	33,423	$	17	3,516
2010			41,116		37,736		40,243		37,520		35,914		37,839		37,215		36,367		35,923		191		3,589
2011					42,185		40,825		39,037		38,160		38,456		36,945		37,014		36,638		485		3,559
2012							35,169		28,548		26,805		23,258		23,385		23,090		22,481		606		2,715
2013									33,979		27,592		27,867		26,970		25,948		26,028		1,122		2,220
2014											36,852		31,220		34,911		33,962		36,132		1,370		2,303
2015													33,997		31,488		29,023		32,282		2,238		2,203
2016															38,115		33,475		33,080		7,460		4,575
2017																	42,411		37,079		9,740		6,403
2018																			50,784		23,785		7,422
																	Total		$	343,850

	Cumulative Paid Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance
	For the Years Ended December 31,
Accident Year	2009*		2010*		2011*		2012*		2013*		2014*		2015*		2016*		2017*		2018
2009	$	11,101	$	17,248	$	21,660	$	25,779	$	30,272	$	32,150	$	32,623	$	32,842	$	32,977	$	33,349
2010			12,511		17,490		22,135		27,152		31,378		33,384		34,888		34,764		34,903
2011					13,092		18,390		22,616		28,291		30,458		32,692		34,177		34,782
2012							11,525		14,454		16,263		18,670		20,716		21,026		21,352
2013									9,374		12,723		15,426		18,406		20,816		21,718
2014											12,001		16,484		20,199		24,602		27,339
2015													9,820		12,956		16,402		21,680
2016															11,327		17,193		19,085
2017																	12,458		20,828
2018																			18,027
																	Total		$	253,063
					All outstanding liabilities before 2009, net of reinsurance*														1,908
					Liabilities for claims and claim adjustment expenses, net of reinsurance														$	92,695

* Unaudited supplemental information

Homeowners—Consists of homeowners and renters business. Claims and claim adjustment expenses are shown below (in thousands):

			Incurred Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance																		As of December 31, 2018
			For the Years Ended December 31,																		IBNR Plus  Expected Development		Cumulative  Number of Reported  Claims
Accident Year	2009*		2010*		2011*		2012*		2013*		2014*		2015*		2016*		2017*		2018
2009	$	183,437	$	178,420	$	179,249	$	177,534	$	177,798	$	177,989	$	178,372	$	178,073	$	178,008	$	177,916	$	2	31,489
2010			206,606		200,318		198,111		198,029		197,443		197,675		197,465		197,067		196,639		72		37,069
2011					203,301		200,356		198,757		197,581		197,381		197,451		197,239		197,070		89		38,758
2012							181,284		177,664		175,523		175,509		175,178		175,032		174,611		168		30,990
2013									152,208		149,080		149,272		148,231		147,927		147,444		171		20,035
2014											132,651		131,634		130,287		131,546		130,895		195		18,153
2015													125,430		124,199		123,619		123,824		262		17,721
2016															147,264		145,373		144,376		607		21,460
2017																	164,284		172,274		1,578		23,405
2018																			174,495		15,491		21,355
																	Total		$	1,639,544

	Cumulative Paid Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance
	For the Years Ended December 31,
Accident Year	2009*		2010*		2011*		2012*		2013*		2014*		2015*		2016*		2017*		2018
2009	$	142,781	$	170,372	$	173,985	$	175,220	$	176,588	$	176,985	$	177,428	$	177,615	$	177,670	$	177,689
2010			149,755		189,046		193,006		195,365		195,714		196,281		196,419		196,504		196,480
2011					160,625		190,946		194,237		195,327		196,575		196,628		196,717		196,757
2012							143,797		169,415		171,842		173,170		173,676		174,139		174,247
2013									115,605		140,309		145,152		146,650		146,920		147,145
2014											96,300		122,601		126,245		129,467		130,059
2015													86,617		114,696		119,331		122,585
2016															105,415		136,796		140,972
2017																	116,075		159,107
2018																			121,631
																	Total		$	1,566,672
							All outstanding liabilities before 2009, net of reinsurance*												23
					Liabilities for claims and claim adjustment expenses, net of reinsurance														$	72,895

* Unaudited supplemental information

Short Tail Property—Consists of auto physical damage, fire, rental owners, standard fire policy, country estates, inland marine and watercraft. This line of business has substantially all claims settled and paid in less than two years. Claims and claim adjustment expenses are shown below (in thousands):

	Incurred Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance				As of December 31, 2018
	For the Years Ended December 31,				IBNR Plus Expected Development			Cumulative Number of Reported Claims
Accident Year	2017*		2018
2017	$	229,284	$	227,106	$	91		82,343
2018	—		248,182		(1,840		)	63,360
	Total		$	475,288

	Cumulative Paid Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance
	For the Years Ended December 31,
Accident Year	2017*		2018
2017	$	205,245	225,141
2018	—		218,095
	Total		$	443,236
All outstanding liabilities before 2017, net of reinsurance*			1,749
Liabilities for claims and claim adjustment expenses, net of reinsurance			$	33,801

* Unaudited supplemental information

Credit—Consists of credit property insurance, vendor’s or lender’s single interest insurance, GAP insurance, GAP waiver, debt cancellation products, involuntary unemployment insurance and collateral protection insurance. This line of business has substantially all claims settled and paid in less than two years. Claims and claim adjustment expenses are shown below (in thousands):

	Incurred Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance				As of December 31, 2018
	For the Years Ended December 31,				IBNR Plus Expected Development		Cumulative Number of Reported Claims
Accident Year	2017*		2018
2017	$	93,571	$	93,572	$	—	57,364
2018	—		89,308		7,947		47,075
	Total		$	182,880

	Cumulative Paid Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance
	For the Years Ended December 31,
Accident Year	2017*		2018
2017	$	73,838	$	93,572
2018	—		72,693
	Total		$	166,265
All outstanding liabilities before 2017, net of reinsurance*			—
Liabilities for claims and claim adjustment expenses, net of reinsurance			$	16,615

* Unaudited supplemental information

Health Reserving Methodology—The following methods are utilized:

Completion Factor Approach-This method assumes that the historical claim patterns will be an accurate representation of unpaid claim liabilities. An estimate of the unpaid claims is calculated by subtracting period-to-date paid claims from an estimate of the ultimate “complete” payment for all incurred claims in the period. Completion factors are calculated which “complete” the current period-to-date payment totals for each incurred month to estimate the ultimate expected payout.

Tabular Claims Reserves-This method is used to calculate the reserves for disability income blocks of business. These reserves rely on published valuation continuance tables created using industry experience regarding assumptions of continued morbidity and subsequent recovery. Reserves are calculated by applying these continuance tables, along with appropriate company experience adjustments, to the stream of contractual benefit payments. These expected benefit payments are discounted at the required interest rate.

Future Policy Benefits-Reserves are equal to the aggregate of the present value of expected future benefit payments, less the present value of expected future premiums. Morbidity and termination assumptions are based on our experience or published valuation tables when available and appropriate.

Premium Deficiency Reserves-Deficiency reserves are established when the expected future claim payments and expenses for a classification of policies are in excess of the expected premiums for these policies. The determination of a deficiency reserve takes into consideration the likelihood of premium rate increases, the timing of these increases, and the expected benefit utilization patterns. We have established premium deficiency reserves for portions of the major medical business and the long-term care business that are in run-off. The assumptions and methods used to determine the deficiency reserves are reviewed periodically for reasonableness, and the reserve amount is monitored against emerging losses.

There is no expected development on reported claims in the health blocks. Claim frequency is determined by totaling the number of unique claim numbers during the period as each unique claim number represents a claim event for an individual claimant.

Health—Consists of stop loss, other supplemental health products and credit disability insurance. This line of business has substantially all claims settled and paid in less than four years. Claims and claim adjustment expenses are shown below (in thousands):

	Incurred Claims and Allocated Claim Adjustment Expenses, Net of  Reinsurance										As of December 31, 2018
	For the Years Ended December 31,										IBNR Plus  Expected Development		Cumulative  Number of Reported Claims
Accident Year	2014*		2015*		2016*		2017*		2018
2014	$	38,102	$	67,545	$	62,802	$	62,906	$	62,919	$	1	35,346
2015			34,069		45,167		41,513		41,514		1		32,527
2016					36,198		41,236		37,164		7		28,706
2017							41,544		39,930		4,531		31,323
2018									64,686		28,967		28,503
							Total		$	246,213

	Cumulative Paid Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance
	For the Years Ended December 31,
Accident Year	2014*		2015*		2016*		2017*		2018
2014	$	25,436	$	62,632	$	62,678	$	62,819	$	62,819
2015			23,574		41,491		41,436		41,462
2016					24,357		37,040		37,115
2017							25,358		35,392
2018									34,894
							Total		$	211,682
All outstanding liabilities before 2014, net of reinsurance*									5,830
Liabilities for claims and claim adjustment expenses, net of reinsurance									$	40,361

* Unaudited supplemental information

The following table is supplementary information. 10 year average annual percentage payout of incurred claims is shown below:

Average Annual Percentage Payout of Incurred Claims by Age, Net of Reinsurance
Years	1		2		3		4		5		6		7		8		9		10
Auto Liability	34.4	%	28.4	%	15.6	%	9.8	%	5.4	%	2.3	%	1.0	%	0.4	%	0.1	%	2.6	%
Non-Auto Liability	18.8	%	20.3	%	16.7	%	14.3	%	8.7	%	5.7	%	2.3	%	1.7	%	1.0	%	10.5	%
Homeowners	75.2	%	19.1	%	2.5	%	1.3	%	0.4	%	0.2	%	0.1	%	0.1	%	—	%	1.1	%
Commercial Multi-Peril	35.8	%	15.0	%	10.3	%	13.2	%	9.5	%	4.4	%	2.8	%	0.7	%	0.4	%	7.9	%
Short Tail Property	89.1	%	10.9	%	—	%	—	%	—	%	—	%	—	%	—	%	—	%	—	%
Credit	80.2	%	19.8	%	—	%	—	%	—	%	—	%	—	%	—	%	—	%	—	%