Insurance and Contractholder Liabilities | Insurance and Contractholder Liabilities A. Account Balances – Insurance and Contractholder Liabilities The Company's insurance and contractholder liabilities were comprised of the following: September 30, 2023 December 31, 2022 September 30, 2022 (In millions) Current Non-current Total Current Non-current Total Total Unpaid claims and claim expenses Cigna Healthcare $ 5,240 $ 77 $ 5,317 $ 4,117 $ 59 $ 4,176 $ 4,250 Other Operations 105 169 274 107 177 284 280 Future policy benefits Cigna Healthcare 64 526 590 43 544 587 593 Other Operations 164 3,216 3,380 150 3,442 3,592 3,610 Contractholder deposit funds Cigna Healthcare 12 139 151 14 157 171 181 Other Operations 364 6,243 6,607 351 6,358 6,709 6,747 Market risk benefits 41 893 934 51 1,217 1,268 1,337 Unearned premiums 1,362 23 1,385 576 22 598 1,283 Total insurance and contractholder liabilities $ 7,352 $ 11,286 $ 18,638 $ 5,409 $ 11,976 $ 17,385 $ 18,281 Insurance and contractholder liabilities expected to be paid within one year are classified as current. The Company adopted amended accounting guidance for long-duration insurance contracts on January 1, 2023, discussed further in Note 2 to the Consolidated Financial Statements, which resulted in restatement of prior period amounts. Additionally, see below updated accounting policies and incremental disclosures associated with future policy benefits (Note 9C), contractholder deposit funds (Note 9D), and market risk benefits (Note 9E). The total of incurred but not reported liabilities plus expected development on reported claims, including reported claims in process, was $5.0 billion at September 30, 2023 and $4.0 billion at September 30, 2022. Activity, net of intercompany transactions, in the unpaid claims liability for the Cigna Healthcare segment was as follows: Nine Months Ended (In millions) September 30, 2023 September 30, 2022 Beginning balance $ 4,176 $ 4,261 Less: Reinsurance and other amounts recoverable 221 261 Beginning balance, net 3,955 4,000 Incurred costs related to: Current year 26,788 23,431 Prior years (237) (278) Total incurred 26,551 23,153 Paid costs related to: Current year 22,053 19,655 Prior years 3,362 3,450 Total paid 25,415 23,105 Ending balance, net 5,091 4,048 Add: Reinsurance and other amounts recoverable 226 202 Ending balance $ 5,317 $ 4,250 Reinsurance and other amounts recoverable reflect amounts due from reinsurers and policyholders to cover incurred but not reported and pending claims of certain business for which the Company administers the plan benefits without any right of offset. See Note 10 to the Consolidated Financial Statements for additional information on reinsurance. Variances in incurred costs related to prior years' unpaid claims and claim expenses that resulted from the differences between actual experience and the Company's key assumptions were as follows: Nine Months Ended September 30, 2023 September 30, 2022 (Dollars in millions) $ % (1) $ % (2) Actual completion factors $ 45 0.2 % $ 81 0.3 % Medical cost trend 192 0.6 197 0.6 Total favorable variance $ 237 0.8 % $ 278 0.9 % (1) Percentage of current year incurred costs as reported for the year ended December 31, 2022. (2) Percentage of current year incurred costs as reported for the year ended December 31, 2021. Favorable prior year development in both years reflects lower than expected utilization of medical services as compared to our assumptions. Accounting Policy. Future policy benefits represent the present value of estimated future obligations, estimated using actuarial methods, for long-duration insurance policies and annuity products currently in force, consisting primarily of reserves for annuity contracts, life insurance benefits, and certain supplemental health products that are guaranteed renewable beyond one year. Contracts are grouped at a level no higher than issue year, based on the original contract issue date, and at lower levels of disaggregation within each issue year for certain businesses to reflect factors including product type, plan type and currency. Management estimates these obligations based on assumptions for premiums, interest rates, mortality or morbidity, future claim adjudication expenses and surrenders. Mortality, morbidity and surrender assumptions are based on the Company's own experience and published actuarial tables, and are updated at least annually, to the extent changes in circumstances require. Interest rate assumptions are based on market-level yields for low credit risk fixed income instruments ("upper-medium grade fixed income instrument"). For interest accretion purposes, interest rates are fixed at the year of the cohort's inception, however for purposes of liability measurement, are updated to the current rate quarterly, with all changes in the interest rate from inception to current period reported through Accumulated other comprehensive loss. For contracts issued domestically, we use observable inputs from a published spot rate curve for terms up to 30 years and extrapolate for longer terms using a constant forward rate approach. For contracts issued by foreign operating entities with functional currencies other than the U.S. dollar, we use observable inputs to approximate a risk free rate and add a credit spread adjustment to align with a low credit risk fixed income instrument. For terms beyond the last observable risk free rates, which vary by international market, we extrapolate to the ultimate forward rate assuming a constant credit spread. For the annuity business, the premium paying period is shorter than the benefit coverage period, and a deferred profit liability ("DPL") is reported in future policy benefits representing gross premium received in excess of net premiums. DPL is amortized based on expected future benefit payments. Cigna Healthcare The weighted average interest rates applied and duration for future policy benefits in the Cigna Healthcare segment, consisting primarily of supplemental health products including individual Medicare supplement, limited benefit health products and individual private medical insurance, were as follows: As of September 30, 2023 September 30, 2022 Interest accretion rate 2.85 % 2.34 % Current discount rate 6.03 % 5.67 % Weighted average duration 7.0 years 7.5 years The net liability for future policy benefits for the segment's supplemental health products represents the present value of benefits expected to be paid to policyholders, net of the present value of expected net premiums, which is the portion of expected future gross premium expected to be collected from policyholders that is required to provide for all expected future benefits and expenses. The present values of expected net premiums and expected future policy benefits for the Cigna Healthcare segment are as follows: Nine Months Ended (In millions) September 30, 2023 September 30, 2022 Present value of expected net premiums Beginning balance $ 8,557 $ 9,314 Reversal of effect of beginning of period discount rate assumptions 1,537 (367) Effect of assumption changes and actual variances from expected experience (1) 314 1,101 Issuances and lapses 822 718 Net premiums collected (1,019) (956) Interest and other (2) 58 44 Ending balance at original discount rate 10,269 9,854 Effect of end of period discount rate assumptions (1,681) (1,576) Ending balance (3) $ 8,588 $ 8,278 Present value of expected policy benefits Beginning balance $ 8,945 $ 9,794 Reversal of effect of discount rate assumptions 1,611 (379) Effect of assumption changes and actual variances from expected experience (1) 112 1,006 Issuances and lapses 902 827 Benefit payments (1,017) (1,081) Interest and other (2) 184 161 Ending balance at original discount rate 10,737 10,328 Effect of discount rate assumptions (1,765) (1,652) Ending balance (4) $ 8,972 $ 8,676 Liability for future policy benefits $ 384 $ 398 Other (5) 206 195 Total liability for future policy benefits (6) $ 590 $ 593 (1) Includes the effect of actual variances from expectations, which (decreased)/increased the total liability for future policy benefits by $(12) million and $58 million, respectively, for the nine months ended September 30, 2023 and September 30, 2022. (2) Includes the foreign exchange rate impact of translating from transactional and functional currency to United States dollar and the impact of flooring the liability at zero. The flooring impact is calculated at the cohort level after discounting the reserves at the current discount rate. (3) As of September 30, 2023 and September 30, 2022, respectively, undiscounted expected future gross premiums were $18.5 billion and $17.1 billion. As of September 30, 2023 and September 30, 2022, respectively, discounted expected future gross premiums were $12.5 billion and $11.8 billion. (4) As of September 30, 2023 and September 30, 2022, respectively, undiscounted expected future policy benefits were $13.1 billion and $12.4 billion. (5) The liability for future policyholder benefits includes immaterial businesses shown as reconciling items above, most of which are in run-off. (6) $154 million and $156 million of reinsurance recoverable asset reported in the Consolidated Balance Sheets as of September 30, 2023 and September 30, 2022, respectively, relate to the liability for future policy benefits. Other Operations The weighted average interest rates applied and duration for future policy benefits in Other Operations, consisting of annuity and life insurance products, were as follows: As of September 30, 2023 September 30, 2022 Interest accretion rate 5.64 % 5.64 % Current discount rate 5.73 % 5.28 % Weighted average duration 10.9 years 11.8 years Obligations for annuities represent discounted periodic benefits to be paid to an individual or groups of individuals over their remaining lives. Other Operations ' traditional insurance contracts, which are in run-off, have no premium remaining to be collected; Future policy benefits for Other Operations includes DPL of $390 million as of September 30, 2023 and $380 million as of September 30, 2022. Future policy benefits excluding DPL were $3.0 billion as of September 30, 2023, $3.2 billion as of each of December 31, 2022 and September 30, 2022, and $4.3 billion as of December 31, 2021. These balances exclude amounts classified as Liabilities of businesses held for sale of $3.8 billion as of December 31, 2021. The change in future policy benefits reserves year-to-date was primarily driven by changes in the current discount rate. Undiscounted expected future policy benefits were $4.5 billion as of September 30, 2023 and $4.7 billion as of September 30, 2022. As of September 30, 2023 and September 30, 2022, $1.0 billion and $1.1 billion of the future policy benefit reserve was recoverable through treaties with external reinsurers. Accounting Policy. Liabilities for contractholder deposit funds primarily include deposits received from customers for investment-related and universal life products as well as investment earnings on their fund balances in Other Operations. These liabilities are adjusted to reflect administrative charges and, for universal life fund balances, mortality charges. Interest credited on these funds is accrued ratably over the contract period. Accounting Policy. Variable annuity reinsurance liabilities are measured as MRBs at fair value, net of nonperformance risk, with fluctuations in value gross of reinsurer nonperformance risk reported in benefit expenses while fluctuations in the Company's own nonperformance risk (own credit risk) are reported in Accumulated other comprehensive loss. Nonperformance risk reflects risk that a party might default and therefore not fulfill its obligations (i.e. nonpayment risk). The nonperformance risk adjustment reflects a market participant's view of nonpayment risk by adding an additional spread to the discount rate in the calculation of both (a) the variable annuity reinsurance liabilities to be paid by the Company and (b) the variable annuity reinsurance assets to be paid by the reinsurers, after considering collateral. The Company classifies variable annuity assets and liabilities in Level 3 of the fair value hierarchy described in Note 12 to the Consolidated Financial Statements because assumptions related to future annuitant behavior are largely unobservable. As discussed further in Note 10 to the Consolidated Financial Statements, due to the reinsurance agreements covering these liabilities, the liabilities do not generally impact net income except for the change in nonperformance risk on the reinsurance recoverable, which is reported in benefit expenses and does not offset the nonperformance risk valuation on the liability. Variable annuity liabilities are established using capital market assumptions and assumptions related to future annuitant behavior (including mortality, lapse and annuity election rates). Market risk benefits activity was as follows: Nine Months Ended (In millions) September 30, 2023 September 30, 2022 Balance, beginning of year $ 1,268 $ 1,824 Balance, beginning of year, before the effect of nonperformance risk (own credit risk) 1,379 1,949 Changes due to expected run-off (15) (44) Changes due to capital markets versus expected (352) (510) Changes due to policyholder behavior versus expected (1) (4) Assumption changes (16) 65 Balance, end of period, before the effect of changes in nonperformance risk (own credit risk) 995 1,456 Nonperformance risk (own credit risk), end of period (61) (119) Balance, end of period $ 934 $ 1,337 Reinsured market risk benefit, end of period $ 993 $ 1,450 The following table presents the net amount at risk and the average attained age of contractholders (weighted by exposure) for contracts assumed by the Company. The net amount at risk is the amount the Company would have to pay to contractholders if all deaths or annuitizations occurred as of the earliest possible date in accordance with the insurance contract. The Company should be reimbursed in full for these payments unless the Berkshire reinsurance limit is exceeded, as discussed further in Note 10 to the Consolidated Financial Statements. (Dollars in millions, excludes impact of reinsurance ceded) September 30, 2023 September 30, 2022 Net amount at risk $ 1,986 $ 2,881 Average attained age of contractholders (weighted by exposure) 75.9 years 74.0 years |