| 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 % — % — % — % — % — % — % — % — % |
