| Liability for Unpaid Claims and Claim Adjustment Expenses | Note 12 – Liability for Unpaid Claims and Claim Adjustment
Expenses
The liability for unpaid claims and claim adjustment expenses
(“claims”) for accident and 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 claims that have been reported but
not settled and incurred but not reported (“IBNR”)
claims. 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,
2016 2015 2014
Unpaid claims balance, beginning $ 1,104,302 $ 1,132,394 $ 1,096,301
Less reinsurance recoverables 217,337 245,906 215,164
Net beginning balance 886,965 886,488 881,137
Incurred related to
Current 1,055,796 950,228 940,466
Prior years (36,788 ) (22,830 ) (44,806 )
Total incurred claims 1,019,008 927,398 895,660
Paid claims related to
Current 654,175 580,476 561,887
Prior years 327,978 346,445 328,422
Total paid claims 982,153 926,921 890,309
Net balance 923,820 886,965 886,488
Plus reinsurance recoverables 216,903 217,337 245,906
Unpaid claims balance, ending $ 1,140,723 $ 1,104,302 $ 1,132,394
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 $36,788,000 in 2016 and
$22,830,000 in 2015 and $44,806,000 in 2014. This was a reflection
of lower-than-anticipated losses in the multi-peril line of
business in 2016 and lower-than-anticipated losses in the personal
auto, other liability and multi-peril lines of business in 2015 and
2014.
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,
Net outstanding liabilities
Auto Liability
$ 369,209
Non-Auto Liability
263,801
Commercial Multi-Peril
88,259
Homeowners
61,256
Short Tail Property
26,088
Credit
16,076
Health
23,068
Other
2,278
Liabilities for unpaid claims and claim adjustment expenses, net of
reinsurance
850,035
Reinsurance recoverable on unpaid claims
Auto Liability
8,004
Non-Auto Liability
30,923
Commercial Multi-Peril
3,348
Homeowners
1,442
Short Tail Property
20,497
Credit
15,280
Health
134,283
Other
3,648
Total reinsurance recoverable on unpaid claims
217,425
Insurance lines other than short-duration
192,517
Unallocated claims adjustment expenses
43,948
236,465
Total gross liability for unpaid claims and claim adjustment
expense
$ 1,303,925
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, 2016, 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, 2007, to 2015, is presented as
supplementary information.
Auto Liability
Incurred Claims and Allocated Claim
Adjustment Expenses, Net of Reinsurance As of
For the Years
Ended December 31, IBNR Plus Cumulative
Accident Year 2007* 2008* 2009* 2010* 2011* 2012* 2013* 2014* 2015* 2016
2007 $ 306,939 $ 281,373 $ 278,279 $ 276,801 $ 276,740 $ 275,669 $ 274,620 $ 273,938 $ 273,484 $ 273,039 $ 106 51,839
2008 280,131 271,759 261,683 261,555 260,015 257,097 257,915 256,158 255,600 191 47,788
2009 299,753 273,551 263,269 258,749 260,029 258,200 257,678 256,586 376 47,059
2010 288,166 270,935 266,223 265,949 264,104 263,040 261,930 1,045 47,081
2011 263,411 250,659 248,865 244,519 244,436 242,619 1,891 47,049
2012 251,593 242,255 231,312 228,013 229,426 3,333 44,546
2013 242,364 236,432 233,068 231,301 7,190 38,641
2014 232,146 223,386 217,819 13,842 35,800
2015 237,578 240,696 34,168 35,573
2016 259,173 78,756 34,276
Total $ 2,468,189
Cumulative Paid Claims and Allocated
Claim Adjustment Expenses, Net of Reinsurance
For the Years
Ended December 31,
Accident Year 2007* 2008* 2009* 2010* 2011* 2012* 2013* 2014* 2015* 2016
2007 $ 103,283 $ 178,233 $ 223,147 $ 248,430 $ 261,908 $ 269,148 $ 270,745 $ 271,751 $ 272,602 $ 272,603
2008 92,395 163,228 203,708 228,898 244,749 249,953 251,924 253,145 255,118
2009 95,847 166,441 203,869 228,650 242,768 250,681 253,417 254,988
2010 92,589 164,298 208,531 237,540 250,647 257,021 259,173
2011 93,245 161,387 197,326 217,640 230,585 236,187
2012 82,531 150,323 183,448 204,980 214,467
2013 79,358 143,709 181,535 204,480
2014 72,838 134,376 166,947
2015 78,861 149,365
2016 86,491
Total $ 2,099,819
All
outstanding liabilities before 2007, net of reinsurance* 839
Liabilities for
claims and claim adjustment expenses, $ 369,209
* Unaudited supplemental
information
Non-Auto
Incurred Claims and Allocated Claim
Adjustment Expenses, Net of As of
For the Years
Ended December 31, IBNR Plus Cumulative
Accident Year 2007* 2008* 2009* 2010* 2011* 2012* 2013* 2014* 2015* 2016
2007 $ 87,108 $ 82,759 $ 85,138 $ 83,071 $ 79,720 $ 80,520 $ 78,496 $ 78,739 $ 79,101 $ 79,668 $ 2,532 30,182
2008 85,367 85,384 77,798 72,492 71,969 73,436 74,114 73,912 74,684 3,025 18,374
2009 83,773 75,857 70,905 72,267 72,490 72,077 71,003 71,517 3,681 13,294
2010 91,191 85,498 83,724 82,287 82,145 82,087 80,920 5,141 7,778
2011 86,409 76,038 75,390 74,372 73,647 71,423 6,088 5,673
2012 83,146 80,470 78,644 75,226 68,017 7,407 4,706
2013 74,183 75,815 70,772 67,841 9,541 4,411
2014 83,084 75,550 72,624 16,145 5,824
2015 83,897 78,968 31,995 5,116
2016 86,935 48,102 3,153
Total $ 752,597
Cumulative Paid Claims and Allocated
Claim Adjustment Expenses, Net of
For the Years
Ended December 31,
Accident Year 2007* 2008* 2009* 2010* 2011* 2012* 2013* 2014* 2015* 2016
2007 $ 22,008 $ 37,569 $ 50,184 $ 58,978 $ 65,026 $ 68,652 $ 70,605 $ 72,044 $ 73,180 $ 74,880
2008 18,852 34,624 43,206 51,077 58,043 62,087 64,840 66,629 67,329
2009 15,389 28,725 41,424 49,895 55,391 61,277 63,039 64,755
2010 16,473 31,819 46,746 57,354 65,557 69,091 70,369
2011 13,848 31,943 41,814 52,003 56,791 60,706
2012 13,862 27,574 38,826 49,585 55,194
2013 12,794 22,743 32,474 42,504
2014 11,201 26,587 36,220
2015 11,979 23,488
2016 12,733
Total $ 508,178
All
outstanding liabilities before 2007, net of reinsurance* 19,382
Liabilities for
claims and claim adjustment $ 263,801
* Unaudited supplemental
information
Commercial Multi-Peril
Incurred Claims and Allocated Claim
Adjustment Expenses, Net of As of
For the Years Ended
December 31, IBNR Plus Cumulative
Accident Year 2007* 2008* 2009* 2010* 2011* 2012* 2013* 2014* 2015* 2016
2007 $ 43,834 $ 40,324 $ 39,877 $ 39,215 $ 39,309 $ 38,158 $ 38,218 $ 38,078 $ 38,243 $ 37,861 $ 684 3,290
2008 40,640 39,231 37,105 37,825 37,034 35,594 36,141 37,605 37,298 1,061 3,831
2009 41,027 38,666 36,610 35,354 34,884 34,381 34,529 34,079 989 3,512
2010 41,116 37,736 40,243 37,520 35,914 37,839 37,215 1,294 3,583
2011 42,185 40,825 39,037 38,160 38,456 36,945 1,308 3,552
2012 35,169 28,548 26,805 23,258 23,385 1,206 2,704
2013 33,979 27,592 27,867 26,970 2,653 2,188
2014 36,852 31,220 34,911 4,962 2,229
2015 33,997 31,488 9,814 2,003
2016 38,114 20,761 3,069
Total $ 338,266
Cumulative Paid Claims and Allocated
Claim Adjustment Expenses, Net of
For the Years
Ended December 31,
Accident Year 2007* 2008* 2009* 2010* 2011* 2012* 2013* 2014* 2015* 2016
2007 $ 11,548 $ 17,625 $ 21,869 $ 26,682 $ 31,080 $ 34,386 $ 35,217 $ 35,738 $ 36,054 $ 36,474
2008 10,083 17,357 20,638 25,415 29,900 32,187 34,321 34,847 35,270
2009 11,101 17,248 21,660 25,779 30,272 32,150 32,623 32,842
2010 12,511 17,490 22,135 27,152 31,378 33,384 34,888
2011 13,092 18,390 22,616 28,291 30,458 32,692
2012 11,525 14,454 16,263 18,670 20,716
2013 9,374 12,723 15,426 18,406
2014 12,001 16,484 20,199
2015 9,820 12,956
2016 11,327
Total $ 255,770
All
outstanding liabilities before 2007, net of reinsurance* 5,763
Liabilities for
claims and claim adjustment $ 88,259
* Unaudited supplemental
information
Homeowners
Incurred Claims and Allocated Claim
Adjustment Expenses, Net of Reinsurance As of
For the Years
Ended December 31, IBNR Plus Cumulative
Accident Year 2007* 2008* 2009* 2010* 2011* 2012* 2013* 2014* 2015* 2016
2007 $ 127,373 $ 125,628 $ 124,041 $ 123,879 $ 123,950 $ 123,747 $ 123,681 $ 123,619 $ 123,668 $ 123,624 $ — 22,811
2008 191,926 198,128 198,351 198,578 197,066 196,987 196,777 197,210 197,004 86 42,646
2009 183,437 178,420 179,249 177,534 177,798 177,989 178,372 178,073 130 31,483
2010 206,606 200,318 198,111 198,029 197,443 197,675 197,465 225 37,066
2011 203,301 200,356 198,757 197,581 197,381 197,451 335 38,748
2012 181,284 177,664 175,523 175,509 175,178 464 30,972
2013 152,208 149,080 149,272 148,231 440 19,997
2014 132,651 131,634 130,287 690 18,115
2015 125,430 124,197 1,552 17,583
2016 147,262 9,391 19,917
Total $ 1,618,772
Cumulative Paid Claims and Allocated
Claim Adjustment Expenses, Net of Reinsurance
For the Years
Ended December 31,
Accident Year 2007* 2008* 2009* 2010* 2011* 2012* 2013* 2014* 2015* 2016
2007 $ 91,413 $ 116,836 $ 119,622 $ 121,596 $ 122,919 $ 123,126 $ 123,295 $ 123,570 $ 123,578 $ 123,591
2008 148,526 189,694 193,653 195,290 195,936 196,132 196,358 196,546 196,896
2009 142,781 170,372 173,985 175,220 176,588 176,985 177,428 177,615
2010 149,755 189,046 193,006 195,365 195,714 196,281 196,419
2011 160,625 190,946 194,237 195,327 196,575 196,628
2012 143,797 169,415 171,842 173,170 173,676
2013 115,605 140,309 145,152 146,650
2014 96,300 122,601 126,245
2015 86,617 114,696
2016 105,415
Total $ 1,557,831
All
outstanding liabilities before 2007, net of reinsurance* 315
Liabilities for
claims and claim adjustment expenses, $ 61,256
* Unaudited supplemental
information
Short Tail Property
Incurred Claims and As of
For the Years Ended December 31, IBNR Plus Cumulative
Accident Year 2015* 2016
2015 202,310 199,957 315 59,375
2016
— 215,492 (3,433 ) 61,535
Total $ 415,449
Cumulative Paid Claims and Allocated
For the Years Ended
Accident Year 2015* 2016
2015 182,772 198,140
2016
— 192,325
Total $ 390,465
All outstanding liabilities before 2015, net of
reinsurance*
1,104
Liabilities for claims and claim adjustment expenses,
net of reinsurance
$ 26,088
* Unaudited supplemental
information
Credit
Incurred Claims and As of
For the Years Ended December 31, IBNR Plus Cumulative
Accident Year 2015* 2016
2015 46,540 46,367
— 34,211
2016
— 75,841 8,584 39,877
Total $ 122,208
Cumulative Paid Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance
Accident Year
For the Years Ended December 31,
2015* 2016
2015 34,499 46,367
2016
— 59,765
Total $ 106,132
All outstanding liabilities before 2015, net of
reinsurance*
—
Liabilities for claims and claim adjustment expenses,
net of reinsurance
$ 16,076
* Unaudited supplemental
information
Accident and Health Reserving Methodology
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 period-to-date
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.
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.
Accident and Health
Incurred Claims and Allocated Claim
Adjustment Expenses, As of
For the Years
Ended December 31, IBNR Plus Cumulative
Accident Year 2012* 2013* 2014* 2015* 2016
2012 47,085 58,082 54,285 54,193 54,183 3 67,043
2013
— 40,970 51,725 46,940 46,995 5 63,614
2014
—
— 38,102 67,545 62,802 10 51,456
2015
—
—
— 34,069 45,167 3,789 44,572
2016
—
—
—
— 36,198 11,002 35,709
Total $ 245,345
Cumulative Paid Claims and Allocated
Claim
For the Years
Ended December 31,
Accident Year 2012* 2013* 2014* 2015* 2016
2012 32,701 54,252 54,094 54,115 54,120
2013
— 28,071 46,780 46,860 46,939
2014
—
— 25,436 62,632 62,678
2015
—
—
— 23,574 41,491
2016
—
—
—
— 24,357
Total $ 229,585
All outstanding
liabilities before 2012, net of reinsurance* 7,308
Liabilities for claims
and claim adjustment expenses, net of reinsurance $ 23,068
* 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 35.5 % 28.1 % 15.5 % 9.6 % 5.2 % 2.5 % 0.8 % 0.5 % 0.5 % 1.8 %
Non-Auto 19.9 % 19.4 % 15.2 % 13.1 % 8.3 % 5.6 % 2.5 % 2.2 % 1.2 % 12.6 %
Commercial Multi-Peril 33.8 % 14.3 % 10.7 % 12.5 % 10.5 % 6.4 % 3.3 % 1.1 % 1.0 % 6.4 %
Homeowners 76.2 % 18.5 % 2.2 % 0.9 % 0.5 % 0.2 % 0.1 % 0.1 % 0.1 % 1.2 %
Short Tail Property 90.3 % 9.7 % 0.0 % 0.0 % 0.0 % 0.0 % 0.0 % 0.0 % 0.0 % 0.0 %
Credit 76.6 % 23.4 % 0.0 % 0.0 % 0.0 % 0.0 % 0.0 % 0.0 % 0.0 % 0.0 % |
