Assurant 2014 Annual Report Download - page 127

ASSURANT, INC. – 2014 Form 10-K F-39
13 Reserves
Short Duration Contracts
The Company’s short duration contracts are comprised of
group term life, group disability, medical, dental, property
and warranty, credit life and disability, extended service
contract and all other. The principal products and services
included in these categories are described in the summary
of signifi cant accounting polices (see Note 2).
Case and IBNR reserves are developed using actuarial
principles and assumptions that consider, among other
things, contractual requirements, historical utilization
trends and payment patterns, benefi t changes, medical
infl ation, seasonality, membership, product mix, legislative
and regulatory environment, economic factors, disabled life
mortality and claim termination rates and other relevant
factors. The Company consistently applies the principles and
assumptions listed above from year to year, while also giving
due consideration to the potential variability of these factors.
Since case and IBNR reserves include estimates developed
from various actuarial methods, the Company’s actual losses
incurred may be more or less than the Company’s previously
developed estimates. As shown in the table above, if the
amounts listed on the line labeled “Incurred losses related
to: Prior years” are negative (redundant) this means that
the Company’s actual losses incurred related to prior years
for these lines were less than the estimates previously
made by the Company. If the line labeled “Incurred losses
related to: Prior years” are positive (defi cient) this means
that the Company’s actual losses incurred related to prior
years for these lines were greater than the estimates
previously made by the Company.
Medical reserves established for obligations that would
persist even if contracts were cancelled (such as extension
of benefi ts) have been excluded from the incurred loss roll-
forwards because they cannot be analyzed appropriately
under a roll-forward approach.
Group Term Life case and IBNR reserves redundancies in all
years are due to actual mortality rates running below those
assumed in prior year reserves, and actual recovery rates
running higher than those assumed in prior year reserves.
Group Disability case and IBNR reserves show redundancies
in all years due to actual claim recovery rates exceeding
those assumed in prior year reserves.
The redundancies in our Medical lines case and IBNR
reserves were caused by the Company’s claims and other
case reserves developing more favorably than expected.
The Company’s actual claims experience refl ected lower
medical provider utilization and lower medical infl ation
than assumed in the Company’s prior-year pricing and
reserving processes.
The Company’s group disability products include short
and long term disability coverage. Case and IBNR reserves
for long-term disability claims have been discounted at
5.25% for claims incurred in 2010 and prior years, and
between 4.25% and 4.75% for claims incurred after 2010.
The amount of discounts deducted from outstanding
reserves as of December 31, 2014 and 2013 are $362,207
and $386,582, respectively.
In 2014, the Company’s Property and Warranty case and
IBNR reserves refl ected a minimal degree of favorable
development on prior accident years. In 2013 and 2012,
a comparatively higher degree of favorable development
was realized from its lender-placed homeowners, credit,
warranty and other short tail product lines. Unfavorable
development on lender-placed products in 2014 led to
a lower redundancy level than seen in prior years. In
2013, adverse development of $6,500 from Super Storm
Sandy lowered the reserve redundancy compared to 2012.
For the longer-tail Property and Warranty coverages
(e.g. asbestos, environmental, and other general liability),
for all years presented, there were no material changes
in estimated amounts for incurred claims in prior years.
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), universal life and annuities
(no longer offered), FFG and LTC disposed businesses and
medical policies. The principal products and services included
in these categories are described in the summary of signifi cant
accounting policies. See Note 2 for further information.
The Assurant Solutions segment manages preneed insurance
products through two separate divisions: the independent
division and the American Memorial Life Insurance Company
(“AMLIC”) division. The Company signed an agreement with
Forethought Life Insurance Company on November 9, 2005
whereby the Company discontinued writing new preneed
insurance policies in the U.S. via independent funeral homes.
The reserve assumptions for future policy benefi ts and
expenses for pre-funded funeral life and annuity contracts
and traditional life insurance (no longer offered) by the
preneed business differ by division and are established based
upon the following:
Preneed Business — Independent Division
Interest and discount rates for preneed life insurance issued
prior to 2009 vary by year of issuance and product, are based
on pricing assumptions and modifi ed to allow for provisions
for adverse deviation. For preneed life insurance with
discretionary death benefi t growth issued after 2008, interest
and discount rates are based upon current assumptions
without provisions for adverse deviation. During 2014 and
2013, interest and discount rates ranged between 3.3%
and 7.3%.
Interest and discount rates for traditional life insurance (no
longer offered) vary by year of issuance and products and
were 7.5% grading to 5.3% over 20 years in 2014 and 2013
with the exception of a block of pre-1980 business which
had a level 8.8% discount rate in 2014 and 2013.