Assurant 2012 Annual Report Download - page 43

ASSURANT, INC.2012 Form10-K 35
PARTII
ITEM 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations
Key sensitivities at December31, 2012 for group long term disability claim reserves include the discount rate and claim termination rates.
Claims and Bene ts Payable Claims and Bene ts Payable
Group disability, discount rate decreased
by 100 basis points $ 1,373,851 Group disability, claim termination rate10% lower $ 1,343,830
Group disability, as reported $ 1,309,087 Group disability, as reported $ 1,309,087
Group disability, discount rate increased
by 100 basis points $ 1,250,755 Group disability, claim termination rate 10% higher $ 1,277,538
 e discount rate is also a key sensitivity for group term life waiver of premium reserves (included within group term life reserves).
Claims and Bene ts Payable
Group term life, discount rate decreased by 100 basis points $ 212,494
Group term life, as reported $ 203,757
Group term life, discount rate increased by 100 basis points $ 195,908
Medical
IBNR reserves calculated using generally accepted actuarial methods
represent the largest component of reserves for short duration medical
claims and bene ts payable.  e primary methods we use in their
estimation are the loss development method and the projected claim
method. Under the loss development method, we estimate ultimate
losses for each incident period by multiplying the current cumulative
losses by the appropriate loss development factor. When there is not
su cient data to reliably estimate reserves under the loss development
method, such as for recent claim periods, the projected claim method
is used.  is method utilizes expected ultimate loss ratios to estimate
the required reserve. Where appropriate, we also use variations on each
method or a blend of the two.
Reserves for our various product lines are calculated using experience
data where credible. If su cient experience data is not available, data
from other similar blocks may be used. Industry data provides additional
benchmarks when historical experience is too limited. Reserve factors
may also be adjusted to re ect considerations not re ected in historical
experience, such as changes in claims inventory levels, changes in
provider negotiated rates or cost savings initiatives, increasing or
decreasing medical cost trends, product changes and demographic
changes in the underlying insured population.
Key sensitivities as of December31, 2012 for short duration medical
reserves include claims processing levels, claims under case management,
medical in ation, seasonal e ects, medical provider discounts and
product mix.
Claims and Bene ts Payable
Short duration medical, loss development factors 1% lower*$ 262,758
Short duration medical, as reported $ 247,758
Short duration medical, loss development factors 1% higher*$ 234,758
* This refers to loss development factors for the most recent four months. Our historical claims experience indicates that approximately 87% of medical claims are paid within four
months of the incurred date.
Changes in medical loss development may increase or decrease the
MLR rebate liability.
Property and Warranty
Our Property and Warranty lines of business include lender-placed
homeowners, manufactured housing homeowners, multi-family housing,
credit property, credit unemployment and warranty insurance and some
longer-tail coverages (e.g. asbestos, environmental, other general liability
and personal accident). Claim reserves for these lines are calculated
on a product line basis using generally accepted actuarial principles
and methods.  ey consist of case and IBNR reserves.  e method
we most often use in setting our Property and Warranty reserves is the
loss development method. Under this method, we estimate ultimate
losses for each accident period by multiplying the current cumulative
losses by the appropriate loss development factor. We then calculate
the reserve as the di erence between the estimate of ultimate losses
and the current case-incurred losses (paid losses plus case reserves). We
select loss development factors based on a review of historical averages,
adjusted to re ect recent trends and business-speci c matters such as
current claims payment practices.
 e loss development method involves aggregating loss data (paid
losses and case-incurred losses) by accident quarter (or accident year)
and accident age for each product or product grouping. As the data
ages, we compile loss development factors that measure emerging claim
development patterns between reporting periods. By selecting the most
appropriate loss development factors, we project the known losses to
an ultimate incurred basis for each accident period.
 e data is typically analyzed using quarterly paid losses and/or quarterly
case-incurred losses. Some product groupings may also use annual paid
loss and/or annual case-incurred losses, as well as other actuarially
accepted methods.
Each of these data groupings produces an indication of the loss reserves
for the product or product grouping.  e process to select the best
estimate di ers by line of business.  e single best estimate is determined
based on many factors, including but not limited to:
•the nature and extent of the underlying assumptions;
• the quality and applicability of historical data—whether internal or
industry data;
•current and future market conditions—the economic environment
will often impact the development of loss triangles;