Assurant 2015 Annual Report Download - page 50

38 ASSURANT, INC. – 2015 Form 10-K
PART II
ITEM 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations
Long Duration Contracts
Reserves for future policy benets represent the present
value of future benets to policyholders and related expenses
less the present value of future net premiums� Reserve
assumptions reect best estimates for expected investment
yield, ination, mortality, morbidity, expenses and withdrawal
rates� These assumptions are based on our experience to
the extent it is credible, modied where appropriate to
reect current trends, industry experience and provisions for
possible unfavorable deviation� We also record an unearned
revenue reserve which represents premiums received which
have not yet been recognized in our consolidated statements
of operations�
Historically, premium deciency testing on continuing lines
of business has not resulted in material adjustments to
deferred acquisition costs or reserves� Such adjustments
could occur, however, if economic or mortality conditions
signicantly deteriorated.
Risks related to the reserves recorded for certain discontinued
individual life, annuity, and long-term care insurance policies
have been 100% ceded via reinsurance� While the Company
has not been released from the contractual obligation to
the policyholders, changes in and deviations from economic,
mortality, morbidity, and withdrawal assumptions used in
the calculation of these reserves will not directly affect
our results of operations unless there is a default by the
assuming reinsurer�
Short Duration Contracts
Claims and benets payable reserves for short duration
contracts include (1) case reserves for known claims which
are unpaid as of the balance sheet date; (2) IBNR reserves
for claims where the insured event has occurred but has
not been reported to us as of the balance sheet date; and
(3) loss adjustment expense reserves for the expected
handling costs of settling the claims� Periodically, we review
emerging experience and make adjustments to our reserves and
assumptions where necessary� Below are further discussions on
the reserving process for our major short duration products�
Group Disability and Group Term Life
Case or claim reserves are set for active individual claims on
group long term disability policies and for waiver of premium
benets on group term life policies. Reserve factors used to
calculate these reserves reect assumptions regarding disabled
life mortality and claim recovery rates, claim management
practices, awards for social security and other benet offsets
and yield rates earned on assets supporting the reserves�
Group long term disability and group term life waiver of
premium reserves are discounted because the payment
pattern and ultimate cost are xed and determinable on an
individual claim basis�
Factors considered when setting IBNR reserves include patterns
in elapsed time from claim incidence to claim reporting,
and elapsed time from claim reporting to claim payment�
Key sensitivities at December 31, 2015 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 $ 1,251,532
Group disability,
claim termination rate 10% lower $ 1,224,925
Group disability, as reported $ 1,192,996 Group disability, as reported $ 1,192,996
Group disability, discount rate
increased by 100 basis points $ 1,139,604
Group disability,
claim termination rate 10% higher $ 1,165,045
The 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 $ 206,000
Group term life, as reported $ 197,777
Group term life, discount rate increased by 100 basis points $ 190,392
Medical
IBNR reserves calculated using generally accepted actuarial
methods represent the largest component of reserves for short
duration medical claims and benets payable. The 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 sufcient data to reliably estimate reserves under the
loss development method, such as for recent claim periods,
the projected claim method is used� This 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�