8. Insurance Liabilities

Contractholder Funds

Major components of contractholder funds in the consolidated statements of financial position were as follows:

	December 31,
	2017		2016
	(in millions)
Liabilities for investment contracts:
Liabilities for individual annuities	$	11,336.2	$	10,864.9
GICs		9,969.1		10,290.7
Funding agreements		8,106.5		8,270.3
Other investment contracts		1,751.5		1,840.0

Total liabilities for investment contracts		31,163.3		31,265.9
Universal life and other reserves		6,919.2		6,687.7

Total contractholder funds	$	38,082.5	$	37,953.6

Our GICs and funding agreements contain provisions limiting or prohibiting early surrenders, which typically include penalties for early surrenders, minimum notice requirements or, in the case of funding agreements with survivor options, minimum pre-death holding periods and specific maximum amounts.

Funding agreements include those issued directly to nonqualified institutional investors and those issued to the FHLB Des Moines under their membership funding programs. As of December 31, 2017 and 2016, $3,256.7 million and $2,750.8 million, respectively, of liabilities were outstanding with respect to issuances under the program with FHLB Des Moines. In addition, we have five separate programs where the funding agreements have been issued directly or indirectly to unconsolidated special purpose entities. Claims for principal and interest under funding agreements are afforded equal priority to claims of life insurance and annuity policyholders under insolvency provisions of Iowa Insurance Laws.

Principal Life was authorized to issue up to $4.0 billion of funding agreements under a program established in 1998 to support the prospective issuance of medium term notes by an unaffiliated entity in non-U.S. markets. As of December 31, 2017 and 2016, $111.1 million and $106.7 million, respectively, of liabilities were outstanding with respect to the issuance outstanding under this program. Principal Life was also authorized to issue up to Euro 4.0 billion (approximately USD$5.3 billion) of funding agreements under a program established in 2006 to support the prospective issuance of medium term notes by an unaffiliated entity in non-U.S. markets. The unaffiliated entity is an unconsolidated special purpose vehicle. As of December 31, 2017 and 2016, $177.4 million and $702.0 million, respectively, of liabilities were outstanding with respect to issuances outstanding under this program. Principal Life does not anticipate any new issuance activity under either of these programs due to the existence of the program established in 2011 described below.

In addition, Principal Life was authorized to issue up to $7.0 billion of funding agreements under a program established in 2001 to support the prospective issuance of medium term notes by an unaffiliated entity in both domestic and international markets. The unaffiliated entity is an unconsolidated special purpose entity. As of December 31, 2017 and 2016, $201.6 million and $201.5 million, respectively, of liabilities were being held with respect to issuances outstanding under this program. Principal Life does not anticipate any new issuance activity under this program, given our December 2005 termination of the dealership agreement for this program and the availability of the program established in 2011 described below.

Additionally, Principal Life was authorized to issue up to $9.0 billion of funding agreements under a program that was originally established in March 2004 to support the prospective issuance of medium term notes by unaffiliated entities in both domestic and international markets. Under this program, both the notes and the supporting funding agreements were registered with the United States Securities and Exchange Commission ("SEC"). As of December 31, 2017 and 2016, $67.8 million and $119.8 million, respectively, of liabilities were being held with respect to issuances outstanding under this program. In contrast with direct funding agreements, GIC issuances and the other three funding agreement-backed medium term note programs described above, Principal Life's payment obligations on each funding agreement issued under this SEC-registered program are guaranteed by PFG. Principal Life does not anticipate any new issuance activity under this program due to the existence of the program established in 2011 described below.

Principal Life was authorized to issue up to $5.0 billion of funding agreements under a program that was originally established in 2011 to support the prospective issuance of medium term notes by an unaffiliated entity in both domestic and international markets. The unaffiliated entity is an unconsolidated special purpose entity. In June 2015, this program was amended to authorize issuance of up to an additional $4.0 billion in recognition of the use of nearly all $5.0 billion of existing issuance authorization. In November 2017, this program was amended to authorize issuance of up to an additional $4.0 billion. As of December 31, 2017 and 2016, $4,291.9 million and $4,389.4 million, respectively, of liabilities were being held with respect to issuances outstanding under this program. Similar to the SEC-registered program, Principal Life's payment obligations on each funding agreement issued under this program are guaranteed by PFG. The program established in 2011 is not registered with the SEC.

Liability for Unpaid Claims

The liability for unpaid claims is reported in future policy benefits and claims within our consolidated statements of financial position. Activity associated with unpaid claims was as follows:

	For the year ended December 31,
	2017		2016		2015
	(in millions)
Balance at beginning of year	$	2,001.3	$	1,872.2	$	1,771.4
Less: reinsurance recoverable		340.3		314.1		284.6

Net balance at beginning of year		1,661.0		1,558.1		1,486.8
Incurred:
Current year		1,196.6		1,103.5		1,037.0
Prior years		18.2		24.4		(18.1	)

Total incurred		1,214.8		1,127.9		1,018.9
Payments:
Current year		767.2		701.9		646.7
Prior years		353.9		323.1		300.9

Total payments		1,121.1		1,025.0		947.6

Net balance at end of year		1,754.7		1,661.0		1,558.1
Plus: reinsurance recoverable		375.8		340.3		314.1

Balance at end of year	$	2,130.5	$	2,001.3	$	1,872.2


Amounts not included in the rollforward above:
Claim adjustment expense liabilities	$	50.7	$	49.3	$	58.9

Incurred liability adjustments relating to prior years, which affected current operations during 2017, 2016 and 2015, resulted in part from developed claims for prior years being different than were anticipated when the liabilities for unpaid claims were originally estimated. These trends have been considered in establishing the current year liability for unpaid claims.

Short-Duration Contracts

Claims Development

The following tables present undiscounted information about claims development by incurral year, including separate information about incurred claims and paid claims net of reinsurance for the periods indicated. The tables also include information on incurred but not reported claims and the cumulative number of reported claims.

The tables present information for the number of years for which claims incurred typically remain outstanding, but do not exceed ten years. The data is disaggregated into groupings of claims with similar characteristics, such as duration of the claim payment period and average claim amount, and with consideration to the overall size of the groupings. Outstanding liabilities equal total net incurred claims less total net paid claims plus outstanding liabilities for net unpaid claims of prior years.

LTD and Group Life Waiver Claims

	Net incurred claims (1)																				Incurred but not reported claims		Cumulative number of reported claims
	December 31,
	2008		2009		2010		2011		2012		2013		2014		2015		2016		2017		2017		2017
	($ in millions)
Incurral year
2008	$	227.7	$	222.3	$	226.3	$	225.9	$	218.5	$	209.5	$	205.5	$	201.6	$	199.8	$	199.1	$	0.1		7,730
2009				218.6		224.4		224.2		224.8		217.7		214.1		208.5		205.8		205.6		0.1		6,554
2010						184.1		176.7		176.2		172.0		162.7		155.7		154.1		153.4		0.1		5,644
2011								203.7		192.6		185.4		184.8		178.4		172.3		169.6		0.1		6,286
2012										217.9		200.0		191.1		189.5		181.8		174.8		0.1		6,441
2013												219.3		203.3		188.4		190.7		182.3		0.1		7,044
2014														242.2		231.4		214.4		218.1		1.7		7,591
2015																231.0		227.2		217.2		3.7		7,146
2016																		229.8		228.4		6.2		6,076
2017																				238.4		81.2		3,640

Total net incurred claims																			$	1,986.9

	Net cumulative paid claims (1)
	December 31,
	2008		2009		2010		2011		2012		2013		2014		2015		2016		2017
	(in millions)
Incurral year
2008	$	15.1	$	58.1	$	84.0	$	99.4	$	113.3	$	123.2	$	131.7	$	139.4	$	146.4	$	152.4
2009				13.4		55.2		82.6		101.0		113.8		124.6		133.1		141.8		149.8
2010						10.4		46.5		67.1		78.4		85.9		94.2		100.9		107.2
2011								11.2		50.0		72.5		85.7		95.4		105.2		112.6
2012										13.8		55.1		80.8		93.7		104.6		112.9
2013												12.5		55.0		81.4		97.0		106.4
2014														16.1		66.0		96.3		111.8
2015																16.9		67.0		98.0
2016																		16.2		70.6
2017																				17.8

Total net paid claims																				1,039.5
All outstanding liabilities for unpaid claims prior to 2008 net of reinsurance																				212.9

Total outstanding liabilities for unpaid claims net of reinsurance																			$	1,160.3

(1) 2008 - 2016 unaudited.

Dental, Vision, STD and Critical Illness Claims

	Net incurred claims (1)				Incurred but not reported claims		Cumulative number of reported claims
	December 31,
	2016		2017		2017		2017
	($ in millions)
Incurral year
2016	$	544.2	$	540.5	$	0.1		2,563,426
2017				595.8		32.1		2,648,418

Total net incurred claims			$	1,136.3

	Net cumulative paid claims (1)
	December 31,
	2016		2017
	(in millions)
Incurral year
2016	$	495.4	$	540.4
2017				542.3

Total net paid claims				1,082.7
All outstanding liabilities for unpaid claims prior to 2016 net of reinsurance				—

Total outstanding liabilities for unpaid claims net of reinsurance			$	53.6


(1)	2016 unaudited.

Group Life Claims

	Net incurred claims (1)				Incurred but not reported claims		Cumulative number of reported claims
	December 31,
	2016		2017		2017		2017
	($ in millions)
Incurral year
2016	$	222.6	$	220.4	$	0.4		5,155
2017				239.8		21.1		5,123

Total net incurred claims			$	460.2

	Net cumulative paid claims (1)
	December 31,
	2016		2017
	(in millions)
Incurral year
2016	$	179.0	$	219.3
2017				195.2

Total net paid claims				414.5
All outstanding liabilities for unpaid claims prior to 2016 net of reinsurance				0.9

Total outstanding liabilities for unpaid claims net of reinsurance			$	46.6


(1)	2016 unaudited.

Reconciliation of Unpaid Claims to Liability for Unpaid Claims

Our reconciliation of net outstanding liabilities for unpaid claims of short-duration contracts to the liability for unpaid claims follows:

	December 31, 2017
	LTD and Group Life Waiver			Dental, Vision, STD and Critical Illness		Group Life		Consolidated
	(in millions)
Net outstanding liabilities for unpaid claims	$	1,160.3		$	53.6	$	46.6	$	1,260.5
Reconciling items:
Reinsurance recoverable on unpaid claims		69.1			—		0.7		69.8
Impact of discounting		(226.2	)		—		—		(226.2	)

Liability for unpaid claims — short-duration contracts	$	1,003.2		$	53.6	$	47.3		1,104.1


Insurance contracts other than short-duration									1,026.4

Liability for unpaid claims								$	2,130.5

Claim Duration and Payout

Our historical average percentage of claims paid in each year from incurral was as follows:

	December 31, 2017 (1)
Year	LTD and Group Life Waiver			Dental, Vision, STD and Critical Illness			Group Life
1		7.2	%		91.8	%		81.8	%
2		22.8			8.0			17.3
3		13.8
4		7.9
5		5.9
6		5.2
7		4.3
8		4.1
9		3.7
10		3.0

(1) Unaudited.

Discounting

The following table provides the carrying amount of liabilities reported at present value for short-duration contract unpaid claims. We use a range of discount rates to derive the present value of the unpaid claims. The ranges of discount rates as well as the aggregate amount of discount deducted to derive the liabilities for unpaid claims and interest accretion recognized are also disclosed. Interest accretion is included in benefits, claims and settlement expenses within our consolidated statements of operations.

	LTD and Group Life Waiver			Dental, Vision, STD and Critical Illness			Group Life
	($ in millions)
Carrying amount of liabilities for unpaid claims
December 31, 2017	$	1,003.2		$	53.6		$	47.3
December 31, 2016		992.7			48.8			45.9
Range of discount rates
December 31, 2017		3.3 - 7.0	%		— - —	%		— - —	%
December 31, 2016		3.3 - 7.0			— - —			— - —
Aggregate amount of discount
December 31, 2017	$	226.2		$	—		$	—
December 31, 2016		234.1			—			—
Interest accretion
For the year ended:
December 31, 2017	$	35.0		$	—		$	—
December 31, 2016		36.3			—			—
December 31, 2015		37.6			—			—