Insurance Liabilities

12 Months Ended

Dec. 31, 2019

Insurance Liabilities

Insurance Liabilities

8. Insurance Liabilities

Contractholder Funds

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

	December 31,
	2019		2018
	(in millions)
Liabilities for investment contracts:
Liabilities for individual annuities	$	13,457.5	$	12,913.9
GICs		10,423.5		10,321.7
Funding agreements		8,640.6		7,729.5
Other investment contracts		1,596.7		1,652.2
Total liabilities for investment contracts		34,118.3		32,617.3
Universal life and other reserves		7,249.2		7,082.4
Total contractholder funds	$	41,367.5	$	39,699.7

8.  Insurance Liabilities – (continued)

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, 2019 and 2018, $4,010.9 million and $3,512.2 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, 2019 and 2018, $75.2 million and $109.6 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 entity. As of December 31, 2019 and 2018, $112.2 million and $114.4 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, 2019 and 2018, $201.7 million and $201.6 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 both December 31, 2019 and 2018, $26.2 million 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, 2019 and 2018, $4,214.3 million and $3,765.3 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.

8. Insurance Liabilities – (continued)

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,
	2019		2018		2017
	(in millions)
Balance at beginning of year	$	2,252.7	$	2,130.5	$	2,001.3
Less: reinsurance recoverable		404.3		375.8		340.3
Net balance at beginning of year		1,848.4		1,754.7		1,661.0
Incurred:
Current year		1,361.3		1,268.8		1,196.6
Prior years		0.8		0.3		18.2
Total incurred		1,362.1		1,269.1		1,214.8
Payments:
Current year		869.4		815.7		767.2
Prior years		379.4		359.7		353.9
Total payments		1,248.8		1,175.4		1,121.1
Net balance at end of year		1,961.7		1,848.4		1,754.7
Plus: reinsurance recoverable		403.8		404.3		375.8
Balance at end of year	$	2,365.5	$	2,252.7	$	2,130.5
Amounts not included in the rollforward above:
Claim adjustment expense liabilities	$	57.9	$	54.6	$	50.7

Incurred liability adjustments relating to prior years, which affected current operations during 2019, 2018 and 2017, 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.

8.  Insurance Liabilities – (continued)

LTD and Group Life Waiver Claims

																					Incurred		Cumulative
																					but not		number of
																					reported		reported
	Net incurred claims (1)																				claims		claims
	December 31,
	2010		2011		2012		2013		2014		2015		2016		2017		2018		2019		2019		2019
	($ in millions)
Incurral year
2010	$	184.1	$	176.7	$	176.2	$	172.0	$	162.7	$	155.7	$	154.1	$	153.4	$	152.1	$	151.8	$	0.1	5,649
2011				203.7		192.6		185.4		184.8		178.4		172.3		169.6		167.6		166.5		0.1	6,290
2012						217.9		200.0		191.1		189.5		181.8		174.8		173.3		171.9		0.1	6,444
2013								219.3		203.3		188.4		190.7		182.3		179.5		177.1		0.1	7,050
2014										242.2		231.4		214.4		218.1		206.2		201.9		0.1	7,596
2015												231.0		227.2		217.2		215.3		208.2		0.1	7,174
2016														229.8		228.4		219.4		219.5		5.4	6,161
2017																238.4		239.7		243.1		8.0	6,053
2018																		239.4		245.1		3.8	5,668
2019																				255.2		104.6	3,472
Total net incurred claims																			$	2,040.3

	Net cumulative paid claims (1)
	December 31,
	2010		2011		2012		2013		2014		2015		2016		2017		2018		2019
	(in millions)
Incurral year
2010	$	10.4	$	46.5	$	67.1	$	78.4	$	85.9	$	94.2	$	100.9	$	107.2	$	112.1	$	116.7
2011				11.2		50.0		72.5		85.7		95.4		105.2		112.6		119.3		125.4
2012						13.8		55.1		80.8		93.7		104.6		112.9		120.0		126.1
2013								12.5		55.0		81.4		97.0		106.4		116.4		123.2
2014										16.1		66.0		96.3		111.8		122.3		132.4
2015												16.9		67.0		98.0		114.6		126.8
2016														16.2		70.6		105.6		124.9
2017																17.8		76.5		115.0
2018																		20.1		79.9
2019																				19.2
Total net paid claims																				1,089.6
All outstanding liabilities for unpaid claims prior to 2010 net of reinsurance																				237.8
Total outstanding liabilities for unpaid claims net of reinsurance																			$	1,188.5

(1) 2010-2018 unaudited.

8. Insurance Liabilities – (continued)

Dental, Vision, STD, Critical Illness and Accident Claims

					Incurred		Cumulative
					but not		number of
					reported		reported
	Net incurred claims (1)				claims		claims
	December 31,
	2018		2019		2019		2019
	($ in millions)
Incurral year
2018	$	648.3	$	640.0	$	—		3,032,617
2019				724.7		45.0		3,184,519
Total net incurred claims			$	1,364.7
	Net cumulative
	paid claims (1)
	December 31,
	2018		2019
	(in millions)
Incurral year
2018	$	589.1	$	640.0
2019				653.5
Total net paid claims				1,293.5
All outstanding liabilities for unpaid claims prior to 2018 net of reinsurance				—
Total outstanding liabilities for unpaid claims net of reinsurance			$	71.2

(1) 2018 unaudited.

8. Insurance Liabilities – (continued)

Group Life Claims

					Incurred		Cumulative
					but not		number of
					reported		reported
	Net incurred claims (1)				claims		claims
	December 31,
	2018		2019		2019		2019
	($ in millions)
Incurral year
2018	$	239.6	$	238.4	$	0.7		5,220
2019				228.3		23.0		4,625
Total net incurred claims			$	466.7
	Net cumulative
	paid claims (1)
	December 31,
	2018		2019
	(in millions)
Incurral year
2018	$	193.9	$	236.5
2019				181.7
Total net paid claims				418.2
All outstanding liabilities for unpaid claims prior to 2018 net of reinsurance				1.0
Total outstanding liabilities for unpaid claims net of reinsurance			$	49.5

(1) 2018 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, 2019
			Dental, Vision, STD,
	LTD and Group Life		Critical Illness and
	Waiver		Accident		Group Life		Consolidated
	(in millions)
Net outstanding liabilities for unpaid claims	$	1,188.5	$	71.2	$	49.5	$	1,309.2
Reconciling items:
Reinsurance recoverable on unpaid claims		56.4		—		0.9		57.3
Impact of discounting		(215.0)		—		—		(215.0)
Liability for unpaid claims - short-duration contracts	$	1,029.9	$	71.2	$	50.4		1,151.5
Insurance contracts other than short-duration								1,214.0
Liability for unpaid claims							$	2,365.5

8. Insurance Liabilities – (continued)

Claim Duration and Payout

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

	December 31, 2019 (1)
			Dental, Vision, STD,
	LTD and Group Life		Critical Illness and		Group
Year	Waiver		Accident		Life
1	7.6	%	91.7	%	81.7	%
2	24.2		8.0		17.0
3	14.9
4	8.1
5	5.6
6	5.3
7	4.2
8	3.9
9	3.5
10	3.1

(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.

						Dental, Vision, STD,
	LTD and Group Life					Critical Illness and
	Waiver					Accident					Group Life
	($ in millions)
Carrying amount of liabilities for unpaid claims
December 31, 2019	$			1,029.9		$			71.2		$			50.4
December 31, 2018				1,020.0					59.3					49.7
Range of discount rates
December 31, 2019		3.3	-	7.0	%		—	-	—	%		—	-	—	%
December 31, 2018		3.3	-	7.0			—	-	—			—	-	—
Aggregate amount of discount
December 31, 2019	$			215.0		$			—		$			—
December 31, 2018				217.7					—					—
Interest accretion
For the year ended:
December 31, 2019	$			34.2		$			—		$			—
December 31, 2018				34.5					—					—
December 31, 2017				35.0					—					—