Insurance Liabilities

12 Months Ended

Dec. 31, 2022

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,
	2022		2021
	(in millions)
Liabilities for investment contracts:
Liabilities for individual annuities	$	7,739.3	$	10,652.3
GICs		13,787.7		12,206.0
Funding agreements		12,318.7		11,685.5
Other investment contracts		1,493.4		1,593.5
Total liabilities for investment contracts		35,339.1		36,137.3
Universal life and other reserves		7,438.2		7,460.7
Total contractholder funds	$	42,777.3	$	43,598.0

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, 2022 and 2021, $4,275.5 million and $4,252.4 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, 2022 and 2021, $75.6 million and $75.0 million, respectively, of liabilities were outstanding with respect to the issuance outstanding under this program.

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, 2022 and 2021, $201.9 million and $201.8 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 $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 November 2017, this program was amended to authorize issuance of up to an additional $4.0 billion. In February 2021, this program was amended to authorize issuance of up to an additional $4.0 billion. As of December 31, 2022 and 2021, $7,765.7 million and $7,156.3 million, respectively, of liabilities were being held with respect to issuances outstanding under this 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 United States Securities and Exchange Commission (“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,
	2022		2021		2020
	(in millions)
Balance at beginning of year	$	2,659.4	$	2,534.9	$	2,365.5
Less: reinsurance recoverable		442.1		436.9		403.8
Net balance at beginning of year		2,217.3		2,098.0		1,961.7
Incurred:
Current year		1,664.2		1,572.5		1,376.8
Prior years		32.1		7.2		26.6
Total incurred		1,696.3		1,579.7		1,403.4
Payments:
Current year		1,093.2		1,025.0		863.8
Prior years		465.4		435.4		403.3
Total payments		1,558.6		1,460.4		1,267.1
Net balance at end of year		2,355.0		2,217.3		2,098.0
Plus: reinsurance recoverable		478.1		442.1		436.9
Balance at end of year	$	2,833.1	$	2,659.4	$	2,534.9
Amounts not included in the rollforward above:
Claim adjustment expense liabilities	$	59.7	$	59.5	$	57.8

Incurred liability adjustments relating to prior years, which affected current operations during 2022, 2021 and 2020, 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

																					Incurred			Cumulative
																					but not			number of
																					reported			reported
	Net incurred claims (1)																				claims			claims
	December 31,
	2013		2014		2015		2016		2017		2018		2019		2020		2021		2022		2022		2022
	($ in millions)
Incurral
year
2013	$	219.3	$	203.3	$	188.4	$	190.7	$	182.3	$	179.5	$	177.1	$	173.4	$	174.5	$	174.5	$	0.1		7,051
2014				242.2		231.4		214.4		218.1		206.2		201.9		202.0		199.3		199.8		0.1		7,604
2015						231.0		227.2		217.2		215.3		208.2		210.0		211.8		210.5		0.1		7,181
2016								229.8		228.4		219.4		219.5		214.4		218.7		221.9		0.1		6,167
2017										238.4		239.7		243.1		245.8		245.2		246.5		0.1		6,082
2018												239.4		245.1		239.2		239.8		235.3		0.1		5,774
2019														255.2		248.4		240.4		240.2		5.7		5,945
2020																252.1		231.0		221.1		8.4		5,913
2021																		259.7		244.5		4.0		5,484
2022																				274.3		109.8		3,422
Total net incurred claims																			$	2,268.6

	Net cumulative paid claims (1)
	December 31,
	2013		2014		2015		2016		2017		2018		2019		2020		2021		2022
	(in millions)
Incurral
year
2013	$	12.5	$	55.0	$	81.4	$	97.0	$	106.4	$	116.4	$	123.2	$	129.0	$	134.9	$	139.6
2014				16.1		66.0		96.3		111.8		122.3		132.4		140.8		147.2		153.3
2015						16.9		67.0		98.0		114.6		126.8		137.1		146.5		154.0
2016								16.2		70.6		105.6		124.9		136.8		147.2		157.1
2017										17.8		76.5		115.0		135.9		151.7		165.4
2018												20.1		79.9		115.7		135.7		150.3
2019														19.2		79.7		117.5		136.4
2020																20.6		78.8		113.1
2021																		19.8		79.0
2022																				19.6
Total net paid claims																				1,267.8
All outstanding liabilities for unpaid claims prior to 2013 net of reinsurance																				239.5
Total outstanding liabilities for unpaid claims net of reinsurance																			$	1,240.3

(1) 2013-2021 unaudited.

Dental, Vision, STD, Critical Illness, Accident and PFML Claims

					Incurred		Cumulative
					but not		number of
					reported		reported
	Net incurred claims (1)				claims		claims
	December 31,
	2021		2022		2022		2022
	($ in millions)
Incurral year
2021	$	826.0	$	814.1	$	—		3,749,753
2022				924.4		56.5		4,114,456
Total net incurred claims			$	1,738.5
	Net cumulative
	paid claims (1)
	December 31,
	2021		2022
	(in millions)
Incurral year
2021	$	753.4	$	813.3
2022				845.5
Total net paid claims				1,658.8
All outstanding liabilities for unpaid claims prior to 2021 net of reinsurance				—
Total outstanding liabilities for unpaid claims net of reinsurance			$	79.7

(1) 2021 unaudited.

Group Life Claims

					Incurred		Cumulative
					but not		number of
					reported		reported
	Net incurred claims (1)				claims		claims
	December 31,
	2021		2022		2022		2022
	($ in millions)
Incurral year
2021	$	317.6	$	321.5	$	0.8		7,079
2022				279.3		24.7		5,368
Total net incurred claims			$	600.8
	Net cumulative
	paid claims (1)
	December 31,
	2021		2022
	(in millions)
Incurral year
2021	$	243.9	$	314.3
2022				218.3
Total net paid claims				532.6
All outstanding liabilities for unpaid claims prior to 2021 net of reinsurance				5.0
Total outstanding liabilities for unpaid claims net of reinsurance			$	73.2

(1) 2021 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, 2022
			Dental, Vision, STD,
	LTD and Group Life		Critical Illness,
	Waiver		Accident and PFML		Group Life		Consolidated
	(in millions)
Net outstanding liabilities for unpaid claims	$	1,240.3	$	79.7	$	73.2	$	1,393.2
Reconciling items:
Reinsurance recoverable on unpaid claims		45.3		—		0.4		45.7
Impact of discounting		(209.4)		—		—		(209.4)
Liability for unpaid claims - short-duration contracts	$	1,076.2	$	79.7	$	73.6		1,229.5
Insurance contracts other than short-duration								1,603.6
Liability for unpaid claims							$	2,833.1

Claim Duration and Payout

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

	December 31, 2022 (1)
			Dental, Vision, STD,
	LTD and Group Life		Critical Illness,
Year	Waiver		Accident and PFML		Group Life
1	7.9	%	91.8	%	79.6	%
2	24.7		8.0		18.5
3	15.4
4	8.3
5	5.8
6	5.2
7	4.3
8	3.4
9	3.2
10	2.6

(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,
	Waiver					Accident and PFML					Group Life
	($ in millions)
Carrying amount of liabilities for unpaid claims
December 31, 2022	$			1,076.2		$			79.7		$			73.6
December 31, 2021				1,057.5					73.1					80.2
Range of discount rates
December 31, 2022		2.8	-	7.0	%		—	-	—	%		—	-	—	%
December 31, 2021		2.8	-	7.0			—	-	—			—	-	—
Aggregate amount of discount
December 31, 2022	$			209.4		$			—		$			—
December 31, 2021				208.0					—					—
Interest accretion
For the year ended:
December 31, 2022	$			33.0		$			—		$			—
December 31, 2021				33.8					—					—
December 31, 2020				33.9					—					—