Reserves

Short Duration Contracts

Continuing Business (Global Housing and Global Lifestyle)

The Company’s short duration contracts are comprised of products and services included in the Global Lifestyle and Global Housing segments. The main product lines for Global Lifestyle include extended service contracts, vehicle service contracts, mobile device protection and credit insurance, and for Global Housing the main product lines include lender-placed homeowners and flood, multi-family housing and manufactured housing.

Total incurred but not reported (“IBNR”) reserves are determined by subtracting case basis incurred losses from the ultimate loss and loss adjustment expense estimates. Ultimate loss and loss adjustment expenses are estimated utilizing generally accepted actuarial loss reserving methods. The reserving methods widely employed within the Company include the Chain Ladder, Munich Chain Ladder, and Bornhuetter-Ferguson. For Global Housing, reportable catastrophes are analyzed and reserved for separately using a frequency and severity approach. The methods all involve aggregating paid and case-incurred loss data by accident quarter (or accident year) and accident age for each product grouping. As the data ages, loss development factors are calculated that measure emerging claim development patterns between reporting periods. By selecting loss development factors indicative of remaining development, known losses are projected to an ultimate incurred basis for each accident period. The underlying premise of the Chain Ladder method is that future claims development is best estimated using past claims development, whereas the Bornhuetter-Ferguson method employs a combination of past claims development and a prior estimate of ultimate losses based on an expected loss ratio. The Munich Chain Ladder method takes into account the correlations between paid and incurred development in projecting future development factors, and is typically more applicable to products experiencing greater variability in incurred to paid ratios.

For Global Lifestyle and Housing, the best estimate of ultimate loss and loss adjustment expense is generally selected from a blend of the different methods that are applied consistently each period. There have been no significant changes in the methodologies and assumptions utilized in estimating the liability for unpaid loss and loss adjustment expenses for any of the periods presented.

Disposed and Runoff Short Duration Insurance Lines

The Company has exposure to asbestos, environmental and other general liability claims arising from our participation in various reinsurance pools from 1971 through 1985. This exposure arose from contracts that were discontinued many years ago. The amount of carried case reserves are based on recommendations of the various pool managers. Based on information currently available, and after consideration of the reserves reflected in the consolidated financial statements, we do not believe or expect that changes in reserve estimates for these claims are likely to be material.

Disposed business includes certain medical policies no long offered and AEB policies disposed of via reinsurance. Reserves for previously disposed business are included in the Company’s reserves in accordance with the insurance guidelines. The Company maintains an offsetting reinsurance recoverable related to the AEB reserves. See Note 15 for further information.

Long Duration Contracts

Continuing Business (Global Preneed)

The Company’s long duration contracts are primarily comprised of preneed life insurance and annuity policies. Future policy benefits make up the largest portion of Global Preneed liabilities. Claims and benefits payable reserves are less significant. Reserve assumptions for mortality rates, lapse rates, expenses, and interest rates are company-specific based on pricing assumptions and subsequent experience studies.

For business issued during 2016 and 2015, discount rates ranged between 1.5% and 4.25%. Death benefit increases for business issued during 2016 and 2015 ranged between less than 0.1% to 3.0%. Canadian annuity products typically have surrender charges that vary by product series and premium paying period. Surrender charges on U.S. annuity contracts generally range from 7.0% to 0.0% and grade to zero over a period of seven years.

Disposed and Runoff Long Duration Insurance Lines

The Company’s universal life and annuity products are no longer offered and are in runoff. Reserves have been established based on the following assumptions. Interest rates credited on annuities were at guaranteed rates, ranging from 3.5% to 4.0%, except for a limited number of policies with guaranteed crediting rates of 4.5%. All annuity policies are past the surrender charge period. Crediting interest rates on universal life fund are at guaranteed rates of 4.0% to 4.1%. Universal life funds are subject to surrender charges that vary by product, age, sex, year of issue, risk class, face amount and grade to zero over a period not longer than 20 years.

Reserves for previously disposed FFG and LTC businesses are included in the Company’s reserves in accordance with the insurance guidance. The Company maintains an offsetting reinsurance recoverable related to these reserves. See Note 15 for further information.

Reserve Roll Forward

The following table provides a roll forward of the Company’s beginning and ending claims and benefits payable balances. Claims and benefits payable is the liability for unpaid loss and loss adjustment expenses and is comprised of case and IBNR reserves.

Since unpaid loss and loss adjustment expenses are estimates, the Company’s actual losses incurred may be more or less than the Company’s previously developed estimates, which is referred to as either unfavorable or favorable development, respectively.



	Years Ended December 31,
	2016			2015			2014
Claims and benefits payable, at beginning of year	$	3,896,719		$	3,698,606		$	3,389,371
Less: Reinsurance ceded and other	(1,496,515		)	(1,254,443		)	(1,140,385		)
Net claims and benefits payable, at beginning of year	2,400,204			2,444,163			2,248,986
Incurred losses and loss adjustment expenses related to:
Current year	2,028,936			4,973,396			4,746,889
Prior year's interest	9,876			59,794			61,884
Prior year(s)	(196,230		)	(150,879		)	(127,462		)
Total incurred losses and loss adjustment expenses	1,842,582			4,882,311			4,681,311
Paid losses and loss adjustment expenses related to:
Current year	1,595,747			3,845,957			3,550,574
Prior year(s)	2,063,989			1,080,313			935,560
Total paid losses and loss adjustment expenses	3,659,736			4,926,270			4,486,134
Net claims and benefits payable, at end of year	583,050			2,400,204			2,444,163
Plus: Reinsurance ceded and other	2,718,207			1,496,515			1,254,443
Claims and benefits payable, at end of year	$	3,301,257		$	3,896,719		$	3,698,606

The Company experienced net favorable development in all three years. The discontinued Assurant Health and AEB businesses had a substantial contribution to the overall favorable development. Combined, the favorable development for Assurant Health and AEB was $110,924, $75,004 and $108,566 in 2016, 2015 and 2014, respectively. For Assurant Health the favorable development in all years was attributed to lower medical provider utilization and lower medical inflation than assumed in the Company’s prior-year pricing and reserving processes. For AEB, the favorable development in all years was attributed to lower mortality rates and higher claim recovery rates than assumed in the Company’s prior year reserving processes. Reserves for the longer-tail property coverages (e.g. asbestos, environmental, and other general liability), had no material changes in estimated amounts for incurred claims in prior years. The remaining favorable development was primarily attributable to the Global Lifestyle and Global Housing businesses. Global Lifestyle had favorable development of $43,081, $46,414 and $36,619 in 2016, 2015 and 2014, respectively, while Global Housing experienced favorable development of $29,792 and $12,248 in 2016 and 2015, respectively, and adverse development of $33,152 in 2014. These results exclude impacts from insignificant categories included in the reconciliation at the end of the disclosure. A more detailed explanation of the claims development from Global Lifestyle and Global Housing is presented below, including claims development by accident year.

The following tables represent the Global Lifestyle and Global Housing segments’ incurred claims and allocated claim adjustment expenses, net of reinsurance, less cumulative paid claims and allocated claim adjustment expenses, net of reinsurance to reconcile to total claims and benefits payable, net of reinsurance as of December 31, 2016. The tables provide undiscounted information about claims development by accident year for the significant short duration claims and benefits payable balances in Global Lifestyle and Global Housing. In addition, the tables present the total of IBNR plus expected development on reported claims by accident year and the cumulative number of reported claims as supplementary information. Foreign exchange rates have been applied to the loss development data presented below using the December 31, 2016 exchange rate for all periods to remove the impact of exchange rate movements over time, and thereby enhancing the comparability of the data. Five years of claims development information is provided since the significant majority of the claims are fully developed after five years, as shown in the payout ratio tables.

Global Lifestyle Net Claims Development Tables



Incurred Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance											As of December 31, 2016
For the Years Ended December 31,											Total of Incurred-but-Not Reported Liabilities Plus Expected Development on Reported Claims (1)		Cumulative Number of Reported Claims (2)
Accident Year	2012 Unaudited		2013 Unaudited		2014 Unaudited		2015 Unaudited		2016
2012	$	566,880	$	529,670	$	529,419	$	529,474	$	529,470	$	378	3,961,225
2013			611,857		578,671		575,742		576,076		696		4,714,144
2014					717,036		681,730		679,576		976		8,224,593
2015							666,092		627,967		5,540		8,456,308
2016									678,736		89,419		8,209,481
							Total		$	3,091,825



Cumulative Paid Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance
For the Years Ended December 31,
Accident Year	2012 Unaudited		2013 Unaudited		2014 Unaudited		2015 Unaudited		2016
2012	$	445,702	$	519,545	$	526,495	$	527,924	$	528,796
2013			485,380		568,771		572,976		574,802
2014					578,672		672,114		677,278
2015							527,140		617,849
2016									544,474
Total									$	2,943,199
Outstanding claims and benefits payable before 2012, net of reinsurance									1,354
Claims and benefits payable, net of reinsurance									$	149,980



Average annual payout of incurred claims by age, net of reinsurance
Year 1 Unaudited	Year 2 Unaudited	Year 3 Unaudited	Year 4 Unaudited	Year 5 Unaudited
84.3%	14.3%	0.9%	0.3%	0.2%


(1)	Includes a provision for development on case reserves.


(2)	Number of paid claims plus open (pending) claims, gross of reinsurance. Claim count information related to ceded reinsurance is not reflected as it cannot be reasonably defined or quantified, given that our reinsurance includes non-proportional treaties.

In 2016, using the December 31, 2016 foreign exchange rates for all years, Global Lifestyle experienced $39,463 of favorable loss development, compared to favorable loss development of $38,044 in 2015, and favorable loss development of $29,195 in 2014. These amounts are based on the change in net incurred losses from the claims development triangles above, plus additional impacts from accident years prior to 2012. Credit insurance products have been a contributor of the favorable development in all years presented. The US and European credit insurance businesses have been in runoff over the past three years. The loss experience, particularly loss frequency, has been more favorable than was anticipated in the prior years’ reserving processes. In 2016, the favorable loss development was also impacted by favorable loss ratio trends in extended service contract products, and improved results for mobile after reserves had been strengthened at year-end 2015 in response to reserve deficiencies from the prior years. In 2015, extended service contracts saw a reversal of the higher loss ratios trends experienced through 2014, which led to favorable development on accident year 2014 losses. In 2014, credit insurance products were the main driver of the favorable development as referenced earlier.

Foreign exchange rate movements over time caused the reserve redundancies shown in the Reserve Roll Forward table to be greater than what is reflected in the claims development tables. The impacts by year are $3,618 in 2016, $8,370 in 2015, and $7,424 in 2014. The claims development tables above remove the impact due to changing foreign exchange rates over time.

Global Housing Net Claims Development Tables



Incurred Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance											As of December 31, 2016
For the Years Ended December 31,											Total of Incurred-but-Not Reported Liabilities Plus Expected Development on Reported Claims (1)		Cumulative Number of Reported Claims (2)
Accident Year	2012 Unaudited		2013 Unaudited		2014 Unaudited		2015 Unaudited		2016
2012	$	804,443	$	814,711	$	826,383	$	833,238	$	835,307	$	3,177	182,542
2013			744,944		752,712		771,180		774,979		7,932		196,107
2014					897,835		858,232		857,899		19,012		212,477
2015							794,428		755,616		39,596		197,444
2016									842,006		188,766		180,501
							Total		$	4,065,807



Cumulative Paid Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance
For the Years Ended December 31,
Accident Year	2012 Unaudited		2013 Unaudited		2014 Unaudited		2015 Unaudited		2016
2012	$	562,068	$	779,314	$	810,993	$	824,595	$	831,008
2013			511,955		708,787		748,211		763,358
2014					596,650		795,942		833,074
2015							520,362		705,430
2016									594,869
Total									$	3,727,739
Outstanding claims and benefits payable before 2012, net of reinsurance									4,490
Claims and benefits payable, net of reinsurance									$	342,558



Average annual payout of incurred claims by age, net of reinsurance
Year 1 Unaudited	Year 2 Unaudited	Year 3 Unaudited	Year 4 Unaudited	Year 5 Unaudited
68.3%	24.7%	4.4%	1.8%	0.8%


(1)	Includes a provision for development on case reserves.


(2)	Number of paid claims plus open (pending) claims, gross of reinsurance. Claim count information related to ceded reinsurance is not reflected as it cannot be reasonably defined or quantified, given that our reinsurance includes non-proportional treaties.

In 2016, Global Housing experienced $29,792 of favorable loss development, compared to favorable loss development of $12,248 in 2015, and unfavorable loss development of $33,152 in 2014. These amounts are based on the change in net incurred losses from the claims development triangles above, plus additional impacts from accident years prior to 2012. Accident years 2012 and 2013 experienced unfavorable development driven by higher than anticipated theft and vandalism frequency and severity trends on lender-placed homeowners products. Within accident year 2014, theft and vandalism trends reached peak levels and trended favorably thereafter. The reversal in the trend is attributed in part to the housing market and overall economic recovery. In 2016, the favorable loss development was driven by continued favorable theft and vandalism trends on lender-placed homeowners products from accident year 2015, as mentioned above. In 2015, the favorable loss development was driven by improved non-catastrophe loss experience from accident year 2014 among lender-placed homeowners products, offsetting unfavorable development from accident years 2013 and prior. Year-end 2014 reserves had been strengthened in response to some deterioration in theft and vandalism frequency and severity trends. In 2014, the unfavorable loss development was due to theft and vandalism claim frequency and severity being higher than expected for lender-placed homeowners products, primarily in accident years 2012 and 2013.

Reconciliation of the Disclosure of Net Incurred and Paid Claims Development to the Liability for Unpaid Claims and Benefits Payable



	December 31, 2016
Net outstanding liabilities
Global Lifestyle	$	149,980
Global Housing	342,558
Other short-duration insurance lines (1)	42,375
Disposed short-duration insurance lines (AEB and AH) (2)	85,332
Claims and benefits payable, net of reinsurance	620,245

Reinsurance recoverable on unpaid claims
Global Lifestyle	106,038
Global Housing	189,936
Other short-duration insurance lines (3)	31,098
Disposed short-duration insurance lines (AEB and AH)	1,012,372
Total reinsurance recoverable on unpaid claims	1,339,444

Insurance lines other than short-duration	1,332,612
Unallocated claim adjustment expense	8,956
Total claims and benefits payable	$	3,301,257


(1)	Asbestos and pollution reserves make up $25,092 of the other short-duration lines.


(2)	As of December 31, 2016, the net liabilities are $27,949 for AEB and $57,383 for AH.


(3)	Disposed business for which we maintained certain reserve liabilities contributed $27,486 of the total for other short-duration lines.