(11) Liability for Policy and Contract Claims

The following table sets forth our recorded liability for policy and contract claims by business as of December 31:


(Amounts in millions)	2014		2013
Long-term care insurance	$	6,216	$	4,999
U.S. mortgage insurance		1,180		1,482
International mortgage insurance		308		378
Life insurance		197		188
Lifestyle protection insurance		106		108
Fixed annuities		21		29
Runoff		15		20

Total liability for policy and contract claims	$	8,043	$	7,204

The liability for policy and contract claims represents our current best estimate; however, there may be future adjustments to this estimate and related assumptions. Such adjustments, reflecting any variety of new and adverse trends, could possibly be significant, and result in increases in reserves by an amount that could be material to our results of operations and financial condition and liquidity.

Long-term care insurance

The following table sets forth changes in the liability for policy and contract claims for our long-term care insurance business for the dates indicated:


(Amounts in millions)	2014			2013			2012
Beginning balance as of January 1	$	4,999		$	4,655		$	4,130
Less reinsurance recoverables		(1,707	)		(1,574	)		(1,387	)

Net balance as of January 1		3,292			3,081			2,743

Incurred related to insured events of:
Current year		1,474			1,323			1,271
Prior years		726			3			93

Total incurred		2,200			1,326			1,364

Paid related to insured events of:
Current year		(134	)		(131	)		(111	)
Prior years		(1,263	)		(1,160	)		(1,068	)

Total paid		(1,397	)		(1,291	)		(1,179	)

Interest on liability for policy and contract claims		195			176			153

Net balance as of December 31		4,290			3,292			3,081
Add reinsurance recoverables		1,926			1,707			1,574

Ending balance as of December 31	$	6,216		$	4,999		$	4,655

The liability for policy and contract claims of our long-term care insurance business increased in 2014 largely as a result of the completion of a comprehensive review of our long-term care insurance claim reserves conducted during the third quarter of 2014 which resulted in recording higher reserves of $604 million and an increase in reinsurance recoverable of $73 million. This review was commenced as a result of adverse claims experience during the second quarter of 2014 and in connection with our regular review of our claim reserves assumptions during the third quarter of each year. As a result of this review, we made changes to our assumptions and methodologies relating to our long-term care insurance claim reserves primarily impacting claim termination rates, most significantly in later-duration claims, and benefit utilization rates, reflecting that claims are not terminating as quickly and claimants are utilizing more of their available benefits in aggregate than had previously been assumed in our reserve calculations. In conducting the review, we increased the population of claims reviewed, utilizing more of our recent data.

During the third quarter of 2014, we also recorded a $61 million unfavorable correction to claim reserves related to a calculation of benefit utilization for policies with a benefit inflation option. This error arose prior to 2011 and was not material to earnings in any interim or annual period. During the fourth quarter of 2014, we recorded an $81 million unfavorable correction to claim reserves primarily related to claims in course of settlement arising in connection with the implementation of our updated assumptions and methodologies as part of our comprehensive claims review completed in the third quarter of 2014 and a $21 million unfavorable adjustment related to a revised interest rate assumption, partially offset by a $49 million favorable refinement of assumptions for claim termination rates. As a result of these items, we also recorded an increase in reinsurance recoverable of $17 million in 2014. The remaining increase was attributable to aging and growth of the in-force block. These impacts related to insured events for prior years.

In 2013, the increase in the liability for policy and contract claims of our long-term care insurance business was predominantly related to growth and aging of the in-force block.

In 2012, the increase in the liability for policy and contract claims and the increase in prior year claim reserves of our long-term care insurance business was mostly driven by growth and aging of the in-force block, an increase in severity and duration of claims associated with observed loss development and higher average reserve costs on new claims.

U.S. mortgage insurance

The following table sets forth changes in the liability for policy and contract claims for our U.S. mortgage insurance business for the dates indicated:


(Amounts in millions)	2014			2013			2012
Beginning balance as of January 1	$	1,482		$	2,009		$	2,488
Less reinsurance recoverables		(44	)		(80	)		(178	)

Net balance as of January 1		1,438			1,929			2,310

Incurred related to insured events of:
Current year		328			476			717
Prior years		29			(63	)		7

Total incurred		357			413			724

Paid related to insured events of:
Current year		(21	)		(45	)		(92	)
Prior years		(618	)		(859	)		(1,013	)

Total paid		(639	)		(904	)		(1,105	)

Net balance as of December 31		1,156			1,438			1,929
Add reinsurance recoverables		24			44			80

Ending balance as of December 31	$	1,180		$	1,482		$	2,009

The liability for policy and contract claims of our U.S. mortgage insurance business decreased in 2014 predominantly from a decline in new delinquencies, as well as lower reserves on new delinquencies, partially offset by an aggregate increase in our claim reserves in 2014 in connection with the settlement agreement with Bank of America, N.A. and the resolution of a second matter involving a dispute with another servicer over loss mitigation activities. These settlements related to insured events for prior years.

In 2013, the liability for policy and contract claims of our U.S. mortgage insurance business decreased due to lower new delinquencies and improvements in net cures and aging on existing delinquencies in 2013. We also decreased prior year claim reserves related to our U.S. mortgage insurance business in 2013 primarily from improvements in net cures.

In 2012, the liability for policy and contract claims of our U.S. mortgage insurance business decreased due to lower new delinquencies in 2012, increased loss mitigation efforts and a reserve strengthening in 2011 that did not recur, partially offset by the continued aging of delinquencies.