Future Policy Benefits

6 Months Ended

Jun. 30, 2023

Liability for Future Policy Benefit, after Reinsurance [Abstract]

(10) Future Policy Benefits

The following table sets forth our liability for future policy benefits as of the dates indicated:


(Amounts in millions)	June 30, 2023		December 31, 2022
Long-term care insurance	$	42,661	$	41,457
Life insurance		1,675		1,820
Fixed annuities		11,905		11,923

Total long-duration insurance contracts		56,241		55,200

Deferred profit liability		120		115
Cost of reinsurance		82		92

Total future policy benefits	$	56,443	$	55,407

The following tables present the balances of and changes in the liability for future policy benefits as of and for the periods indicated:


	June 30, 2023
(Dollar amounts in millions)	Long-term care insurance			Life insurance (1)			Fixed annuities

Present value of expected net premiums:
Beginning balance as of January 1	$	19,895		$	4,083		$	—
Beginning balance, at original discount rate	$	19,959		$	3,922		$	—
Effect of changes in cash flow assumptions		(148	)		—			—
Effect of actual variances from expected experience		(79	)		45			—

Adjusted beginning balance		19,732			3,967			—
Issuances		1			—			22
Interest accrual		507			110			—
Net premiums collected (2)		(976	)		(223	)		(22	)
Derecognition (lapses and withdrawals)		—			—			—
Other		—			—			—

Ending balance, at original discount rate		19,264			3,854			—
Effect of changes in discount rate assumptions		13			194			—

Ending balance as of June 30	$	19,277		$	4,048		$	—

Present value of expected future policy benefits:
Beginning balance as of January 1	$	61,352		$	5,556		$	11,923
Beginning balance, at original discount rate	$	61,148		$	5,374		$	10,300
Effect of changes in cash flow assumptions		(165	)		—			—
Effect of actual variances from expected experience		(34	)		62			(1	)

Adjusted beginning balance		60,949			5,436			10,299
Issuances		1			—			17
Interest accrual		1,667			143			334
Benefit payments		(1,782	)		(476	)		(505	)
Derecognition (lapses and withdrawals)		—			—			—
Other		—			(5	)		1

Ending balance, at original discount rate		60,835			5,098			10,146
Effect of changes in discount rate assumptions		1,103			192			1,759

Ending balance as of June 30	$	61,938		$	5,290		$	11,905

Net liability for future policy benefits, before flooring adjustments	$	42,661		$	1,242		$	11,905
Flooring adjustments (3)		—			433			—

Net liability for future policy benefits		42,661			1,675			11,905
Less: reinsurance recoverable		7,408			787			9,012

Net liability for future policy benefits, net of reinsurance recoverable	$	35,253		$	888		$	2,893

Weighted-average liability duration (years)		14.3			6.0			11.0

(1)	The components of the life insurance rollforward exclude flooring.

(2)	Net premiums collected represents the portion of gross premiums collected from policyholders that is used to fund expected benefit payments.

(3)

Flooring adjustments are necessary when a cohort’s present value of future net premiums exceeds the present value of future benefits. The flooring adjustment ensures that the liability for future policy benefits for each cohort is not less than zero. This adjustment is most prevalent in our term life insurance products due to their product design of a level premium period followed by annual premium rate increases.


	December 31, 2022
(Dollar amounts in millions)	Long-term care insurance			Life insurance (1)			Fixed annuities

Present value of expected net premiums:
Beginning balance as of January 1	$	25,247		$	5,414		$	—
Beginning balance, at original discount rate	$	20,717		$	4,086		$	—
Effect of changes in cash flow assumptions		102			—			—
Effect of actual variances from expected experience		82			69			—

Adjusted beginning balance		20,901			4,155			—
Issuances		8			—			50
Interest accrual		1,061			226			—
Net premiums collected (2)		(2,011	)		(459	)		(50	)
Derecognition (lapses and withdrawals)		—			—			—
Other		—			—			—

Ending balance, at original discount rate		19,959			3,922			—
Effect of changes in discount rate assumptions		(64	)		161			—

Ending balance as of December 31	$	19,895		$	4,083		$	—

Present value of expected future policy benefits:
Beginning balance as of January 1	$	85,338		$	7,157		$	17,039
Beginning balance, at original discount rate	$	61,146		$	5,814		$	11,012
Effect of changes in cash flow assumptions		(251	)		—			—
Effect of actual variances from expected experience		(31	)		106			(24	)

Adjusted beginning balance		60,864			5,920			10,988
Issuances		10			—			43
Interest accrual		3,364			304			690
Benefit payments		(3,090	)		(851	)		(1,072	)
Derecognition (lapses and withdrawals)		—			—			—
Reinsurance transactions (3)		—			—			(352	)
Other		—			1			3

Ending balance, at original discount rate		61,148			5,374			10,300
Effect of changes in discount rate assumptions		204			182			1,623

Ending balance as of December 31	$	61,352		$	5,556		$	11,923

Net liability for future policy benefits, before flooring adjustments	$	41,457		$	1,473		$	11,923
Flooring adjustments (4)		—			347			—

Net liability for future policy benefits		41,457			1,820			11,923
Less: reinsurance recoverable		7,270			873			8,957

Net liability for future policy benefits, net of reinsurance recoverable	$	34,187		$	947		$	2,966

Weighted-average liability duration (years)		14.5			6.0			10.9

(1)	The components of the life insurance rollforward exclude flooring.

(2)	Net premiums collected represents the portion of gross premiums collected from policyholders that is used to fund expected benefit payments.

(3)	Related to a third-party recapture of certain single premium immediate annuity contracts in 2022.

(4)

products

due to their product design of a level premium period followed by annual premium rate increases.


	December 31, 2021
(Dollar amounts in millions)	Long- term care insurance			Life insurance (1)			Fixed annuities

Present value of expected net premiums:
Beginning balance as of January 1	$	26,283		$	5,451		$	—
Beginning balance, at original discount rate	$	20,600		$	3,916		$	—
Effect of changes in cash flow assumptions		1,615			228			—
Effect of actual variances from expected experience		(444	)		165			—

Adjusted beginning balance		21,771			4,309			—
Issuances		23			—			47
Interest accrual		1,053			221			—
Net premiums collected (2)		(2,130	)		(444	)		(47	)
Derecognition (lapses and withdrawals)		—			—			—
Other		—			—			—

Ending balance, at original discount rate		20,717			4,086			—
Effect of changes in discount rate assumptions		4,530			1,328			—

Ending balance as of December 31	$	25,247		$	5,414		$	—

Present value of expected future policy benefits:
Beginning balance as of January 1	$	89,645		$	7,821		$	18,637
Beginning balance, at original discount rate	$	59,709		$	6,062		$	11,358
Effect of changes in cash flow assumptions		1,678			252			27
Effect of actual variances from expected experience		(565	)		190			(24	)

Adjusted beginning balance		60,822			6,504			11,361
Issuances		23			—			46
Interest accrual		3,309			322			728
Benefit payments		(3,006	)		(1,013	)		(1,119	)
Derecognition (lapses and withdrawals)		—			—			—
Other		(2	)		1			(4	)

Ending balance, at original discount rate		61,146			5,814			11,012
Effect of changes in discount rate assumptions		24,192			1,343			6,027

Ending balance as of December 31	$	85,338		$	7,157		$	17,039

Net liability for future policy benefits, before flooring adjustments	$	60,091		$	1,743		$	17,039
Flooring adjustments (3)		—			423			—

Net liability for future policy benefits		60,091			2,166			17,039
Less: reinsurance recoverable		10,557			1,040			12,583

Net liability for future policy benefits, net of reinsurance recoverable	$	49,534		$	1,126		$	4,456

Weighted-average liability duration (years)		16.9			7.0			13.6

(1)	The components of the life insurance rollforward exclude flooring.

(2)	Net premiums collected represents the portion of gross premiums collected from policyholders that is used to fund expected benefit payments.

(3)

We elected to complete a review of our cash flow assumptions for the liability for future policy benefits for our long-term care insurance, life insurance and annuity products in the fourth quarter. However, we will update cash flow assumptions related to the implementation timing and approval amounts of in-force rate actions on a quarterly basis. We also elected to update the net premium ratio quarterly for actual versus expected experience; therefore, during interim reporting periods, we replace forecasted cash flow assumptions with actual cash flows with any difference recorded in net income (loss). The impact from updating the net premium ratio for assumptions and actual versus expected experience is presented in our tabular rollforward disclosures within the line-items labeled “effect of changes in cash flow assumptions” and “effect of actual variances from expected experience,” respectively. The following provides a summary of our reviews.

Long-term care insurance

For the six months ended June 30, 2023, the impact of actual versus expected experience resulted in an increase of $45 million in the liability for future policy benefits largely from lower terminations and higher benefit utilization. This unfavorable actual versus expected experience was partially offset by favorable cash flow assumption updates related to implementation timing and approval amounts of our in-force rate action plan.

In the fourth quarter of 2022, we refined several assumptions, including reducing our lapse assumption in light of favorable experience from our long-term care insurance legal settlement elections and benefit reductions and updating our interest rate assumption to reflect the impact of the higher interest rate environment. The favorable impacts from both the effect of changes in cash flow assumptions and actual versus expected experience were mainly attributable to the inclusion of a second legal settlement. We also evaluated our assumptions regarding expectations of future premium rate increase approvals and benefit reductions and made no significant changes to our 2022 multi-year in-force rate action plan. However, we did increase the value of our assumption for future approvals and benefit reductions based on recent rate increase approval experience, regulatory support and legal settlement results.

In the fourth quarter of 2021, we reviewed our assumptions including expected claim incidence and terminations, expenses, interest rates, benefit utilization trend and in-force rate actions, among other assumptions. The most significant update to our long-term care insurance assumptions included an unfavorable update to the benefit utilization trend, which drove significant updates to our in-force rate action plan, and related assumptions. Given the expected future increases in cost of care, we expected our long-term benefit utilization to trend higher than previously assumed. Prior to this update, we had assumed that the long-term benefit utilization would improve over time. Based on our experience, it did not improve as much as we predicted, largely due to cost of care growth driven by both broad-based inflation and minimum wage increases in some large states, among other factors. Therefore, we increased the outlook for our future benefit utilization trend.

Life insurance

The impact of actual versus expected experience for the six months ended June 30, 2023 resulted in an increase of $17 million in the liability for future policy benefits. The increase was primarily due to mortality experience in certain level premium period term life insurance blocks.

There were no cash flow assumption changes for our life insurance products in the fourth quarter of 2022. The effect of actual versus expected experience in 2022 resulted in an increase of $37 million in the liability for future policy benefits. The increase was primarily driven by higher mortality from COVID-19 and elevated death claims in a single cohort in 2022.

In the fourth quarter of 2021, we completed our annual review of cash flow assumptions and recorded an increase to our liability for future policy benefits of $24 million principally due to higher pre-COVID-19 mortality. The effect of actual versus expected experience in 2021 resulted in an increase of $25 million to our liability for future policy benefits primarily from higher mortality due to COVID-19.

Fixed annuities

The impact of actual versus expected experience for the year ended December 31, 2022 resulted in a decrease of $24 million in the liability for future policy benefits due principally to higher mortality. Due to emerging experience on our structured settlements, we revised the mortality assumption to reflect lower mortality rates, resulting in an increase of $27 million, partially offset by a favorable actual to expected experience adjustment of $24 million in 2021.

The following table provides the weighted-average interest rates for the liability for future policy benefits as of the dates indicated:


	June 30, 2023			December 31, 2022			December 31, 2021
Long-term care insurance
Interest accretion rate		5.8	%		5.8	%		5.8	%
Current discount rate		5.2	%		5.4	%		2.8	%
Life insurance
Interest accretion rate		5.8	%		5.8	%		5.8	%
Current discount rate		5.1	%		5.2	%		2.4	%
Fixed annuities
Interest accretion rate		6.7	%		6.7	%		6.7	%
Current discount rate		5.2	%		5.3	%		2.8	%

For contracts issued prior to the Transition Date, the locked-in discount rate (labeled “interest accretion rate” in the preceding table) for each issue-year cohort is equal to the pre-LDTI discount rate. For contracts issued on or after the Transition Date, the locked-in discount rate for each issue-year cohort is determined as a single discount rate, using the weighted-average monthly single-A fixed-income forward curves over the current calendar year.

The current discount rate assumption is based on a single-A curve, with durations that correspond with the insurance liabilities, published by a market data service. For cash flows projected beyond the observable curve, we use estimation techniques consistent with Level 3 fair value measurements as defined in Note 2—Summary of Significant Accounting Policies included in the Notes to Consolidated Financial Statements in our 2022 Annual Report on Form 10-K to interpolate from the last observable rate to an estimated ultimate long-term rate. The current discount rate assumption is updated quarterly using this methodology. These updates include current information about the observable single-A curve as well as the long-term target rate assumption for single-A interest rates beyond the last observable date.

The following table sets forth the amount of undiscounted and discounted expected future gross premiums and expected future benefit payments as of the dates indicated:


	June 30, 2023				December 31, 2022				December 31, 2021
(Amounts in millions)	Undiscounted		Discounted		Undiscounted		Discounted		Undiscounted		Discounted
Long-term care insurance
Expected future gross premiums	$	40,968	$	27,693	$	42,329	$	28,278	$	45,334	$	36,642
Expected future benefit payments		128,048		61,938		130,315		61,352		133,974		85,338
Life insurance
Expected future gross premiums		11,158		6,411		11,541		6,559		12,266		8,853
Expected future benefit payments		7,516		5,290		7,924		5,556		8,652		7,157
Fixed annuities
Expected future gross premiums		—		—		—		—		—		—
Expected future benefit payments		24,453		11,905		24,924		11,923		26,473		17,039

During the six months ended June 30, 2023 and the year ended December 31, 2022, we recorded a charge of $5 million and $16 million, respectively, to net income due to net premiums exceeding gross premiums for our life insurance products primarily due to higher claim severity.

During the year ended December 31, 2021, we recorded a charge of $8 million to net income due to net premiums exceeding gross premiums for our life insurance products principally from higher claim frequency due to elevated mortality attributable to COVID-19.

The following table sets forth the amount of revenue and interest expense recognized in net income related to our liability for future policy benefits for the periods indicated:


	Three months ended June 30, 2023				Three months ended June 30, 2022				Six months ended June 30, 2023				Six months ended June 30, 2022				Years ended December 31,
	Three months ended June 30, 2023				Three months ended June 30, 2022				Six months ended June 30, 2023				Six months ended June 30, 2022				2022				2021
(Amounts in millions)	Gross premiums		Interest expense (1)		Gross premiums		Interest expense (1)		Gross premiums		Interest expense (1)		Gross premiums		Interest expense (1)		Gross premiums		Interest expense (1)		Gross premiums		Interest expense (1)
Long-term care insurance	$	671	$	582	$	681	$	573	$	1,346	$	1,160	$	1,352	$	1,145	$	2,769	$	2,303	$	2,847	$	2,256
Life insurance		174		16		185		19		353		33		372		41		725		78		759		101
Fixed annuities		—		166		—		172		—		334		—		350		—		690		—		728

Total	$	845	$	764	$	866	$	764	$	1,699	$	1,527	$	1,724	$	1,536	$	3,494	$	3,071	$	3,606	$	3,085

(1)

Amounts for interest accretion, labeled “interest expense” in the table above, are included in benefits and other changes in policy reserves in the condensed consolidated statements of income for the three and six months ended June 30, 2023 and 2022 and in the consolidated statements of income for the years ended December 31, 2022 and 2021.