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Future Policy Benefits
 6 Months Ended
Jun. 30, 2023
Liability for Future Policy Benefit, after Reinsurance [Abstract]  
Future Policy Benefits
(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)
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, 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)
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.
 

 
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,
 
 
 
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.