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Liabilities for Unpaid Claims and Claims Expenses
 12 Months Ended
Dec. 31, 2017
Group Disability and Life, Global Supplemental Beneftits and Other Operations [Member]  
Liability For Unpaid Claims And Claims Adjustment Expense [Line Items]  
Liabilities for Unpaid Claims and Claims Expenses

Note 8 ― Liabilities for Unpaid Claims and Claim Expenses

The following information relates to the Company’s unpaid claims and claim expense liabilities.

Accounting policy. Liabilities for unpaid claims and claim expenses are established by book of business within the Company's Group Disability and Life, Global Supplemental Benefits and Other Operations segments. The Group Disability and Life segment’s liability for unpaid claims and claim expenses consists of the following primary products: long-term and short-term disability, life insurance, and accident coverages. Unpaid claims and claim expenses consist of (1) case or claims reserves for reported claims that are unpaid as of the balance sheet date; (2) incurred but not reported reserves for claims when the insured event has occurred but has not been reported to the Company; and (3) loss adjustment expense reserves for the expected costs of settling these claims. The Company consistently estimates incurred but not yet reported losses using actuarial principles and assumptions based on historical and projected claim incidence patterns, claim size and the expected payment period. The Company recognizes the actuarial best estimate of the ultimate liability within a level of confidence, consistent with actuarial standards of practice that the liabilities be adequate under moderately adverse conditions. When estimates of these liabilities change, the Company immediately records the adjustment in benefits and expenses.

The majority of the Company’s liability for disability claims consists of the present value of estimated future benefit payments, including expected development, for each reported claim that is currently receiving benefit payments, or pending a decision on eligibility for benefits, over the expected disability period. The Company projects the expected disability period by using historical resolution rates combined with an analysis of current trends and operational factors to develop current estimates of resolution rates. Using the Company’s experience, expected claim resolution rates may vary based upon the anticipated disability period, the covered benefit period, the cause of disability, the benefit design and the claimant’s age, gender and income level. The gross monthly benefit is reduced (offset) by disability income received under other benefit programs, most commonly Social Security Disability Income, workers’ compensation, statutory disability or other group benefit plans. For certain offsets not yet finalized, the Company estimates the probability and amount of future offset awards and lapses based on the Company’s experience.

The Company also establishes a liability for the expected present value of future benefit payments for known claims that have recently been resolved but may reopen in the future, based on Company experience. Prior to a claim becoming known, the Company establishes a liability for incurred but not reported claims, using standard actuarial techniques and calculations based on completion factors and loss ratio assumptions using the Company’s experience combined with an analysis current trends and operational factors. Completion factors are impacted by several key items including changes in claim inventory levels, claim payment patterns, changes in business volume and other factors. Loss ratio assumptions are developed using historical Company experience, adjusted prospectively for expected changes in the underlying business including rate actions, persistency and inforce growth.

Liability balance details. The liability for unpaid claims and claim expenses by segment as of December 31 is as follows:

(In millions)20172016
Group Disability and Life$4,491$4,342
Global Supplemental Benefits 484 384
Other Operations 193 191
Unpaid claims and claim expenses$5,168$4,917

The Company discounts certain liabilities, predominantly long-term disability, because benefits payments are made over extended periods. Discount rate assumptions for these liabilities are based on projected investment returns for the supporting asset portfolios. Details of the Company’s unpaid claim discounted liability balances as of December 31 were as follows:

(In billions)20172016
Discounted liabilities$4.0$3.9
Aggregate amount of discount$1.0$1.1
Range of discount rates 4.5%-5.2% 3.3%-5.8%

Interest is accreted and recognized in other benefit expenses in the Consolidated Statement of Income.

Activity in the Company’s Group Disability and Life and the Global Supplemental Benefits segments’ liabilities for unpaid claims and claim expenses are presented in the following table. Liabilities associated with the Company’s Other Operations segment are excluded because they pertain to obligations for long-duration insurance contracts or, if short-duration, the liabilities have been fully reinsured.

(In millions)201720162015
Balance at January 1,$4,726$4,359$4,178
Less: Reinsurance121115104
Balance at January 1, net4,6054,2444,074
Incurred claims related to:
Current year4,3414,2583,813
Prior years
Interest accretion163161163
All other incurred(4)93(91)
Total incurred4,5004,5123,885
Paid claims related to:
Current year2,7242,5752,325
Prior years1,5721,5601,382
Total paid4,2964,1353,707
Acquisitions--11
Foreign currency29(16)(19)
Balance at December 31, net4,8384,6054,244
Add: Reinsurance137121115
Balance at December 31,$4,975$4,726$4,359

Reinsurance in the previous table reflects amounts due from reinsurers related to unpaid claims liabilities. The Company's insurance subsidiaries enter into agreements with other companies primarily to limit losses from large exposures and to permit recovery of a portion of incurred losses. See Note 9 for additional information on reinsurance.

The majority of the liability for unpaid claims and claim expenses is related to disability claims with long-tailed payouts. Interest earned on assets backing these liabilities is an integral part of pricing and reserving. Therefore, interest accreted on prior year balances is shown as a separate component of prior year incurred claims. This interest is calculated by applying the average discount rate used in determining the liability balance to the average liability balance over the period. The remaining prior year incurred claims amount primarily reflects updates to the Company’s liability estimates and variances between actual experience during the period relative to the assumptions and expectations reflected in determining the liability. Assumptions reflect the Company’s expectations over the life of the book of business and will vary from actual experience in any period, both favorably and unfavorably, with variation in resolution rates being the most significant driver for the long-term disability business. Prior year incurred claims reported in 2016 included the impact of changes made to our disability claims management process and a period of elevated life claims.

Long-term disability development tables. The table below presents information about incurred and paid claims development as of December 31, 2017 (net of reinsurance) cumulative claim frequency and total incurred but not reported liabilities for the Company's long-term disability book of business. The information about incurred and paid claims development for the years ended 2012 through 2016 is presented as supplementary information and is unaudited. As permitted under GAAP, the Company presented development table information beginning in 2012 because obtaining information beyond this period was impracticable as historical data was not maintained in such detail.

(In millions, except for claims frequency)
Incurred Claims (undiscounted)
Accident Year2012 (Unaudited)2013 (Unaudited)2014 (Unaudited)2015 (Unaudited)2016 (Unaudited)2017Incurred But Not Reported LiabilitiesClaims Frequency
2012$995$951$889$876$883$880$-21,180
20131,0631,0371,0621,0721,057-23,516
20141,1581,1291,1671,146-25,281
20151,1841,1541,185525,609
20161,2461,1842024,722
2017 1,22654010,569
Cumulative incurred claims for the periods presented$6,678
Cumulative Paid Claims
Accident Year2012 (Unaudited)2013 (Unaudited)2014 (Unaudited)2015 (Unaudited)2016 (Unaudited)2017
2012$81$288$429$504$571$621
201392342503600670
2014111379575667
2015 114417603
2016122411
2017 110
Cumulative paid claims for the periods presented$3,082
All outstanding liabilities for the periods presented, net of reinsurance$3,596
All outstanding liabilities prior to 2012, net of reinsurance1,142
Impact of discounting(948)
Liability for long-term disability unpaid claims and claim expenses, net of reinsurance$3,790

The claims frequency metric used for the Company’s long-term disability line of business represents the number of unique claim events for which benefits have been approved and payments made. Claim events are identified using a unique claimant identifier and incurral date. Thus, if an individual has multiple claims for different disabling events (and therefore different incurral dates), each will be determined to be a unique claim event. However, if an individual receives multiple benefits under more than one policy (for example for supplemental disability benefits such as pension contribution benefits or survivor benefits), the Company treats this as a single claim occurrence because they related to the same claim event. Claims frequency metrics for the most recent year are expected to be low reflecting the long-term disability product features including waiting and elimination periods that result in delayed eligibility for contract benefits. Claims that did not result in a liability are not included in the frequency metric.

The following is supplementary and unaudited information about average historical claims payout patterns for the long-term disability business for the years presented in the development table as of December 31, 2017. The average annual percentage payout of incurred claims, net of reinsurance, is approximately 9% in year one, 24% in year two, 16% in year three, 9% in year four, 7% in year five, and 6% in year six.

The following table reconciles the long-term disability net incurred and paid claims development table to the liability for unpaid claims and claim expenses in the Company's Consolidated Balance Sheets as of December 31, 2017.

(In millions)
Net outstanding liabilities – Group Disability and Life segment
Long-term disability liabilities, net of reinsurance$3,790
Other short-duration insurance books of business, net of reinsurance599
Liabilities for unpaid claims and claim expenses, net of reinsurance4,389
Reinsurance recoverable on unpaid claims – Group Disability and Life segment
Long-term disability94
Other short-duration insurance books of business8
Total reinsurance recoverable on unpaid claims 102
Total liability for unpaid claims and claim expenses – Group Disability and Life segment4,491
Global Supplemental Benefits segment484
Other Operations segment193
Total liability for unpaid claims and claim expenses$5,168

The other short-duration insurance books of business, net of reinsurance, primarily include liabilities for life, accident and short-term disability insurance products. Liabilities for these products are typically complete within one year. Claim development on these liabilities is largely driven by completion factors and loss ratio assumptions. In 2016, development on these liabilities was driven by a period of elevated life claims.