Policyholder Account Balances, Future Policy Benefits and Claims and Separate Account Liabilities

12 Months Ended

Dec. 31, 2018

Policyholder Account Balances, Future Policy Benefits and Claims and Separate Account Liabilities

Policyholder Account Balances, Future Policy Benefits and Claims and Separate Account Liabilities [Text Block]

Policyholder Account Balances, Future Policy Benefits and Claims and Separate Account Liabilities

Policyholder account balances, future policy benefits and claims consisted of the following:

	December 31,
	2018			2017
	(in millions)
Policyholder account balances
Fixed annuities (1)	$	9,338		$	9,934
Variable annuity fixed sub-accounts	5,129			5,166
UL/VUL insurance	3,063			3,047
IUL insurance	1,728			1,384
Other life insurance	683			720
Total policyholder account balances	19,941			20,251
Future policy benefits
Variable annuity GMWB	875			463
Variable annuity GMAB (2)	(19		)	(80		)
Other annuity liabilities	26			78
Fixed annuity life contingent liabilities	1,459			1,484
Life and DI insurance	1,221			1,221
LTC insurance	4,981			4,896
UL/VUL and other life insurance additional liabilities	749			688
Total future policy benefits	9,292			8,750
Policy claims and other policyholders’ funds	891			903
Total policyholder account balances, future policy benefits and claims	$	30,124		$	29,904

⁽¹⁾  Includes fixed deferred annuities, non-life contingent fixed payout annuities and indexed annuity host contracts.

⁽²⁾  Includes the fair value of GMAB embedded derivatives that was a net asset as of both December 31, 2018 and 2017 reported as a contra liability.

Fixed Annuities

Fixed annuities include deferred, payout and indexed annuity contracts.

Deferred contracts offer a guaranteed minimum rate of interest and security of the principal invested. Payout contracts guarantee a fixed income payment for life or the term of the contract. Liabilities for fixed annuities in a benefit or payout status are based on future estimated payments using established industry mortality tables and interest rates, ranging from 2.71% to 9.38% as of December 31, 2018, depending on year of issue, with an average rate of approximately 3.94%. The Company generally invests the proceeds from the annuity contracts in fixed rate securities.

The Company’s equity indexed annuity (“EIA”) product is a single premium fixed deferred annuity. The Company discontinued new sales of EIAs in 2007. The contract was issued with an initial term of seven years and interest earnings are linked to the performance of the S&P 500^® Index. This annuity has a minimum interest rate guarantee of 3% on 90% of the initial premium, adjusted for any surrenders. The Company generally invests the proceeds from the annuity contracts in fixed rate securities and hedges the equity risk with derivative instruments.

The Company’s fixed index annuity product is a fixed annuity that includes an indexed account. The rate of interest credited above the minimum guarantee for funds allocated to the indexed account is linked to the performance of the specific index for the indexed account (subject to a cap). The Company offers S&P 500^® Index and MSCI^® EAFE Index account options. Both options offer two crediting durations, one-year and two-year. The contractholder may allocate all or a portion of the policy value to a fixed or indexed account. The portion of the policy allocated to the indexed account is accounted for as an embedded derivative. The Company hedges the interest credited rate including equity and interest rate risk related to the indexed account with derivative instruments. The contractholder can choose to add a GMWB for life rider for an additional fee.

See Note 17 for additional information regarding the Company’s derivative instruments used to hedge the risk related to indexed annuities.

Variable Annuities

Purchasers of variable annuities can select from a variety of investment options and can elect to allocate a portion to a fixed account. A vast majority of the premiums received for variable annuity contracts are held in separate accounts where the assets are held for the exclusive benefit of those contractholders.

Most of the variable annuity contracts currently issued by the Company contain one or more guaranteed benefits, including GMWB, GMAB, GMDB and GGU provisions. The Company previously offered contracts with GMIB provisions. See Note 2 and Note 12 for additional information regarding the Company’s variable annuity guarantees. The Company does not currently hedge its risk under the GGU and GMIB provisions. See Note 15 and Note 17 for additional information regarding the Company’s derivative instruments used to hedge risks related to GMWB, GMAB and GMDB provisions.

Insurance Liabilities

UL/VUL is the largest group of insurance policies written by the Company. Purchasers of UL accumulate cash value that increases by a fixed interest rate. Purchasers of VUL can select from a variety of investment options and can elect to allocate a portion to a fixed account or a separate account. A vast majority of the premiums received for VUL policies are held in separate accounts where the assets are held for the exclusive benefit of those policyholders.

IUL is a universal life policy that includes an indexed account. The rate of credited interest above the minimum guarantee for funds allocated to the indexed account is linked to the performance of the specific index for the indexed account (subject to a cap and floor). The Company offers an S&P 500^® Index account option and a blended multi-index account option comprised of the S&P 500 Index, the MSCI^® EAFE Index and the MSCI EM Index. Both options offer two crediting durations, one-year and two-year. The policyholder may allocate all or a portion of the policy value to a fixed or any available indexed account. The portion of the policy allocated to the indexed account is accounted for as an embedded derivative at fair value. The Company hedges the interest credited rate including equity and interest rate risk related to the indexed account with derivative instruments. See Note 17 for additional information regarding the Company’s derivative instruments used to hedge the risk related to IUL.

The Company also offers term life insurance as well as DI products. The Company no longer offers standalone LTC products and whole life insurance but has in force policies from prior years.

Insurance liabilities include accumulation values, incurred but not reported claims, obligations for anticipated future claims, unpaid reported claims and claim adjustment expenses.

The liability for estimates of benefits that will become payable on future claims on term life, whole life and DI policies is based on the net level premium and LTC policies is based on a gross premium valuation reflecting management’s current best estimate assumptions. Both include the anticipated interest rates earned on assets supporting the liability. Anticipated interest rates for term and whole life ranged from 3% to 10% as of December 31, 2018. Anticipated interest rates for DI policies ranged from 4% to 7.5% as of December 31, 2018 and for LTC policies ranged from 5.9% to 6.8% as of December 31, 2018.

The liability for unpaid reported claims on DI and LTC policies includes an estimate of the present value of obligations for continuing benefit payments. The discount rates used to calculate present values are based on average interest rates earned on assets supporting the liability for unpaid amounts and were 4.5% and 6.2% for DI and LTC claims, respectively, as of December 31, 2018.

The balance of insurance liabilities related to unpaid reported and unreported claims and claim adjustment expenses for auto and home was $714 million and $722 million as of December 31, 2018 and 2017, respectively. The balance of insurance liabilities related to unpaid reported claims and claim adjustment expenses for life, DI and LTC policies was $1.4 billion and $1.3 billion as of December 31, 2018 and 2017, respectively.

The change in the liability for prior year incurred unpaid reported and unreported claims and claim adjustment expenses related to auto and home, life, DI and LTC policies was a decrease of $30 million, $41 million and $24 million for the years 2018, 2017 and 2016, respectively.

• In 2018, there was a $28 million decrease primarily reflecting favorable closed claim trends of DI and LTC policies and a decrease of $2 million related to favorable prior year catastrophe reserve development.

• In 2017, there was a $50 million decrease primarily reflecting favorable closed claim trends of LTC policies partially offset by an increase of $9 million related to updated estimates for prior year catastrophes recognized in the current year along with a slight increase in non-catastrophe claims.

• In 2016, there was a $6 million decrease primarily reflecting favorable closed claim trends of DI and LTC policies and a decrease of $18 million related to favorable prior year reserve development for auto and home business of $20 million partially offset by unfavorable prior year catastrophe reserve development of $2 million.

Portions of the Company’s UL and VUL policies have product features that result in profits followed by losses from the insurance component of the policy. These profits followed by losses can be generated by the cost structure of the product or secondary guarantees in the policy. The secondary guarantee ensures that, subject to specified conditions, the policy will not terminate and will continue to provide a death benefit even if there is insufficient policy value to cover the monthly deductions and charges.

Separate Account Liabilities

Separate account liabilities consisted of the following:

	December 31,
	2018		2017
	(in millions)
Variable annuity	$	66,913	$	75,174
VUL insurance	6,451		7,352
Other insurance	29		34
Threadneedle investment liabilities	4,532		4,808
Total	$	77,925	$	87,368

Threadneedle Investment Liabilities

Threadneedle provides a range of unitized pooled pension funds, which invest in property, stocks, bonds and cash. The investments are selected by the clients and are based on the level of risk they are willing to assume. All investment performance, net of fees, is passed through to the investors. The value of the liabilities represents the fair value of the pooled pension funds.