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Future Policy Benefits Reserves | 9 Months Ended
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Sep. 30, 2024
Insurance [Abstract] |
Future Policy Benefit Reserves | Future Policy Benefits Reserves Future policy benefits reserves are associated with CNA’s run-off long-term care business, included in Other Insurance Operations, and relate to policyholders that are currently receiving benefits, including claims that have been incurred but are not yet reported, as well as policyholders that are not yet receiving benefits. Future policy benefits reserves are comprised of the liability for future policyholder benefits (“LFPB”) which is reflected as Insurance reserves: Future policy benefits on the Consolidated Condensed Balance Sheet. The determination of Future policy benefits reserves requires management to make estimates and assumptions about expected policyholder experience over the remaining life of the policy. Since policies may be in force for several decades, these assumptions are subject to significant estimation risk. As a result of this variability, CNA’s future policy benefits reserves may be subject to material increases if actual experience develops adversely to its expectations. Annually in the third quarter, actuarial analysis is performed on policyholder morbidity, persistency, premium rate increases and expense experience. This analysis, combined with judgment, informs the setting of updated cash flow assumptions used to estimate the LFPB. Actuarial analysis includes predictive modeling, actual to expected experience comparisons and trend analysis. Applicable industry research is also considered. The cash flow assumption updates for the third quarter of 2024 resulted in a $15 million pretax increase in the LFPB. Included in the assumption updates was a favorable impact from outperformance on premium rate assumptions and an unfavorable impact from higher cost of care inflation. The cash flow assumption updates for the third quarter of 2023 resulted in an $8 million pretax increase to the LFPB. Persistency updates were unfavorable due to revisions to lapse rates. Morbidity updates were favorable driven by claim severity assumption updates, and there was a favorable impact from outperformance on premium rate assumptions. For further information on the long-term care reserving process see Note 1 of the Consolidated Financial Statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023. The following table summarizes balances and changes in the LFPB:
| 2024 |  | 2023
(In millions) |  |  |
Present value of future net premiums |  |  |
Balance, January 1 | $ | 3,710 |  |  | $ | 3,993 |
Effect of changes in discount rate | (125) |  |  | (74) |
Balance, January 1, at original locked in discount rate | 3,585 |  |  | 3,919 |
Effect of changes in cash flow assumptions (a) | 111 |  |  | 28 |
Effect of actual variances from expected experience (a) | (40) |  |  | (112) |
Adjusted balance, January 1 | 3,656 |  |  | 3,835 |
Interest accrual | 139 |  |  | 153 |
Net premiums: earned during period | (317) |  |  | (332) |
Balance, end of period at original locked in discount rate | 3,478 |  |  | 3,656 |
Effect of changes in discount rate | 147 |  |  | (67) |
Balance, September 30 | $ | 3,625 |  |  | $ | 3,589 |
Present value of future benefits & expenses |  |  |
Balance, January 1 | $ | 17,669 |  |  | $ | 17,472 |
Effect of changes in discount rate | (578) |  |  | (125) |
Balance, January 1, at original locked in discount rate | 17,091 |  |  | 17,347 |
Effect of changes in cash flow assumptions (a) | 126 |  |  | 36 |
Effect of actual variances from expected experience (a) | 33 |  |  | (45) |
Adjusted balance, January 1 | 17,250 |  |  | 17,338 |
Interest accrual | 693 |  |  | 723 |
Benefit & expense payments | (883) |  |  | (945) |
Balance, end of period at original locked in discount rate | 17,060 |  |  | 17,116 |
Effect of changes in discount rate | 612 |  |  | (873) |
Balance, September 30 | $ | 17,672 |  |  | $ | 16,243 |
Net LFPB, September 30 | $ | 14,047 |  |  | $ | 12,654 |
(a) | As of September 30, 2024 and 2023, the re-measurement gain (loss) of $(88) million and $(75) million presented parenthetically on the Consolidated Condensed Statement of Operations is comprised of the effect of changes in cash flow assumptions and the effect of actual variances from expected experience.
The following table presents earned premiums and interest expense associated with the long-term care business recognized on the Condensed Consolidated Statement of Operations.
| Three Months Ended | Nine Months Ended
| September 30, | September 30,
| 2024 |  | 2023 | 2024 |  | 2023
(In millions) |  |  |  |  |  |
Earned premiums | $ | 110 |  |  | $ | 112 |  | $ | 329 |  |  | $ | 340 |
Interest expense | 185 |  |  | 191 |  | 554 |  |  | 570 |
The following table presents undiscounted expected future benefit and expense payments and undiscounted expected future gross premiums.
| September 30,
| 2024 |  | 2023
(In millions) |  |  |
Expected future benefit and expense payments | $ | 32,009 |  |  | $ | 33,217 |
Expected future gross premiums | 5,305 |  |  | 5,557 |
Discounted expected future gross premiums at the upper-medium grade fixed income instrument yield discount rate were $3.8 billion and $3.7 billion as of September 30, 2024 and 2023. The weighted average effective duration of the LFPB calculated using the original locked in discount rate was 11 years and 12 years as of September 30, 2024 and 2023. The weighted average interest rates in the table below are calculated based on the rate used to discount all future cash flows.
| September 30, |  | December 31,
| 2024 |  | 2023 |  | 2023
Original locked in discount rate | 5.20 | % |  | 5.24 | % |  | 5.22 | %
Upper-medium grade fixed income instrument discount rate | 4.90 |  |  | 5.78 |  |  | 4.94 |
For the three and nine months ended September 30, 2024, immediate charges to net income resulting from adverse development that caused the net premium ratio (“NPR”) to exceed 100% for certain cohorts were $84 million and $128 million. For the three and nine months ended September 30, 2023, immediate charges to net income resulting from adverse development that caused the NPR to exceed 100% were $109 million and $152 million. For the three and nine months ended September 30, 2024, the portion of losses recognized in a prior period due to NPR exceeding 100% for certain cohorts which, due to favorable development, was reversed through net income was $20 million and $28 million. For the three and nine months ended September 30, 2023, the portion of losses recognized in a prior period due to NPR exceeding 100% which, due to favorable development, was reversed through net income was $26 million and $37 million.

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