Life Insurance

How Life Insurers Are Handling Pandemic Developments

Will investment gains, business diversification balance expenses?

In a new article from AM Best’s magazine, Terrence Dopp suggests that while the true impact will take time to sort out, the drag on earnings is more of a short term threat. Visit for the complete article.

January 14, 2022 — OLDWICK, N.J.–(BUSINESS WIRE)–Best’s Review looks at how the unexpected increase in pandemic-related deaths for working-age people has affected life insurers and how the industry is responding. Life insurers may look to investment gains and business diversification across segments to help balance the potential impending costs. Best’s has published its outlook for the industry in “Life Insurers Not Free of COVID-19 Yet, as Virus Impacts Younger Populations.”

Excerpts From Life Insurers Not Free Of COVID Yet

Life insurers told investors in their 2021 third-quarter earnings reports that virus-related deaths had increased above expectations, showing that COVID-19 is continuing to have a significant impact on the industry. With unknowns surrounding emerging variants, insurance experts say the outlook for 2022 remains unclear.

The head of Prudential’s U.S. Businesses said during his company’s earnings announcement that deaths in the third quarter were three times what the company initially expected. Life insurer Unum Group reported a similar finding, saying deaths had doubled during the third quarter of 2021.

“We were expecting 30,000 deaths and we saw 95,000,” said Andrew Sullivan, executive vice president and head of Prudential’s U.S. businesses. About half of the total was concentrated in the southern U.S., he added.

A year and a half into the COVID-19 pandemic, life insurers via a flurry of third-quarter earnings calls and statements notified investors that virus-related deaths had increased and that the ages of those who were dying had crept downward into the working-age population. Sullivan reported in his company’s earnings call that deaths among working-age Americans in the 35-to-54 range tripled.

Variants, Younger People

Aegon N.V., a multinational insurer that counts the U.S. as a core market, also saw adverse claims experience. The company cited both COVID-19 and a higher average claim size as drivers of a trend that outweighed even increased fees due to higher equity markets and business growth. The operating result from the Americas decreased €112 million (US$125.87 million) to €60 million for the period, the company reported.

Across the company, Aegon reported operating results decreased to €443 million, a 16% drop from the third quarter of 2020.

These developments occurred as variants became the watchword in the U.S. and globally.

Variants are a mutated form of the virus that differ slightly from previous strains and can become more transmissible or more virulent. The third-quarter results track the rise of the delta variant, which the Centers for Disease Control and Prevention said can be twice as contagious as the original virus and broadened its infection reach to both younger people and those vaccinated through less-common “breakthrough” cases.

A Continuation

It's smaller face amount so certainly the impact is going to be more diffuse. But on the other hand, if there is a trend that they are seeing it is more likely the claim counts going up, the frequency going up...

Mortality increases in the third quarter of 2021 are a continuation of trends that first emerged at the end of 2020 and first quarter 2021, where COVID began to be a more dominant cause of insured mortality, said R. Dale Hall, managing director of the Society of Actuaries Research Institute. Hall said most results also continued a pattern that had seen excess mortality in the group life segment raised by about 30%.

“The pandemic is causing about two-thirds of the excess mortality,” he said. “For individual life, the fourth quarter of [2020] had excess mortality of 22%, doubled from the third quarter of [2020].”

Recent information from the CDC showed continued mortality due to Alzheimer’s, diabetes, liver disease, hypertension and Parkinson’s, all with large deteriorations, according to Hall. “That continues on from the finding of a 2020 study on population mortality for people of working ages and those types of conditions are becoming more prominent and continuing into 2021,” he said.

Not all news has been dour for insurers.

In December AM Best revised its market segment outlook for the life and annuity industry to stable, up from the negative outlook assigned early in the pandemic as uncertainty loomed. In the upward revision, analysts cited record levels of capitalization and earnings that have improved. While noting that death claims have impacted earnings, the outlook report points to strong product sales in the second and third quarters of 2021.

Beware Scale

Silvers said that higher levels of the deaths within working-age people can mute the financial impacts of each claim because group insurance policies acquired through the workplace generally have lower face amounts than individual life policies. In turn, individual life policies tend to have a higher average age insured, but there’s still a question of scale.

“It’s smaller face amount so certainly the impact is going to be more diffuse. But on the other hand, if there is a trend that they are seeing it is more likely the claim counts going up, the frequency going up,” he said. “On the one hand, each individual death does not have as much of an impact, but on the other hand, if you’re seeing a trend that means that there’s probably more to it in terms of a bunch of small policies having these claims.”




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