Life Reinsurers Find Hope Even as COVID-19 Lingers, Mortality Rates Shift
Two years into the COVID-19 pandemic, mortality and death benefits paid remain higher for life insurers, even as the rush of working-age mortality abates and face values get lower.
- Terrence Dopp
- July 2022
- Lingering: While COVID-19 may not be as feared as it was two years ago, the fact is mortality remains elevated as the disease remains a killer, particularly among the older population.
- Costs: In the first quarter of this year, Swiss Re faced roughly $500 million in worldwide COVID-19 costs with almost half of that in the United States.
- Numbers: While the seven-day moving average of deaths logged by the Centers for Disease Control and Prevention was about a fifth of its pandemic high, more than a million Americans have died from COVID-19.
The impact of COVID-19 remains staggering: The virus has caused more than 6 million deaths worldwide, according to the World Health Organization, and the number of new cases has been on the rise lately as variants of omicron spread more easily than earlier versions of the virus.
But as is often the pattern with many things related to the pandemic, there are glimmers of hope behind the numbers for an insurance industry that's been saddled by escalating claims and losses over the past two years.
Mortality was still way up in the first three months of 2022 compared to pre-pandemic times. Yet the size of claims crept down as the average age of the deceased rose again and that translated to the brunt of the costs shifting from group life to individual policies in many cases. And those costs were centered on the United States.
At Swiss Reinsurance Company Ltd., the life & health reinsurance business segment posted a $230 million loss in the period with worldwide COVID-19 costs of $501 million. That figure was primarily driven by higher COVID-19-related excess mortality in the United States during January and February. During the same span in 2021 at the height of the pandemic, L&H Re had a net loss of $193 million and the total company costs of COVID-19 were $570 million.
But improving expectations for the industry remain even as reinsurers reported they are still facing increased costs.
John Dacey, group chief financial officer at Swiss Re, said that in January and early February, as many as 2,700 Americans were dying each day at the peak of the omicron wave that proved highly contagious. By May, he said that had fallen to a little more than 300 deaths daily—a reduction of 85%.
“In the first quarter, these numbers added up,” Dacey said during an earnings call. “And about 80% of the total COVID losses that we've recognized in the first quarter were U.S.-based.”
By the nature of the business, reinsurers remain more exposed to wide swings in mortality events.
More than 1 million Americans had died as a result of COVID-19 by early June, according to the Centers for Disease Control and Prevention. By March 31, the last day of the reporting period for publicly traded companies, the seven-day moving average of deaths had fallen to 619 after reaching a high of 3,395 on Jan. 12, 2021.
In March, the CDC reported 15,207 mortalities where COVID-19 was listed on the death certificate compared to 23,244 a year earlier. In March, people under 65 accounted for 3,253 of those deaths compared to 6,268 for the same period in 2021.
Those numbers came down as better treatments, vaccines and increased knowledge of the disease have improved outcomes. As the age has gone up, it's had a smaller financial effect on the working-age population, which tends to have more life insurance coverage and higher face values.
Not Just Reinsurers
The pandemic didn't just hit reinsurers.
At MetLife Inc., the second-largest life insurer in the U.S. based on admitted assets according to AM Best, COVID-19 costs remained an impact on the company across lines of business a full two years into the pandemic. Yet in the first three months of the year, the trend was moving in the right direction.
The company had $230 million in COVID-19 claims for the quarter, down a full 23% from the $300 million experienced in the final quarter of 2021 and still below the $280 million it reported for the same period in 2021.
The results were also mixed at Primerica, which in its first-quarter earnings reported net COVID claims of $16 million compared to $21 million in the same period a year earlier.
In a May Best's Special Report, L/A Benchmarking: Limited COVID-19 Impact on US L/A Operating Performance Metrics, AM Best found that death benefits paid out by companies in the life insurance industry grew by more than 28% from 2017 through 2021—a period capturing the pandemic's impact. The report found that while there was a degree of volatility on a quarterly basis, there was no steady upward trajectory.
“Companies with a business mix leaning toward life products were more at risk to increases in benefit payments,” the report said.
“They are more susceptible to a high-mortality event. That’s how they make their money–they’re pricing mortality. So when they get that wrong by even a little bit, it impacts them more than the other guys.”
Erik Miller, associate director at AM Best, put the phenomenon in plain English.
“Reinsurers, unlike the regular carriers who make a lot of money from investment and spreads, generally on the life side make their money by pricing mortality—being a better aggregator of mortality than the carriers,” Miller said. “So they are more susceptible to a high-mortality event. That's how they make their money—they're pricing mortality. So when they get that wrong by even a little bit, it impacts them more than the other guys.”
Reinsurance Group of America also for its part experienced some bumpiness in the first quarter of 2022.
RGA saw $260 million of U.S. individual mortality costs related to the pandemic during the first quarter of the year with general population deaths up by 20% in the United States. But those costs are down from $340 million in the same period a year earlier as vaccines, new treatments and a movement away from working-age deaths all work to soften the blow.
Rising coronavirus deaths were seen throughout areas where RGA operates across the globe.
The United States led the increases, followed by the United Kingdom and Canada, said Jonathan Porter, global chief risk officer at RGA. He said the percentage of COVID-19 deaths in the working-age, under-65 U.S. population dropped to 24% from its peak in the third quarter of 2021.
Anna Manning, president and chief executive officer at RGA, said she sees “many reasons to be optimistic” including falling death rates globally and long-term earnings added in the past two years. “Although uncertainty remains, evidence shows that COVID-19 deaths are declining in many countries,” she said.
While current indicators are positive, the impact of the pandemic is very tangible in the United States, where life expectancy dropped to 77 years in 2020 from 78.8 years in 2019.
Those numbers include the general population regardless of whether they hold a life insurance policy.
“Our excess non-COVID-19 mortality experience in the quarter was minimal, again, consistent with the absence of excess mortality in the general population,” Porter said in announcing the company's earnings for the first quarter. “There were no notable trends when looking at our underlying U.S. mortality experience by policy size, age or issue year cohorts.”
Porter said influenza deaths during the first quarter were low when compared to an average year but were offset by excess non-COVID-19 mortality throughout the pandemic which the company believes can be traced to the disease either directly or indirectly.
The results expose a quirk in the life insurance market.
Over the past few decades, primary life carriers have branched out to the point that old-school insurance accounts for roughly half of their business and much of their revenue comes from ancillary, fee-based financial products such as retirement planning and asset management.
The costs come up to the reinsurance level partly because carriers tend to reinsure at least a portion of very large policies; this diversification also has allowed primaries to spread out the impact of COVID-19.
Miller, of AM Best, said the results highlight two trends: The COVID-19 pandemic simply isn't over yet. And while companies may not be reporting non-COVID excess mortality spikes as high as anticipated, it is real and has been showing up.
Lack of medical care is believed to be a leading cause of cancer and heart disease deaths, though Miller said there isn't a clear rationale for that. Those figures remain above historical pricing assumptions and aren't yet down to the level many thought they would return to, he said.
Suicides and opioid deaths are still elevated in an example of two causes of death that experts believe may be linked to the pandemic, he said.
“Even though pandemic deaths as related to COVID have come down, cancer, heart disease, suicides and opioids are still up above historical norms,” Miller said. “All of that is leading to still higher mortality than previously anticipated.”