COVID-19 May Give Life Insurers Q3 Low-Rate Flu: S&P Analysts

A magnifying glass over a record book that's full of SARS-CoV-2 virions

COVID-19 now seems more likely to hurt U.S. life insurers by depressing interest rates than by causing a catastrophic increase in life insurance claims.

Analysts from S&P Global Ratings gave that assessment Tuesday, at a webinar the rating agency organized to review the effects of the pandemic on insurers' earnings and capital levels.

The analysts produced a chart that 10 large life insurers S&P rates now use base long-term interest rate assumptions ranging from 2.25% to 5%.

Some life insurers are waiting to cut the base interest rate assumptions they use, to reflect falling U.S. Treasury rates, because the rates investment-grade companies were paying on bonds in first quarter were actually pretty high, the analysts reported.

The analysts expect many life insurers to wait until the third quarter to update their assumptions.

If rates stay low, "life insurers will just choose to sell products that are less sensitive to interest rates," Anika Getubig, an S&P associate director, said. "The consumer will just have to pick the highest of the low-rate offerings,"

In some cases, Getubig said, consumers may not find the highest of the low-rate offerings to be acceptable, and sales may fall.

But the life insurers S&P rates seem to be strong enough to cope with turmoil in the commercial real estate and bond markets, and, at this point, the volume of COVID-19-related life insurance claims appears to be below the level in S&P's moderate pandemic scenario, Getubig said.

Mortality

The COVID-19 pandemic has killed more than 90,000 people in the United States, according to pandemic trackers at Johns Hopkins.

The 1957-1958 H2N2 flu pandemic killed 116,000 people, at a time when the United States had a population of 172 million.

S&P found that a pandemic death toll comparable to the death toll from the 1957-1958 flu pandemic could lead to $7 billion in claims, or claims equal to about 2% of life insurers' capital, Getubig said.

The 1918 H1N1 flu pandemic killed 675,000 people, at a time when the United States had a population of 100 million.

A pandemic with a level of mortality similar to the 1918 death toll might kill about 1.8 million. A death toll that high could lead to about $52 billion in life insurance claims, Getubig said.

A COVID-19 death toll of 100,000 could cut Reinsurance Group of America Inc.'s annual earnings in half, but it would probably reduce the direct writers' annual earnings by less than 10%, Getubig said.

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