Principal Financial Adjusts COVID-19 Impact Formula

Deanna Strable (Credit: Principal Financial Group)

Principal Financial Group has discovered that COVID-19-related deaths are only about half as damaging to earnings as the company once expected.

The Des Moines, Iowa-based insurer has been trying to estimate how much COVID-19 will affect after-tax operating earnings. The company has now cut the predicted impact to a $10 million reduction in operating earnings per 100,000 U.S. COVID-19-related deaths.

Earlier in the year, the company had estimated it might face $20 million in impact per 100,000 U.S. COVID-19-related deaths.

"This reduction reflects a lower incidence of COVID-related deaths in our insured population," Deanna Strable, Principal's chief financial officer, said Tuesday during a conference call.

Principal held the call to go over its second-quarter earnings with securities analysts. The company has posted a recording of the call on its website.

Resources

A link to Principal earnings call recording is available here.
An earlier article about Principal's earnings is available here.

Strable said the company now has received about 150 COVID-19-related claims and now feels it knows more about what the claims will look like.

The change in the formula is helpful, because the projected number of U.S. pandemic-related deaths has doubled, Strable said.

The formula includes the effects of pandemic-related deaths on annuity and disability insurance benefits obligations as well as the effects on life insurance claims, Strable said.

Amy Friedrich, president of Principal's U.S. insurance solutions unit, said the impact on earnings may be relatively low partly because the age of the company's individual and group life insureds is relatively low.

The COVID-19 Impact Context

Principal has a 1% share of U.S. life insurance in force, according to the American Council of Life Insurers' 2019 Fact Book. If Principal also ends up feeling about 1% of the U.S. COVID-19-related life, annuity and disability benefits payment earnings impact, that could imply that U.S. insurers as a whole will record about $1 billion in earnings impact per 100,000 U.S. pandemic-related deaths.

Unum recently implied that it expects to pay about $48 million in in extra life claims per 120,000 U.S. COVID-19 deaths, or about $40 million per 100,000 U.S. deaths, in connection with the pandemic. Unum's formula appears to be different from Principal's formula, because Principal appears to be including some pandemic-related cost savings in its formula, and Unum seems to be including only expected costs, not expected savings. Unum has a 2% share of U.S. life insurance in force, according to the ACLI 2019 Fact Book. If Unum also ends up making about 2% of U.S. COVID-19-related life and disability benefits payments, that could imply that U.S. insurers as a whole will pay about $2 billion in benefits per 100,000 U.S. deaths.

Aflac said it paid about $31 million in COVID-19-related claims in the second quarter, implying that it's spending about $25 million on benefits claims per 100,000 U.S. COVID-19 deaths. About 80% of the claims paid so far are short-term disability claims. Aflac has an 0.75% share of U.S. life insurance in force, according to the ACLI's 2018 Fact Book. If Aflac also has a 0.75% share of COVID-19-related benefits payments, Aflac's $25 million per 100,000 lives cost figure could imply that U.S. insurers as a whole will pay about $3 billion in benefits per 100,000 U.S. deaths.

Hartford said that it paid about $38 million in COVID-19-related group life and disability claims in the second quarter, implying about $33 million in claims per 100,000 U.S. deaths. Based on Hartford's share of U.S. life insurance premiums, that appears to imply that U.S. insurers as a whole may be paying about $1.7 billion life, health and disability claims per 100,000 U.S. deaths. Based on ACLI figures for Hartford's share of total life insurance in force, Hartford's $38 million claim payment figure could imply that U.S. insurers as a whole will pay about $2.5 billion in benefits per 100,000 U.S. deaths.

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