NU Online News Service, Sept. 20, 6:28 p.m. – The primary effect of higher than expected mortality and morbidity claims from the terrorist catastrophes will not cause material financial effects at most U.S. life insurers at this time, according to a leading analyst at Moody?fs Investors Service, New York.
“The U.S. life insurance industry will unquestionably face significantly higher than normal levels of mortality and morbidity claims as well as some investment losses following the terrorist attacks of last week,” Robert Riegel, managing director in charge of life and health insurance at Moody?fs, said yesterday during a teleconference call held to review the effects of the terrorist attack on the insurance industry.
The possible range of life insurance claims is $2 billion to $5 billion, which is less than 5% of the industry?fs statutory capital of over $200 billion, Riegel said.
However, some small, stand-alone life insurers with significant claim exposure or heavy concentration in the life reinsurance business could see losses that are more concentrated and significantly high relative to their size, Riegel said, noting that as a result some rating reviews may lead to downgrades.
But. at this early stage, Moody?fs does not expect the tragedy to result in a significant number of rating adjustments downward, he said.
The secondary effects of the tragedy, which include the more pronounced slowdown in the economy, increased investment losses and the downturn in the equity markets “will continue to put pressure on the credit worthiness of the industry,” Riegel said.
“For the most part, life insurance companies have good business diversification, solid liquidity position, strong earnings and capital base and prudent reinsurance programs,” he said. “As such, the unusually high level of claims will not materially weaken their financial strength and flexibility.
“Well diversified underwriting discipline and reinsurance programs should protect most life insurers from unusually high levels of losses,” he said.
“Individual company claim losses for this catastrophe will be determined by their lines of business diversification, market share by line of business and geographic region, policy sizes, insurance programs, as well as the recoverability of their reinsurance,” Riegel said.
“Although some companies are disclosing preliminary estimates of their claims and investment losses, we believe it?fs too early to accurately assess and define the companies?f exposures,” he said.
Given the nature and magnitude of the tragedy, he said “upward revisions are likely.”
Riegel said there are many types of individual and group policies that will experience claims, including:
Individual life policies, ranging from small death benefits to multi-million dollar estate planning oriented policies.
Individual health policies, including disability, medical, personal accident and accidental death and dismemberment.
Group life policies, including term life covering the employees of a company, key man policies and corporate-owned life insurance and bank-owned life insurance where the company owns policies on the lives of their employees.
Group benefits, which include short and long-term disability, medical, personal accident, and accidental death and dismemberment.
Riegel predicted the near-term impact of the disaster on the U.S. life insurance industry would include:
Sharp price increases in certain lines of life reinsurance.
Stock prices and valuations of life insurers are likely to remain under pressure, negatively impacting the ability to access the capital markets with some weakening of financial flexibility.
Continued consolidation in the industry driven by a flight to quality and larger sized companies.
A faster and steeper decline in the equity market, which could negatively affect variable annuity and asset management businesses as well as the life company?fs equity investments.
A more pronounced economic downturn causing higher credit losses in a company?fs investment portfolio.
A possible sales boost in protection products, such as life insurance, disability and accident insurance.