Health insurers and life insurers know that the virus that causes Covid-19 pneumonia could lead to more claims.
The people who write, market and sell annuities are starting to think harder about how a large disease outbreak in the United States, such as a severe acute respiratory syndrome coronavirus 2 (SARS-CoV-2) epidemic, could affect them.
- A collection of Society of Actuaries documents related to pandemic risk is available here.
- A tool for viewing National Center for Health Statistics mortality data is available here.
- An analysis of pandemic risk prepared by Steven Weisbart for the Insurance Information Institute is available here.
- An article about Weisbart’s analysis is available here.
Here are five possibilities, based in part on papers actuaries and economists wrote in the early 2000s, in response to concerns about what might have happened if the 2002-2004 severe acute respiratory syndrome (SARS) outbreak had not been contained so well.
1. Fear-related turmoil could hurt annuity issuers’ investment returns.
Annuity issuers use trillions of dollars in corporate bonds and other fixed-rate investments to support their products.
In the past few weeks, investment market turmoil has pushed the Federal Reserve Board to cut interest rates, in an effort to calm investors, and to encourage them to put fewer assets in bonds and more in stocks.
2. Covid-19 pneumonia and other SARS-CoV-2-related conditions could kill some annuity beneficiaries.
The famous 1918 flu pandemic was deadlier for working-age people than for older people.
The Chinese Centre for Disease Control and Prevention reported that, as of Feb. 11, the death rate for patients hospitalized with confirmed cases of SARS-CoV-2 was less than 1% for people under 60, 8% for people ages 70 through 79, and 15% for people ages 89 and older.
3. An increased death rate for older people could reduce ordinary annuity benefits obligations.
Steven Weisbart, an economist, wrote in a pandemic risk paper published by the Insurance Information Institute in 2006 that a pandemic might reduce obligations related to immediate annuities, or annuities designed to pay streams of income immediately, and increase the profitability of immediate annuity product lines.
4. An increased death rate might not be that helpful for typical annuity operations.
Jim Toole, an actuary, wrote about the possible effects of pandemic risk on annuities in May 2007, in a paper posted on the website of the Society of Actuaries.