Executives at life and health insurers talk all the time about pandemic risk, but Daniel Rabinowitz, an insurance law specialist, questions whether most life and health executives were emotionally prepared for the COVID-19 pandemic.
Property and casualty insurers have good models for analyzing the effects of earthquakes, hurricanes, and other natural disasters Rabinowitz said Friday, in an interview.
In life insurance, “it’s not a frequent thing” for companies to face severe pandemic risk, Rabinowitz said..
Rabinowitz, a partner at Kramer Levin Naftalis & Frankel LLP, helps insurers with acquisitions, financing deals and state capital standards regulations.
Here are five things he’s seeing now, drawn from the interview.
1. Life insurers as a whole appear to have enough cash, and other sources of liquidity, to weather the storm.
“I don’t think that this is an existential thing for life insurers at this point,” Rabinowitz said.
2. State insurance regulators are interested in finding out what’s happening with insurers’ investment portfolios.
One concern, Rabinowitz said, is that insurers might try to make up for poor investment results this year by taking extra risk in the following years.
3. Rabinowitz is not spending a lot of time looking at how regulators and the courts responded to the 1918 influenza pandemic, which killed 600,000 people, or 0.6% of the 1918 U.S. population.
Partly because the financial system has changed so much between 1918 and now, typical participants in the life and health market see the collapse of Lehman Brothers and the aftermath of the Sept. 11, 2001, terrorist attacks as much more relevant examples, Rabinowitz said.
4. .The markets for the kinds of products life insurers typically invest in have functioned reasonably well.,
“I don’t think the credit markets have really seized up,” Rabinowitz said.
Life insurers invest in large amounts of corporate bonds, mortgages, and mortgage-backed securities.
Life insurers may dislike the prices they get when they’re selling assets, and they have concerns about how well the people and companies that have taken out loans will be able to keep making their payments, but they can still find buyers for their assets, Rabinowitz said.
5. Insurers that invest in mortgages want to know what rules they must follow, and how flexible they can be with responding to borrowers’ financial stress.
For insurers with mortgage loans in their investment portfolios, the question is, “How do we interact with the credits in our portfolios?” Rabinowitz said.
Insurers want to be able to give the borrowers relief, but they still need to be able to provide complete, accurate financial reporting, Rabinowitz said.
New York state has asked mortgage lenders to help borrowers cope with the temporary disruption caused by the pandemic, but it’s not clear whether that guidance applies to insurers, Rabinowitz said.
The Statutory Accounting Principles Working Group, an arm of the National Association of Insurance Commissioners (NAIC), is developing a Statutory Accounting Principles (SAP) interpretation, INT 20-04T, that could tell insurers how to handle the mortgage loan impairments that have been caused by COVID-19 control “stay at home” orders.
In addition to rules for offering relief to mortgage loan borrowers, insurers need programs that help the borrowers stay afloat and pay their bills, Rabinowitz said.
— Read Senate’s COVID-19 Bill Includes Executive Comp Cap Provision, on ThinkAdvisor.