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March 31, 2020 at 04:30 PM
The virus that causes COVID-19 — severe acute respiratory syndrome coronavirus 2 (SARS-CoV-2) — looks as if it could have an obvious effect on health insurers’ claims, and on life insurers’ life insurance claims.
How much of an effect could it really have on annuity issuers?
Resources
- A copy of the Athene preliminary prospectus supplement is available here.
- An article about how COVID-19 mortality could affect life and annuity issuers’ 2020 earnings is available here.
Athene Holding Ltd., a large annuity issuer based in Pembroke, Bermuda, has addressed that question in a risk factors addition in a preliminary prospectus supplement for a future note offering.
The supplement would help Athene issue senior notes due in 2030. The principal amount and the interest rate are yet to be determined.
Companies often paint extremely bleak pictures of what could go wrong in their risk factors statements, because they hope to use the statements as protection against lawsuits filed by investors who claim they weren’t warned about what could go wrong.
But the statements may give a rough idea of what companies think the worst foreseeable COVID-19 scenarios might look like.
Here are things Athene is saying about the risks in the new risk factors addition:
1. Economic Turmoil
“The COVID-19 pandemic has caused significant economic and financial turmoil both in the U.S. and around the world, and has fueled concerns that it will lead to a global recession,” according to Athene. “These conditions are expected to continue and worsen in the near term.”
2. Timing
“At this time, it is not possible to estimate how long it will take to halt the spread of the virus,” Athene says.
3. Overall Impact on Athene
“The extent to which the COVID-19 pandemic impacts our business, results of operations, financial condition, liquidity or prospects will depend on future developments which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of the COVID-19 pandemic and the actions taken to contain or address its impact, and may cause us to revisit or revise estimates of future earnings or other guidance we have previously provided to the markets,” Athene says.
4. Impact on Athene’s Operations
“Currently, most of our employees are working remotely, with only operationally critical employees working at our facilities for business continuity purposes, to the extent lawfully permitted,” according to Athene. “An extended period of remote work arrangements could strain our business continuity plans, introduce operational risk, including but not limited to cybersecurity risks, and impair our ability to manage our business.”
5. Impact on Vendors
Athene notes that it hires outside companies to handle some important business activities for Athene.
“As a result, we rely upon the successful implementation and execution of the business continuity planning of such entities in the current environment,” Athene says. “While we closely monitor the business continuity activities of these third parties, successful implementation and execution of their business continuity strategies are largely outside our control. If one or more of the third parties to whom we outsource certain critical business activities experience operational failures as a result of the impacts from the spread of COVID-19, or claim that they cannot perform due to a force majeure, it may have a material adverse effect on our business, financial condition, results of operations, liquidity and cash flows.”
