COVID-19 Claims Seep Into More Insurers' Earnings

By Allison Bell

News February 05, 2021 at 09:52 AM

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COVID-19 claims are starting to get on life and health insurance companies' executives nerves.

Most of the life and health insurers that have posted their earnings are reporting profits for the fourth quarter of 2020, and none is close to facing a strain on capital as a result of the pandemic.

But some issuers say an increase in the number of deaths led to a sharp increase in life insurance benefits costs in the fourth quarter.

(Related: Principal Sees COVID-19 Impacting Earnings)

Some are are reporting that COVID-19 has led to noticeable increase in disability insurance claims.

Prudential Financial Inc., for example, said a decrease in overall earnings at its U.S. businesses "reflect less favorable underwriting results," driven, in part, by "COVID-19 related net mortality experience."

Here's a look at the life and health insurers' latest results.

Individual Life and Annuity Market Players

Prudential Financial Inc. (NYSE: PRU)

Prudential is reporting $1 billion in net income for the fourth quarter of 2020 on $15 billion in revenue, compared with $1.1 billion in net income on $17 billion in revenue for the fourth quarter of 2019.

The Newark, New Jersey-based life insurer says after-tax adjusted operating income, which excludes a number of gains and charges, increased to $1.2 billion, from $915 million.

The U.S. individual solutions division is reporting $375 million in adjusted operating income before income taxes on $2.9 billion in revenue, compared with $508 million in adjusted operating income before income taxes on $2.8 billion in revenue.

For individual annuities, adjusted operating income before income taxes fell to $440 million on $1.2 billion in revenue, from $450 million on $1.2 billion in revenue.

The individual life unit reported a $65 million adjusted operating loss before income taxes for the latest quarter on $1.7 billion in revenue, compared with $58 million in adjusted operating income before income taxes on $1.6 billion in revenue for the year-earlier quarter.

The individual life unit posted an operating loss.

Prudential said "the decrease reflects less favorable underwriting results, driven by COVID-19 mortality experience, and a change in business practice, which resulted in a refinement to reserves and related balances, partially offset by higher net investment spread results and lower expenses."

U.S. Individual Life Insurance

Here's what happened to sales, expressed in annualized new premiums, for key life products at Prudential between the fourth quarter of 2019 and the latest quarter:

Term Life: $34 million (down from $47 million)
Guaranteed Universal Life: $11 million (down from $26 million)
Other Universal Life: $18 million (down from $42 million)
Variable Life: $176 million (up from $94 million)

Life sales through Prudential's own advisors increased to $44 million, from $40 million.

Sales through outside distributors increased to $195 million, from $169 million.

The total amount of U.S. individual life coverage in force increased to $473 billion, from $463 billion.

U.S. Individual Annuities

Variable annuity sales fell to $1.8 billion, from $1.9 billion.

Fixed annuity sales fell to $212 million, from $223 million.

Here's what happened to individual annuity sales through specific distribution channels between the fourth quarter of 2019 and the latest quarter:

Insurance Agents: $649 million (down from $676 million)
Wirehouses: $215 million (down from $310 million)
Independent Marketing Organizations: $16 million (down from $30 million)
Independent Financial Planners: $1 billion (up from $904 million)

FBL Financial Group Inc. (NYSE:FFG)

FBL is reporting $28 million in net income for the fourth quarter of 2020 on $198 million in revenue, compared with $35 million in net income on $194 million in revenue for the fourth quarter of 2019.

FBL's annuity division is reporting $15 million in pre-tax adjusted operating income on $54 million in revenue, up from $14 million in pre-tax adjusted operating income on $54 million in revenue.

The annuity unit is reporting that commission spending, net of deferrals, fell to $299,000, from $662,000.

The number of direct annuity contracts provided fell to 49,895, from 51,536.

Here's what happened to first-year payments into two types of annuities between the first quarter of 2019 and the latest quarter:

Traditional Fixed Annuities: $8.3 million (down from $10 million)
Group Annuities: $1 million (down from $1.6 million)

FBL's life unit is reporting $11 million in pre-tax adjusted operating income on $112 million in revenue, compared with $25 million in operating income on $109 million in revenue for the year-earlier quarter..

At the life insurance unit, commission spending, net of deferrals, fell to $4.8 million, from $5.2 million.

The number of traditional life policies in force fell to 364,729, from 365,399.

The number of universal life policies in force increased to 75,612, from 72,972.

Here's what happened to first-year premiums for some types of life products between the fourth quarter of 2019 and the latest quarter:

Universal Life: $6.7 million (down from $7.1 million)
Whole Life: $3.3 million (up from $2.3 million)
Term Life and Other: $2.9 million (up from $2.8 million)

Death benefits and other benefits costs increased only 7%, to about $10 million, for interest-sensitive life insurance, but death benefits spending increased about 50% for traditional life insurance, to $32 million.

Daniel Pitcher, FBL's chief executive officer, said net income fell partly because of the effects of COVID-19 claims on life insurance mortality results.

Non-Medical Benefits Players

Aflac (NYSE:AFL)

Aflac is reporting $265 million in net income for the fourth quarter of 2020 on $5.9 billion in revenue, compared with $276 million in net income on $5.6 billion in revenue for the fourth quarter of 2019

Total commission spending at the Columbus, Georgia-based insurer fell to $323 million, from $330 million.

The Aflac U.S. unit is reporting $187 million in pretax adjusted earnings for the latest quarter on $1.6 billion in revenue, compared with $275 million in pretax adjusted earnings on $1.6 billion in revenue for the year-earlier quarter.

The average number of weekly producer equivalents fell to 6,523 from 8,610.

New annualized premiums from sales of U.S. products fell 27%, to $388 million, because of the effects of the COVID-19 pandemic.

Annualized premiums from in-force U.S. coverage fell 3.2%, to about $6.1 billion.

Here's what happened to new annualized premiums for U.S. sales of some types of products in the fourth quarter, when compared with the year-earlier quarter.

Short-Term Disability Insurance: $79 million (down from $111 million)
Life Insurance: $26 million (down from $29 million)
Accident Insurance: $98 million (down from $148 million)
Critical Care Insurance: $95 million (down from $131 million)
Hospital Indemnity Insurance: $77 million (down from $97 million)
Dental and Vision Insurance: $13 million (down from $17 million)

Unum Group (NYSE: UNM)

Unum is another insurer that's still turning a profit but talking about the impact of COVID-19 on life insurance results.

The Chattanooga, Tennessee-based company is reporting $135 million in net income for the fourth quarter on $4.3 billion in revenue, compared with $296 million in net income on $3 billion in revenue for the fourth quarter of 2019.

Companywide commission spending fell to $247 million, from $270 million.

Unum US

Unum US, the company's traditional group insurance unit, is reporting $143 million in adjusted operating income for the latest quarter on $1.7 billion in revenue, compared with $263 million in adjusted operating income on $1.7 billion in revenue.

Commission spending fell to $140 million, from $153 million.

Here's what happened to sales revenue for some key products between the year-earlier quarter and the latest quarter:

Group Long-Term Disability: $123 million (down from $132 million)
Group Short-Term Disability: $100 million (up from $81 million)
Group Life and Accidental Death and Dismemberment (AD&D): $108 million (down from $31 million)

Unum US group life and AD&D division is reporting a $22 million adjusted operating loss for the latest quarter on $469 million in revenue, compared with $68 million in adjusted operating income on $483 million in revenue for the fourth quarter of 2019.

COVID-19 pushed the group life and AD&D benefit ratio, or ratio of claim spending to revenue, to 90.4%, from 71.7% in the fourth quarter of 2019.

For the voluntary benefits product line, the benefit ratio increased to 48%, from 45.6% in the year-earlier quarter, "due primarily to higher claims incidence in both the life and disability product lines, result from the impacts of COVID-19," Unum said.

Because COVID-19 kept many people from getting routine dental and vision care in the fourth quarter, the benefit ratio for the dental and vision product line fell to 65.4%, from 71.1% in the year-earlier quarter, according to Unum.

Colonial Life

Colonial Life, Unum's worksite marketing unit, is reporting $71 million in adjusted operating income on $457 million in adjusted operating revenue, compared with $88 million in adjusted operating income on $463 million in adjusted operating revenue.

Commission spending fell to $74 million, from $84 million.

Here's what happened to Colonial Life sales for several key products, year-over-year:

Accident, Sickness and Disability: $96 million (down from $122 million)
Life: $33 million (down from $53 million)
Cancer and Critical Illness: $25 million (down from $34 million)

MetLife (NYSE:MET)

MetLife is reporting $158 million in net income for the fourth quarter on $19 billion in revenue, compared with $588 million in net income on $17 billion in revenue for the fourth quarter of 2019.

The New York-based company earnings fell partly because, in the fourth quarter of 2019, the company recorded an unusual $625 million tax benefit.

Adjusted earnings, which exclude the effects of a variety of unusual or accounting-related gains and charges, held steady at about $1.8 billion.

U.S. Group Benefits

The U.S. group benefits unit is reporting $383 million in adjusted earnings for the latest quarter on $5.3 billion in premiums, fees and other revenues, up from $329 million in adjusted earnings on $4.8 billion in premiums, fees and other revenues for the year-earlier quarter.

COVID-19 increased the group life mortality ratio to 96.3%. That was up from a recent peak of 95.9% in the second quarter and up from 85.4% in the fourth quarter of 2019.

But, because COVID-19 reduced MetLife benefit plan enrollees' use of dental and vision benefits, the group non-medical health benefits ratio fell to 61.7%, from 71.4% in the fourth quarter of 2019.

U.S. Retirement and Income Solutions

The retirement and income solutions unit is reporting $526 million in adjusted earnings for the latest quarter on $6.2 billion in premiums, fees and other revenues, up from $321 million in adjusted earnings on $4.5 billion in premiums, fees and other revenues for the year-earlier quarter.

Health Insurers

Cigna Corp. (NYSE:CI)

Cigna is reporting $4.4 billion in net income for the fourth quarter of 2020 on $42 billion in revenue, up from $984 million in net income on $38 billion in revenue for the fourth quarter of 2019.

The Bloomfield, Connecticut-based company ended the quarter providing or administering health coverage for 16.7 million people, down from 17.1 million people a year earlier.

Here's what happened to three types of health plan enrollment between the fourth quarter of 2019 and the latest quarter:

Commercial Insurance and Self-Funded Plan Administration: 13.6 million (down from 14.2 million)
Government plans: Held steady at 1.4 million.
International Coverage: 1.7 million (up from 1.6 million)

Cigna sold a big group life and group disability unit to New York Life Dec. 31, 2020, for $6.2 billion.

In the fourth quarter, that unit's results reflected "elevated life claims primarily related to the COVID-19 pandemic and unfavorable disability claims," the company said.

Humana Inc. (NYSE:HUM)

Humana is reporting a $274 million net loss for the fourth quarter of 2020 on $19 billion in revenue, compared with $512 million in net income on $16 billion in revenue for the fourth quarter of 2019.

The Louisville, Kentucky-based company ended the year providing or administering health coverage for 16.8 million people, up from 16.7 million people a year earlier.

Here's what happened to some key types of health plan enrollment:

Individual Medicare Advantage: 4 million (up from 3.6 million)
Group Medicare Advantage: 613,200 (up from 525,300)
Medicare Supplement: 335,600 (up from 298,400)
Fully Insured Employer Plans: 777,400 (down from 908,600)
Self-insured employer plans: 504,900 (down from 529,200)
Military plans: 6 million (flat)

Humana said its net loss was due in part to factors such as spending on pandemic relief efforts, investments in its health care delivery operations, and increased spending on Medicare Advantage annual election period marketing.

The company said the big COVID-19 wave that started in the fall both hurt and helped earnings.

"Beginning in the latter half of November and accelerating throughout the month of December, the company experienced a significant increase in COVID-19 admissions in nearly all of the markets in which it operates across its Medicare Advantage, Medicaid, and group commercial insurance business lines," the company said.

But, because the end-of-year pandemic wave stopped many people from getting ordinary, non-pandemic-related health care, utilization of non-pandemic-related care fell about 15% below normal levels, Humana said.

— Read Q4 Life, Health and Annuity Earnings Calendar, on ThinkAdvisor.

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