COVID-19 Is Hitting Life Insurers Harder: Morgan Stanley Analysts
Nigel Dally and colleagues expect the January-February spike to weigh on some companies' results.
The surge in COVID-19 deaths that hit in January and early February might have a noticeable effect on the earnings of insurers with large amounts of life insurance on their books, according Nigel Dally and other securities analysts at Morgan Stanley.
Executives from large, publicly traded life insurers spent the first three quarters of 2020 talking about how the COVID-19 pandemic had not come near to being as costly as the kinds of fictional scenarios they had been using in disaster planning.
Executives seemed to talk more about COVID-19-related life insurance claim figure when they were going over results for the fourth quarter of 2020.
Dally and colleagues say they believe pandemic-related claims are starting to take a toll on life insurers.
The high number of deaths in January and February, and pandemic-related deaths now, seem to be affecting group life operations, and working-age insureds, not just people with individual life insurance, the analysts write.
The mortality rate from heart attacks, strokes and drug-related problems has spiked higher along with the death rate from COVID-19, the analysts add.
In the first half of the first quarter, “we have already seen deaths well exceed what we saw in the fourth quarter,” the analysts say. “We expect this will hit companies with mortality-driven business particularly hard.”
Other Factors
The analysts also stated:
- Interest rates are still low enough to hurt life insurers’ investment earnings but are a little higher than they were soon after the pandemic hit.
- Private-equity-backed companies seem to continue to be eager to help traditional life insurers transfer the risk associated with old blocks of business, through sales of blocks of business or through reinsurance arrangements. The analysts expect Ameriprise to do something with the fixed annuities still on its books, and Prudential Financial to do something with its variable annuities and individual life blocks.
- For investors, one problem is that some life insurers’ stock prices have increased so much that the stocks no longer look like great buys. But some other life insurers still seem to have low stock prices, given how well they’ve been doing, the analysts write.
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