What You Need to Know
- Life insurance claims have been higher in the United States because many U.S. insureds are over 65.
- Because of tax rule differences, old U.S. residents are much more likely than older people in other parts of the world to have life insurance.
- A successful COVID-19 vaccination effort could help reduce the pandemic impact.
Big life reinsurers are facing more COVID-19 claims in the United States than in the rest of the world, partly because of tax rules that encourage older U.S. consumers to own life insurance, according to analysts at Fitch Ratings.
Robert Mazzuoli, a Fitch director, and other Fitch analysts, studied the effect of the pandemic on five big life reinsurers in a new COVID-19 impact report.
COVID-19 has been deadlier for people ages 65 and older than for younger people, and, as of March, about 59% of the 530,000 U.S. residents who had died from the disease were 75 or older, the analysts write.
“Life insurance policies that include mortality covers are widely held by older age cohorts in the U.S., whereas mortality covers are hardly sold to older age groups in other regions,” the analysts say. “The key reason for this popularity is the tax treatment of financial income in the U.S., which favors life policies with mortality covers over those without.”
A Life Reinsurance Primer
Life reinsurers serve as insurers for life insurance and annuity issuers.
These companies may pay the “direct writers” when one very large life insurance death claim comes in, or when, because of an epidemic or other disaster, the total amount of death claims is very high.
Fitch rates five life reinsurers: Hannover Rueck SE, Munich Reinsurance Company, Reinsurance Group of America Inc. (RGA), Scor SE and Swiss Reinsurance Co. Ltd.
RGA is the only life reinsurer on that list with U.S.-based headquarters although all five have significant operations in the United States.
The performance of life reinsurers can affect the everyday life of life insurance agents and brokers, and their customers, because access to reinsurance is one of the factors that affect how much mortality risk life insurers can take on, and what life insurers charge to protect policyholders against that risk.