Moody’s estimates that the COVID-19 pandemic could cause death benefit claims to rise significantly for U.S. life insurers, but not enough to materially impact their capital reserves.
In a new industry report, the ratings agency said that while it does not expect a widespread coronavirus infection rate with relatively high mortality for the insured population, such a scenario would result in significant growth of death benefit claims for U.S. life insurers, particularly those that carry a large amount of mortality risk.
In its industry analysis, the agency assumed three infection scenarios: a low-end base case of 2% infection rate within the insured population, a high-end base case of 10%, and a stress scenario with a 40% infection rate. Across all infection-rate cases, it assumed a 1% fatality rate.
Assuming the total number of deaths remain within the base-case range of estimates, the agency said the resulting rise in death benefits should lead to a marginal decline in capital of less than 5% for most of the direct writers it rates.
Bur if the ultimate number of deaths tops its current base-case projections and comes closer to the tail scenario, the overall impact will be below 20%, with some insurers seeing significant capital reductions coupled with other extreme economic impacts.
Life reinsurers would be most exposed to a pandemic, the agency added, noting that subsidiaries of larger entities could receive beneficial capital support from their parent companies.
The ratings agency acknowledged that reported coronavirus-related fatality rates in the U.S. have exceeded 1%, but assumed that the confirmed COVID-19 cases underestimate the true number of total infections in the country. With increased testing, Moody’s analysts said, infection rates should increase above its base-case range and fatality rates to fall well below 1%.