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COVID-19 mortality drives historic rise in US life industry death benefits

The U.S. life insurance industry experienced its largest year-over-year increase in death benefits in any quarter in at least the past 19 years as the pandemic pushed claims volumes higher.

At $21.54 billion, according to data compiled as of Sept. 14, second-quarter death benefits represent an increase of 18.2% on a year-over-year basis. It also represented the highest level of death benefits on an absolute basis unadjusted for inflation since at least the start of 2001, the first period for which S&P Global Market Intelligence has compiled quarterly statutory financials.

Historically significant declines in certain other expenses more than offset the drag related to death benefits, however. Overall benefit payments in the second quarter across life, annuity and accident and health business lines declined by 3.6%, fueled by a drop in disability and accident and health benefits that was unprecedented in recent times. The 17.1% decline in those benefits marked the first year-over-year retreat of any amount since the third quarter of 2013 and was the largest drop since at least the start of 2002. Surrender benefits and withdrawals for life contracts tumbled by 21.8% on a year-over-year basis in the second quarter, which stands as the largest fall since the fourth quarter of 2009.

The only other double-digit year-over-year increase in death benefits during the past 19 years hit the books in the third quarter of 2007 at a rate of 12.2%.

Various publicly traded companies indicated during second-quarter earnings conference calls and in 10-Q filings that COVID-19-related mortality negatively impacted their results to at least some extent. Quarterly statutory filings generally offer no granularity or commentary about the nature of benefit payments beyond the breakdown by product category, but the combination of the public company reporting and publicly available disclosures by private entities suggest that the pandemic played a significant role.

New York Life Insurance Co., for example, said higher claims volume, which included effects from COVID-19, led to increasing death benefits in its Agency Life and New York Life Direct segments in the first half of the year, according to a supplement filed in conjunction with its global debt issuance program. The parent of National Life Insurance Co. attributed higher policy benefits to "less favorable mortality experience, elevated by COVID-19 and some large case claims" in its second-quarter financial report. Death benefits at the National Life group, as consolidated by S&P Global Market Intelligence, increased by 47.9% year over year in the second quarter.

Among the 20 largest U.S. life groups by 2019 individual life net premiums, 16 posted double-digit percentage growth in death benefits. Only one, the group led by Pacific Life Insurance Co., showed any decrease.

Conversely, 11 of the 20-largest U.S. life groups by 2019 accident and health net premiums experienced double-digit percentage drops in disability and A&H benefits. Several of the groups that ranked among the top 20 by net premiums in both categories, including Aflac Inc., Guardian Life Insurance Co. of America, Lincoln National Corp., MetLife Inc. and Mutual of Omaha Insurance Co. and Sun Life Financial Inc., showed double-digit increases in death benefits and double-digit declines in disability and A&H benefits.

UnitedHealth Group Inc., the largest U.S. life group by 2019 A&H net premiums, reported lower-than-expected utilization in the second quarter. The company reported to state regulators in various Medicare supplement rate filings, for instance, that utilization had been "suppressed ... for a period of time beginning mid-March 2020 from members delaying services due to COVID lockdowns." Various dental insurers reported similar experiences in filings made in conjunction with premium credits and other forms of policyholder relief.

The life industry's $68.45 billion in surrenders and withdrawals, meanwhile, marked its lowest sum in a single reporting period since the third quarter of 2016 — an expected outcome in an ultra-low interest rate environment. Out of the 59 U.S. life groups and stand-alone entities that had $100 million or more in surrenders and withdrawals in the second quarter of 2019, 43 posted double-digit percentage declines on a year-over-year basis.

Lower benefits, surrenders and withdrawals, as well as the accounting for Jackson National Life Insurance Co.'s reinsurance deal with Athene Holding Ltd., contributed to record statutory pretax operating income of $47.66 billion for the U.S. life industry in the second quarter, one quarter removed from a record pretax operating loss of $50.12 billion. Wild swings in aggregate reserves during a period of extreme financial market volatility were largely responsible for both outlying results, however.