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Q1 data show signs of pandemic-era peak in US life industry death benefits


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Q1 data show signs of pandemic-era peak in US life industry death benefits

Death benefits paid by U.S. life insurers surged to a new high on an absolute basis in the first quarter as a resurgence of COVID-19 contributed to adverse mortality for several leading carriers.

From February onward, however, a dramatic decline in case counts and high vaccination rates among the age groups most at risk of hospitalization suggest more favorable results may be ahead.

Data compiled and adjusted May 24 by S&P Global Market Intelligence from the first-quarter statutory statements of 648 individual U.S. life entities put total death benefits at $25.92 billion, an increase of 29.1% from the year-earlier period and $2.67 billion above the previous record high tally in the fourth quarter of 2020. The first-quarter total is likely to increase slightly as additional information is received.

Death benefits amounted to 15.3% of net premiums and considerations in the first quarter. It marked the third time in the past four quarters that the ratio topped 15%, a feat that the industry had achieved only three times in a 77-quarter stretch from the first quarter of 2001 through the first quarter of 2020. The average quarterly ratio of death benefits to net premiums and considerations was 11.2% during a 10-year stretch ended in 2019.

The 13.2% ratio of death benefits to direct premiums and considerations — a metric that reduces denominator noise associated with large reinsurance transactions involving non-U.S. counterparties — was a new high over at least the previous 20 years. The 10-year pre-pandemic average ratio was 9.8%.

Provisional Centers for Disease Control data show that U.S. COVID-19 deaths hit their highest levels to date during the first two full weeks of January. For the month in its entirety, the 102,441 deaths with confirmed or presumed COVID-19 accounted for more than 17.7% of the 577,140 such fatalities from the start of 2020 through May 24, 2021. There have been only 5,116 deaths with confirmed or presumed COVID-19 through the first 24 days of May.

Death benefits increased on a year-over-year basis by more than 30% at the likes of Metropolitan Life Insurance Co., Prudential Insurance Co. of America, New York Life Insurance Co. and Massachusetts Mutual Life Insurance Co.

MetLife Inc.'s group life mortality ratio hit 106.3% in the first quarter relative to a target of between 85% and 90%. The company attributed about 17 percentage points to COVID-19. Senior Vice President John Hall said during a May 6 conference call that the company experienced increases in claims frequency and severity, with the latter development a result of more deaths among insureds below age 65. Apart from COVID-19, Hall added that the number of claims of more than $2 million "nearly doubled versus a typical quarter."

American International Group Inc. Executive Vice President and CFO Mark Lyons said during a May 7 call that the company's life and retirement segment suffered from adverse mortality in the first quarter due to "higher than earlier anticipated" U.S. COVID-19-related deaths. Death benefits increased by 63.9% year over year at American General Life Insurance Co., AIG's primary U.S. life unit.

The rapid decline in COVID-19 deaths could provide a near-term boost to life insurer results.

Lincoln National Corp. Executive Vice President, CFO and Head of Individual Life Randal Freitag said during a May 6 call that the company expects pandemic-related "headwinds to abate over the remainder of the year" after they had "a large impact" on first-quarter results. Freitag said excess pandemic-related mortality had a $132 million effect on the company's first-quarter earnings.

Prudential's second-quarter outlook includes a $70 million placeholder for COVID-19 claims experience that anticipates 55,000 COVID-19-related U.S. fatalities during the period, said Kenneth Tanji, executive vice president and CFO at Prudential Financial Inc. during a May 5 call.

Confirmed and presumed COVID-19 deaths, according to CDC data, totaled 20,451 between April 4 and May 24, with weekly run-rates declining sharply during that time.