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Coronavirus and life insurance companies

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stockton
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Coronavirus and life insurance companies

#289960

Postby stockton » March 11th, 2020, 9:05 pm

Anyone able to suggest whether coronavirus is good or bad for life insurance companies ?
In principle one might expect a shortened life expectancy to good for such companies, but is this really the case ?

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Re: Coronavirus and life insurance companies

#289962

Postby dealtn » March 11th, 2020, 9:10 pm

stockton wrote:Anyone able to suggest whether coronavirus is good or bad for life insurance companies ?
In principle one might expect a shortened life expectancy to good for such companies, but is this really the case ?


How is paying out more claims, and sooner good for a Life Assurance company?

And furthermore, In which market have they invested those "premiums"?

Or are you thinking more of Pension Providers, who would be paying out fewer pensions and for a shorter period (assuming mortality rates move in a manner that was considered significant.)

stockton
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Re: Coronavirus and life insurance companies

#289965

Postby stockton » March 11th, 2020, 9:21 pm

My assumptions were that most of the risk in life assurance is assumed by the assured, whereas pension providers do accept the longevity risk. And that life assurance and pension provision tend to go together.

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Re: Coronavirus and life insurance companies

#289966

Postby Dod101 » March 11th, 2020, 9:24 pm

I am doubtful that it will have a very big impact on long term mortality rates because it will hopefully be a temporary occurrence and secondly the impact is hopefully going to be fairly modest anyway.

Even if it has a bigger impact, it depends on which side of the life insurance industry we are looking. Obviously for traditional life insurance it could bring forward deaths and so mean that insurers will be called upon to make payments earlier than expected but if in the annuities business, it will have just the opposite effect and mean that from the cash they have received, they will have to pay out less. The first case will reduce profits; the second increase them.

Those who are dying at the moment are older lives and therefore less likely I guess to have life insurance, either individually or through a works benefit, which I guess is what Snorvey is getting at. If that remains the case, then the overall effect could be positive but really unless we get something like the Black Death I think the impact may be quite modest.

Dod

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Re: Coronavirus and life insurance companies

#289968

Postby dealtn » March 11th, 2020, 9:28 pm

stockton wrote:My assumptions were that most of the risk in life assurance is assumed by the assured, whereas pension providers do accept the longevity risk. And that life assurance and pension provision tend to go together.


Genuinely confused. The assured is the person paying the premium. The Assurance company collects the premium, invests it, and pays out when the assured dies.

Presumably the suggestion is that people will be dying as a result of this virus. The Assurance company then receives fewer premiums, faces potential losses on the premiums already received that it has invested in places such as the stock market that has fallen 20%, and pays out more in claims to the estates of those that die.

Where does an Assurance company benefit? The only way I see it is that the Life Assurance market reprices risk, premiums go up substantially, yet deaths don't increase in any meaningful way, and excess profits are made for many years as a result of the unnecessary (in hindsight) repricing. (Sufficient to more than offset the initial losses).

You think something else?

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Re: Coronavirus and life insurance companies

#289975

Postby stockton » March 11th, 2020, 9:48 pm

dealtn wrote:Genuinely confused. The assured is the person paying the premium. The Assurance company collects the premium, invests it, and pays out when the assured dies.

Presumably the suggestion is that people will be dying as a result of this virus. The Assurance company then receives fewer premiums, faces potential losses on the premiums already received that it has invested in places such as the stock market that has fallen 20%, and pays out more in claims to the estates of those that die.

Where does an Assurance company benefit? The only way I see it is that the Life Assurance market reprices risk, premiums go up substantially, yet deaths don't increase in any meaningful way, and excess profits are made for many years as a result of the unnecessary (in hindsight) repricing. (Sufficient to more than offset the initial losses).

You think something else?

I should probably have used the term "pension providers", but I assume that pension providers usually seem to be classified as life assurance companies.

My (fairly ignorant) understanding is that the level of the stockmarket is irrelevant to modern assurance providers as they simply pay out according to the performance of their investments, whereas pension providers collect a bonus if their clients die sooner than expected.
I am happy to be disabused should my assumptions be incorrect.

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Re: Coronavirus and life insurance companies

#290008

Postby supremetwo » March 12th, 2020, 2:28 am

stockton wrote:
dealtn wrote:Genuinely confused. The assured is the person paying the premium. The Assurance company collects the premium, invests it, and pays out when the assured dies.

Presumably the suggestion is that people will be dying as a result of this virus. The Assurance company then receives fewer premiums, faces potential losses on the premiums already received that it has invested in places such as the stock market that has fallen 20%, and pays out more in claims to the estates of those that die.

Where does an Assurance company benefit? The only way I see it is that the Life Assurance market reprices risk, premiums go up substantially, yet deaths don't increase in any meaningful way, and excess profits are made for many years as a result of the unnecessary (in hindsight) repricing. (Sufficient to more than offset the initial losses).

You think something else?

I should probably have used the term "pension providers", but I assume that pension providers usually seem to be classified as life assurance companies.

My (fairly ignorant) understanding is that the level of the stockmarket is irrelevant to modern assurance providers as they simply pay out according to the performance of their investments, whereas pension providers collect a bonus if their clients die sooner than expected.
I am happy to be disabused should my assumptions be incorrect.


Recent article about Aviva and life expectancy decline:-

https://www.investorschronicle.co.uk/ti ... ity-boost/

But it was another change in assumptions that provided the fillip to earnings, one that Aviva does not expect to be repeated in coming years. This relates to the group’s use of the Institute and Faculty of Actuaries’ 2018 UK mortality tables, which showed a decline in life expectancy and led Aviva to reduce its longevity reserves by £781m.

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Re: Coronavirus and life insurance companies

#290014

Postby Dod101 » March 12th, 2020, 7:01 am

stockton wrote:I should probably have used the term "pension providers", but I assume that pension providers usually seem to be classified as life assurance companies.

My (fairly ignorant) understanding is that the level of the stockmarket is irrelevant to modern assurance providers as they simply pay out according to the performance of their investments, whereas pension providers collect a bonus if their clients die sooner than expected.
I am happy to be disabused should my assumptions be incorrect.


With respect you had better get your terms sorted out because you are not only confusing everyone else I think you are confusing yourself as well. The terms 'pension providers' and 'life insurance companies' or 'life assurers' as you are now calling them are sometimes synonymous but it is the product that they provide that is the important bit.

A company like Legal and General for instance is big in annuities but also in traditional life insurance. As I said earlier the one benefits from earlier than expected deaths, the other loses. Neither product is without risk, the first one that the annuitant will live longer than expected; the other that the life insured (or assured) dies sooner. Particularly for annuities there is another risk, that investment returns will not meet their expectations, which may be the case at the moment so this will to some extent offset any earlier deaths.

For what you are calling 'modern assurance providers' they will still provide at least a guaranteed amount at death and anything more may depend on the stockmarket returns (unit linked) rather than the traditional bonuses.

So fundamentally as I said in my earlier post, life insurers may broadly speaking lose out, but annuity providers may gain, but there are so many factors involved that it is difficult to say.
Dod

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Re: Coronavirus and life insurance companies

#290026

Postby dealtn » March 12th, 2020, 8:34 am

supremetwo wrote:
stockton wrote:
dealtn wrote:Genuinely confused. The assured is the person paying the premium. The Assurance company collects the premium, invests it, and pays out when the assured dies.

Presumably the suggestion is that people will be dying as a result of this virus. The Assurance company then receives fewer premiums, faces potential losses on the premiums already received that it has invested in places such as the stock market that has fallen 20%, and pays out more in claims to the estates of those that die.

Where does an Assurance company benefit? The only way I see it is that the Life Assurance market reprices risk, premiums go up substantially, yet deaths don't increase in any meaningful way, and excess profits are made for many years as a result of the unnecessary (in hindsight) repricing. (Sufficient to more than offset the initial losses).

You think something else?

I should probably have used the term "pension providers", but I assume that pension providers usually seem to be classified as life assurance companies.

My (fairly ignorant) understanding is that the level of the stockmarket is irrelevant to modern assurance providers as they simply pay out according to the performance of their investments, whereas pension providers collect a bonus if their clients die sooner than expected.
I am happy to be disabused should my assumptions be incorrect.


Recent article about Aviva and life expectancy decline:-

https://www.investorschronicle.co.uk/ti ... ity-boost/

But it was another change in assumptions that provided the fillip to earnings, one that Aviva does not expect to be repeated in coming years. This relates to the group’s use of the Institute and Faculty of Actuaries’ 2018 UK mortality tables, which showed a decline in life expectancy and led Aviva to reduce its longevity reserves by £781m.


So you are talking about Annuity providers NOT Life Assurance providers then, that is a huge difference. The fact that companies offer both products is because they provide some form of "natural hedge" to each other.

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Re: Coronavirus and life insurance companies

#327617

Postby GaryThom » July 21st, 2020, 12:46 am

The bigger immediate impact is the reduction to interest rates that reduces the discount rate that can be applied to future liabilities and so increases the reserves that needs to be held on the balance sheet. This constrains the capital available to write new business, invest in operations, pay as dividends etc.

Stock market falls will also be bad news for insurers with a lot of unit linked business. The key thing here is the insurer collects charges as a percentage of policyholder funds, which will have reduced, particularly if UK focused. There may be a corresponding reduction to operating expenses though with offices closed to offset the loss of the charges.


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