CHESTERFIELD, Mo. _ When Americans want to cushion their families from the financial impact of their deaths, they buy insurance. And when insurance companies want to protect their businesses from such untimely expirations, they buy insurance, too.
Now, with more than 1 million coronavirus deaths worldwide, and millions sick, the companies that insure insurers _ called reinsurers _ are taking it on the chin.
The COVID-19 pandemic has battered the industry. Top companies, including the Reinsurance Group of America, have reported hundreds of millions in payouts, leading to huge losses in some sectors. The credit-rating agency Moody's recently said that it may downgrade debt ratings for life reinsurers.
No country has been hit harder than the United States, with 210,000 deaths and 7.5 million cases, the largest COVID hotspot in the world. RGA, as the local company is known, paid out $300 million in coronavirus-related claims in the second quarter. And $240 million of that _ 80% _ was from its business in the U.S.
Moreover, RGA's claims open a window into the unseen impact of the coronavirus here.
"We expect the U.S. will continue to be the key driver of COVID-19 mortality claims for RGA in the near term," chief risk officer Jonathan Porter said on a recent earnings call.
At its most basic, insurance companies make money when customers pay more in premiums than they get paid in claims. The model relies on predictability in death and disease and natural disasters, among other triggers. It also expects that the whole world won't get sick at once. Reinsurance helps spread out that risk, by paying a portion of every claim.
"I can give you thousands of pages on longevity and mortality," said Lynn Phillips, an RGA communications executive. "That's what we do."
But the coronavirus has infected more than 35 million globally, leaving few corners of the earth unscathed. The consequences to insurance companies, and correspondingly, reinsurance companies, have been severe and immediate.
Zurich-based Swiss Re, the world's largest reinsurance company, said COVID-19 cost it almost $2 billion in the first half of the year alone: The company reported a loss of $1.1 billion for the half-year, and said without COVID-19, it would have made $865 million.
Even spheres of reinsurance beyond health and life coverage were affected. Paris-based giant SCOR reported limited actual COVID-19 claims, but estimated related claims _ losses from credit, property business interruption, plus surety and political risks _ cost it almost a half-billion dollars, before tax, in the second quarter alone.
Big player
RGA, which focuses on health and life reinsurance, is a large presence in the industry _ No. 225 on the Fortune 500 list of U.S. companies by revenue, and No. 8 among global reinsurance companies, according to industry publication Reinsurance News. It employs more than 3,600 globally, with about 1,400 in St. Louis.
The company says that the impact exacted by the coronavirus is still coming into focus. But its balance sheets and market valuation have already taken a pounding. Over a month from late February to late March, as the virus took hold in the U.S., the company's stock price fell by almost two-thirds, to $60 a share from $150. It closed on Thursday at $104.
Earnings reports have featured plenty of red ink. RGA reported in August half-year revenues of $6.8 billion, but just $70 million in income, a drop of $300 million.
Its U.S. and Latin America sector was the company's loss leader, with more than $200 million in pre-tax losses.
Another revelation in RGA's earnings report:
RGA reported that COVID-19 claims totaled $161 million in the second quarter, with 80% of those in the U.S. But the company estimated actual coronavirus-related claim costs to be nearly twice as high _ suggesting coronavirus casualties are vastly undercounted.
The majority of excess claims processed by the company have been among individuals 70 or older, who are in the age group most vulnerable to the virus. And in the earlier stages of the pandemic, when the worst outbreaks were concentrated in parts of the Eastern U.S., the company saw substantially elevated mortality rates among insurance policyholders in states with the highest coronavirus risks, like New York and New Jersey.
Analysts expect the pandemic will likely lead to higher insurance costs for consumers. Property reinsurance and insurance prices, for instance, have climbed _ sometimes significantly _ after the rash of recent hurricanes and wildfires, made more frequent and more costly by climate change. The pandemic may have a similar effect on life insurance, analysts say.
"That will have an impact on some of the rate-setting," said Mark Dwelle, an insurance equity research analyst for RBC Capital Markets. "The price probably will go up."
Pay now, not later
Current low interest rates will also diminish reinsurance company earnings _ companies invest premiums to bolster returns _ which could also lead insurers to adjust their prices or payouts.
RGA executives are bracing for continued turbulence. But they are also optimistic.
The pandemic, while devastating balance sheets now, may act, long-term, as a claims accelerator _ essentially "pulling forward" costs that RGA eventually would have faced anyway.
"You can only die once," said Erik Bass, an analyst for London-based market research firm Autonomous Research.
"It's sort of a morbid thing to think about," he said. "They pay that claim now and they won't in the future."
Moreover, the pandemic could have been a lot worse for companies like RGA. Older clients have paid thousands of dollars in premiums over time. If the disease had instead hit younger individuals harder, insurance companies would be paying out claims to customers who hadn't yet paid decades of premiums.
Longer term, there are other ways in which the coronavirus could actually be good for RGA's business. After all, there's nothing like a deadly scourge to illustrate the importance of insurance to ordinary citizens, and the importance of reinsurance to insurance companies.
"I could certainly offer up that the value of reinsurance has been highlighted during this pandemic," said Anna Manning, RGA's president and CEO, on a call discussing quarterly earnings.
Ultimately, analysts like Bass share the company's optimism for its prospects. He even thinks that in 2021, RGA can be "at or above" the earnings per share that the company generated in 2019, which was a record.
"I think," he said, "they will come out of the other side of it well-positioned."
