2020: Surviving the COVID-19 Crisis - Life-Annuity Insurers Focus on Risk and Opportunity
The current coronavirus crisis is of a different nature than prior financial crises: the primary risk, to health and life, is external to the financial markets, yet it is also having profound effects on the assets life-annuity insurers hold. Official policy reactions from governments have complicated insurers’ operations. The usual in-person sales process with an individual life insurance customer has been upended, and the ability to collect samples for underwriting is also diminished.
1. Introduction
2. Executive Summary
3. This Time It Really Is Different: A Different Type of Crisis
² Unique Combination
4. The Excess Mortality Crisis, Significant and Uneven
² Obvious Risk
5. The Economic Impact of COVID-19
² A Challenging Interest Rate Environment Gets Worse
² Focus on Risk: Asset Risks of Liquidity, Credit, and Sector
² Focus on Asset Sector Risk: Commercial Real Estate
6. Adjusting Risk Management in Challenging Times
Introduction
The current coronavirus crisis is of a different nature than prior financial crises: the primary risk, to health and life, is external to the financial markets, yet it is also having profound effects on the assets life-annuity insurers hold. Official policy reactions from governments have complicated insurers’ operations. The usual in-person sales process with an individual life insurance customer has been upended, and the ability to collect samples for underwriting is also diminished.
The coronavirus crisis ultimately may take many shapes, though the initial shape is clear: a large spike in unemployment, high volatility in equity markets, and excess mortality spiking in an early wave and perhaps increasing again. While many hope for effective treatments, lowered case mortality, and ultimately a vaccine, these are likely to take a good deal of time. In the meantime, life insurers must manage their mortality, interest, and asset risks.
These various dimensions of risk in the current crisis will be addressed in the following pages. While the combination of these risks creates large headwinds against the life-annuity industry, they are rushing at an industry that is better prepared to weather such storms.
Even so, the challenge for life insurers remains: to survive the short-term effects of the crisis, while not causing longer-term problems for themselves. To survive the pandemic crisis and thrive in its aftermath is the ultimate goal.