COVID-19 Mortality Fueled Life Insurance Death Benefits Surge, S&P Says

The U.S. life insurance industry recorded its largest year-over-year increase in direct and net death benefits in at least 24 years as excess mortality due to COVID-19 triggered an unusual volume of claims during 2020.

Aggregate net death benefits across all lines of business rose by 15.1% to $87.51 billion, according to an S&P Global Market Intelligence analysis of disclosures in annual statutory statements. The rate of increase for death benefits on individual life policies of 16.7% exceeded the 10.9% rise for group life contracts.

Death benefits increased on individual whole life policies by 17.4%, on individual universal life policies by 11.6%, and on individual term life policies by 19.3%. Additionally, there was a total of $133.89 billion of individual life insurance lost to death in 2020, an increase of 11.8% from 2019.

Increases were also widespread by company and geography. The aggregate amount of direct incurred death benefits and matured endowments incurred, which exclude the significant effects of reinsurance, increased in the individual life business by 14.3% in the 50 U.S. states and the District of Columbia to $91.87 billion. In 31 states, the rates of increase hit double-digit percentages. Of those, 10 posted increases in excess of 25%: South Dakota, Mississippi, New Hampshire, Delaware, Nevada, New York, New Jersey, Montana, Ohio and Alabama.

New Jersey, New York and South Dakota were the states with the highest numbers of COVID-19 deaths per capita between March 1, 2020, and Jan. 2, 2021, based on U.S. Census Department population estimates and data compiled in a recent study published in the Journal of the American Medical Association. But New Hampshire ranked among the bottom 10 states on that basis.

Direct incurred death benefits and matured endowments incurred decreased in 2020 in five states: Alaska, West Virginia, Missouri, Hawaii and Colorado. The 61% plunge in Alaska reflected an unusually high value in 2019.

Among the 143 U.S. life groups and standalone life entities that reported at least $10 million in net individual life death benefits in 2020, the rates of increase hit double-digit percentages in 2020 for 104. Out of the 147 groups and standalone entities with amounts of individual life direct incurred death benefits and matured endowments incurred of at least $10 million, 97 posted double-digit growth in that statistic.

Double-digit increases in net individual life death benefits were the rule for most of the largest U.S. life groups as they rose by 12.8% for the U.S. life units of Prudential Financial Inc., 15% at the group led by Northwestern Mutual Life Insurance Co., 21.8% for the group led by New York Life Insurance Co., 17% for the life units of Lincoln National Corp., 39.9% for Transamerica Life Insurance Co. and affiliates, and 13% for the group led by Massachusetts Mutual Life Insurance Co.

New York Life, for example, reported higher claims volume, including as a result of COVID-19, in its agency life and direct segments along with the payment of large claims in its closed-block reinsurance segment.

The U.S. life units of reinsurer Reinsurance Group of America Inc. showed an increase in net individual life death benefits of 24.8%. RGA Reinsurance Co. said in its annual statement that it experienced higher incidence of older-age claims in 2020 in a development it believes is related to the pandemic as they generally arose from states with higher levels of COVID-19 deaths.

Certain smaller companies posted outsized increases in individual life death benefits.

Security Mutual Life Insurance Co. of New York Inc. showed an increase of 105.2% in its amount of individual life direct incurred death benefits and matured endowments incurred and 46.9% on a net basis. The company disclosed in its annual statement that its holdings of cash, cash equivalents and short-term investments rose to $74.3 million as of Dec. 31, 2020, from $26.6 million a year earlier in part as it prepared for "heavier than normal expected payouts related to COVID-19 death claims." Net of reinsurance and reserves released, the company quantified its incurred death losses related to COVID-19 at $10.7 million in a year its total net death benefits across lines amounted to $93.9 million.

National Life Group posted increases in the direct and net measures of individual life death benefits of 41.9% and 66.7%, respectively. Group member Life Insurance Co. of the Southwest attributed its sharply higher death benefits in 2020 to "less favorable mortality experience in indexed [universal life] and term products, elevated by COVID-19."

While the initial success of the vaccination campaign has generated optimism about the potential for excess mortality to decline in 2021, several insurers issued cautionary statements regarding their outlooks. Among them, RGA Reinsurance said it posted an additional $100 million actuarial reserve as a provision for COVID-19 claims that it may incur.