Virus crisis results in huge losses in reinsurance world
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 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 it may downgrade debt ratings for life reinsurers.
No country has been hit harder than the United States, with nearly 215,000 deaths and 7.8 million cases, the largest COVID-19 hot spot 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.
“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 37 million globally, leaving few corner soft he earth unscathed. The con sequences 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.
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.
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 pretax losses.
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 coronavirus-related claim costs to be nearly twice as high — suggesting virus casualties are vastly undercounted.