Reinsurance News

Jefferies highlights implications of weight loss drug GLP-1 on re/insurance sector

29th September 2023 - Author: Kane Wells

In Jefferies’ recent “Assessing the Wider Implications of a Slimmer Society” report, the firm’s analysts underlined some of the key ways in which Glucagon-like peptide-1 receptor agonists (or GLP-1s) could affect the re/insurance sector.

According to the analysts, GLP-1s were originally approved for use in 2005 as a treatment for Type 2 diabetes, and have since proven to help manage the disease as well as functionally reduce appetites.

“The potential weight loss implications were not lost on the medical community. However, it wasn’t until semaglutide was approved in 2017, with an indication for weight loss specifically approved in 2021, and a subsequent study showing CV risk improvement, that it properly captured the attention of the masses,” Jefferies explained.

The firm’s analysts noted that public enthusiasm for GLP-1 use as a weight loss treatment has “yet to lose steam,” with the firm’s healthcare teams forecasting it could be a >$100bn global market, with uptake rapidly rising through the end of the decade.

In the report, one analyst said that a “lighter, healthier population would be a net positive for the US life insurance sector, with the caveat that trends in the insured population mirror trends in the overall population.”

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They went on, “Improved health would likely lead to lower premiums, as more buyers of life insurance would qualify for better underwriting classes, but this impact would only be seen on new business.

“On in-force business, companies would benefit from delayed mortality, allowing life insurers to earn more investment income on reserves for longer periods of time.”

Jefferies highlighted that it would also expect a healthier population to drive improvements in morbidity, which could lower claims costs in products such as disability and long-term care.

“Improvements in morbidity would ultimately get reflected in pricing, though this impact would occur over time. Going the other way, however, increases in longevity from improved health could increase claims costs in products such as pension risk transfer and income annuities,” the report observed.

Another analyst said that they expect GLP-1 drugs to “positively impact the life insurance space,” adding that a continued lowering of death rates will improve profitability and that demand is unlikely to change as it is driven by growth in liabilities that need coverage.

This analyst continued, “Additionally, prices are unlikely to fall as this remains a push rather than pull product, meaning distribution costs are driving price. However, the impacts on health insurance are mixed. A healthier population should have a reduced claims burden by reducing hospital visits, but this means lower premium rates to compensate for the lower risk.

“That said, health insurance affordability has been an issue so there could be an offsetting effect through increased demand. Furthermore, lower obesity rates will reduce the strain on the NHS, limiting the need for private coverage.

“Annuities should be negatively impacted as longer life spans will lift the cost of providing LT pensions. Additionally, liabilities with a longer duration than available assets carry a hefty capital charge.”

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