Analysts at Jefferies have reported that Munich Re’s COVID-19 claims on the life reinsurance side of its business have lasted far longer than anticipated, contrary to the market’s initial views.
At Munich Re’s recent management meetings, a key discussion point was the ongoing impact of COVID claims to the reinsurer’s life business, although Jefferies notes that the trend does seem to finally be improving.
One of the critical areas of uncertainty for catastrophe modellers and life reinsurance underwriters is the calculation of the correct return period for an emerging coronavirus, the firm highlighted in a new report.
Initially both investors and the reinsurance industry focussed their attention on the secondary impact of restrictions and the associated claims in non-life, such as business interruption and event cancellation.
But in hindsight, the life losses have proven to be more material than initially thought, with claims steadily building throughout the pandemic and some reserves requiring material strengthening.
Currently, Munich Re said that this event is expected to have a 1-in-200-year return period, although it could even be 1-in-100-year.
Thinking more in the short to medium term, discussion at Munich Re’s management meetings centred around the options for ongoing losses, including from displacement of mortality and new morbidity.
One option is that perhaps the pandemic has led to a front-loading of mortality, with pandemic deaths concentrated amongst individuals with pre-existing conditions that lift the likelihood of early mortality even outside pandemic conditions.
Another alternative is that the large number of long-COVID cases leads to long-term health conditions that impact health, morbidity and mortality risks.
According to Jefferies, both of these factors are likely relevant, although its assumption is that the second factor marginally outweighs the first. Munich Re confirmed that it presumes a “small double-digit number” going forward.
Beyond mortality, Munich Re has experienced a moderately favourable move in longevity risk, partially compensating for the mortality costs of the pandemic.
