Life reinsurer Reinsurance Group of America, Incorporated (RGA) has decreased its estimate of extra pre-tax mortality claim costs for the COVID-19 pandemic by approximately $200 million.
In Q1, RGA provided an illustration of the potential impact of the pandemic on global mortality claims, based on a scenario that included 100,000 deaths in the US.
At the time, the estimate of extra claim costs for this scenario was between $400 million and $500 million, but now the company has decided to reduce that range to $200 million to $300 million.
Jonathan Porter, EVP & Global Chief Risk Officer at RGA, explained the reasoning behind this move as part of an earnings call that accompanied the firm’s Q2 results release.
RGA saw its net income fall by $44 million in the second-quarter of 2020 to $158 million, as the firm reported global COVID-19 claims, including IBNR, of an estimated $300 million.
“Our estimated mortality claim cost for each general population death has improved, but this is expected to be partially offset by a higher possible range of general population deaths, in particular in the US,” Porter said.
He added that the most impactful change to RGA’s models that drove this reduction was a larger assumed selection factor between insured lives and general population lives.
“In other words, we expect that the COVID-19 related mortality of individuals who own life insurance will be lower than we had previously assumed,” Porter explained.
RGA also made other refinements to its models, such as applying country-specific age and general mortality rates to our insured book, although these impacts were less material.
“Overall, we believe that these updates better calibrate our models to the experience we are seeing in the general population in the markets in which we operate,” Porter added.
RGA’s maintains more than half of its amounted risk outside of the US, but given the current global course of the virus and the underlying demographics of its country exposures, the company expects the US will continue to be the key driver of COVID-19 mortality claims in the near term.
The next largest mortality claim costs are expected to be in the UK and Canada, although both are expected to be considerably lower than the U.S.
It is worth noting that RGA’s modelling continues to assume that whole COVID-19 claims are marginal extra claims and not accelerations of claims that otherwise would occur over the short or medium term.