Market volatility creating more difficulties for Life & Retirement Insurers

Of all insurance segments, it is life insurers who are facing the most difficult challenges.   The industry is
closely monitoring the potential impacts on mortality rates, however, we expect that life insurers may
also feel significant impacts due to what is happening in the financial markets. 

Because of the long-term assets and liabilities that life insurers hold, market volatility is always
challenging for the sector  - and we have seen extreme volatility in recent weeks. Major exchanges
around the world have experienced some of their worst falls in decades, even if ground has later been
made up again. Movements in equities, interest rates and credit spreads create tremendous asset
liability management risks for life insurers as yield curves flatten.

Globally, life insurers manage more than $20 trillion in assets and as much as half of this is estimated to
be in government bonds. But the yields from these have fallen dramatically  - US 10 year bond yields
have more than halved since the end of 2019 for example.   The crisis also puts pressure on non-
Government bonds which may cause credit concerns and may lead to an increase in bond downgrades.

In addition to this, as noted earlier, central banks have been slashing interest rates. We were already in
a low interest rate environment  - which is always difficult for insurers in general, but especially for life
insurers - now rates are heading down even further (possibly below zero in some countries). Legacy
businesses or products that are highly sensitive to market variables such as variable and fixed annuities,
long-term care insurance and universal life insurance are likely to feel the effects more deeply. 

All of these factors can result in solvency ratio challenges. Prior to this COVID-19, much has been said
about the industry being well-capitalized and so insurers may be starting from a position of strength as it
relates to capital. However, risk-based capital approaches vary widely by country which impacts how
reactive the ratios are to current market conditions. For example, the EU's Solvency II regime is very
sensitive to financial market volatility and movements in bond yields and credit spreads. Other capital
approaches could be sensitive to bond downgrades. As a result, insurers will need to closely monitor
solvency ratios in order to meet economic, regulatory and rating agency capital requirements.

The sector will be hoping that the pandemic blows itself out before long. Otherwise, if market volatility
continues and fluctuations persist, they may need to reassess their investment portfolios and exposures
to potentially reduced investment earnings as well as protecting capital/security for policyholders and
key stakeholders.

All Life insurance companies have to give life insurance covid 19 claims.

Coronavirus outbreak: Insurers receive just 1,000 death claims despite rising COVID-19 toll

Lower death claims

Of the 1,000 death claims filed so far, claims worth Rs 50 crore have been settled.

The country’s largest insurer, Life Insurance Corporation, has settled claims worth Rs 21.15 crore as of
August 15. An LIC spokesperson told Moneycontrol that this amount breaks up into 293 claims under
693 policies.

In the life insurance sector, sources said that the average claim amount stands at Rs 5.5 lakh for death
claims under term plans.
“We have less than 3 percent insurance penetration in life insurance. So low number of death claims
does not come as a surprise,” said the head of distribution at a bank-led private insurer.

As per Insurance Regulatory and Development Authority of India (IRDAI) statistics, there were 333.3
million in-force life insurance policies as of FY19. This means that only 25.7 percent of the country’s
population was covered by life insurance policies.

A Swiss Re sigma report showed that India’s insurance penetration (insurance premium as a percentage
of GDP) in FY20 was 3.76 percent against the global average of 7.23 percent.

The global reinsurer had earlier said that there is a big gap in the insurance coverage (pure protection) in
Indian households.

How life insurance generates value – Find the impact of each in short term and in long term due to covid
to understand the revenue
Main points which can effect EV

Various digital steps taken by the players to improve acquisition expenses/growth/ease for customers
etc.
Renewal premium growth Is very important to track as it would help in understand the operating
efficiency, brand name, customer retention/stickiness and Digital prowess of companies