A decline in COVID-19 mortality during the second quarter contributed to lower death benefits for the U.S. life and health insurance industry in a development that may become a trend through the balance of the year.
Total death benefits of $19.32 billion in the second quarter marked a retreat of 4.1% from the year-earlier period and 21.2% from the first quarter of 2022, a period that ranks second-highest to date for new COVID-19 deaths. But death benefits still remain elevated on absolute and relative bases from the pre-pandemic era as the most recent tally exceeded second-quarter 2019 levels by 8.5%.
The ratio of death benefits to direct life insurance premiums of 37.6% was the lowest since the fourth quarter of 2019, and it declined from 40.2% in the second quarter of 2021. While the industry may be unable to duplicate that result in the third quarter of 2022, it also seems unlikely to approach the ratio of 47.7% that it reached in the third quarter of 2021 absent a significant change in the current trajectory of COVID-19 mortality.
A lower level of death benefits contributed to improved pretax statutory operating income for the U.S. life and health industry in the second quarter of 2022, though it was hardly the only factor in producing that outcome.
Pretax operating income for those individual entities with data for the period available as of Aug. 25 increased by 23.0% on a year-over-year basis to $10.37 billion. Total revenues rose by just 1.1% despite rapid growth in direct business volume, reflecting the impact of completed reinsurance transactions on net premiums and annuity considerations. Total benefits and losses fell by 6.8%, including across-the-board retreats in death, annuity, surrender, and disability and accident-and-health benefits. It marked a second consecutive year-over-year decline in death benefits after they had increased by double-digit percentages in five of the pandemic's first six full quarters.
Trends in COVID-19 mortality alone did not fully account for the quarter's results.
American International Group Inc.'s Corebridge Financial Inc. reported not only its lowest U.S. and U.K. COVID-19 mortality quarter on a total dollar basis since the start of the pandemic, but AIG said the life business also saw favorable non-COVID-19 mortality during the period. Death benefits at primary U.S. life subsidiary American General Life Insurance Co. increased by 5.4% in the second quarter of 2022, but they plunged by 36.7% from the first quarter of 2022. Massachusetts Mutual Life Insurance Co., New York Life Insurance Co. and Lincoln National Life Insurance Co. were among the large life insurers that also experienced modest year-over-year increases but more significant sequential declines.
Death benefits at RGA Reinsurance Co. increased by 11.3% year over year but fell by 31.7% sequentially. On a consolidated basis at the holding company level, Reinsurance Group of America Inc. reported favorable mortality experience in the United States, including both a "minimal" impact from COVID-19 and lower frequency and average size of non-COVID-19 claims.
"While uncertainty remains, we expect future COVID impacts to continue to be more limited given the protection provided by vaccinations and prior infection and by the continued development of new vaccines and treatments," said President and CEO Anna Manning during an Aug. 5 conference call.
The Northwestern Mutual Life Insurance Co. said in a filing associated with its global funding program that trailing-12-months' mortality through June 30 had increased relative to "recent historical levels, driven by claims involving COVID-19 and larger, non-COVID claims." The largest U.S. life insurer on the basis of premium volume saw death benefits decline by 5.7% in the second quarter, specifically, relative to the year-earlier period, and by 21.8% versus the first quarter of 2022.
Metropolitan Life Insurance Co., which posted double-digit declines in death benefits both sequentially and year over year, reported in its most recent quarterly report on Form 10-Q that it benefited during the second quarter from favorable mortality in its U.S. segment. The MetLife Inc. subsidiary, which generated 82.0% of its total 2021 life direct premiums from group life, said that primarily occurred due to lower incidence and severity of COVID-19 and non-COVID-19 claims in its group benefits business.
President and CEO Michel Khalaf, speaking during an Aug. 4 call, said the combination of significantly lower COVID-19 deaths and a continued upward shift in the age of death contributed to the improvement. Khalaf also noted that "the second quarter tends to be a low mortality quarter" on a historical basis.
An analysis of provisional data compiled by the U.S. Centers for Disease Control and Prevention finds that deaths among those 65 and older accounted for 82.9% of the overall second-quarter 2022 count, up from 75.3% in the first quarter of 2022 and a pandemic-era floor of 58.0% in the third quarter of 2021. The ratio was 65.9% in the second quarter of 2021.
"Having witnessed prior falls down during this two-and-a-half-year-long pandemic, we are cautiously optimistic and note the absence of much, if any, excess mortality in our current period group benefits results," Khalaf said.
CDC data on new COVID-19 deaths regardless of age through Aug. 24 suggests that mortality to date in the third quarter is far more favorable than in the year-ago period, declining 26.8% relative to the first 54 days of the third quarter of 2021. New deaths have emerged at a somewhat more rapid pace relative to the first 54 days of the second quarter of 2022. But the third quarter of 2022 is likely to produce the second-lowest amount of new COVID-19 deaths of the 10 full quarters that will have elapsed since the declaration of a pandemic in March 2020.
Methodology
Results referenced in this article for all periods represent the aggregation of data for 632 individual entities for which June 30, 2022, financials were available as of Aug. 26.
We focus on the ratio of death benefits to direct premiums as reported on Exhibit 1 of quarterly and annual statements due to the significant impact of select unaffiliated reinsurance transactions on net premiums in several recent periods, which complicates comparisons on a quarter-to-quarter basis. Principal Life Insurance Co. reported a negative $4.30 billion in net life premiums during the second quarter, a period during which the Principal Financial Group Inc. subsidiary closed a reinsurance agreement whereby it ceded a block of universal life with secondary guarantees business to a Vermont affiliate, which in turn retroceded it to a subsidiary of Talcott Resolution Life Inc.