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. 2021 Sep 27:9:756977.
doi: 10.3389/fpubh.2021.756977. eCollection 2021.

The Negative Impact of COVID-19 on Life Insurers

Xun Zhang  1 , Pu Liao  1 , Xiaohua Chen  2
Affiliations

The Negative Impact of COVID-19 on Life Insurers

Xun Zhang et al. Front Public Health. .

Abstract

Understanding COVID-19 induced mortality risk is significant for life insurers to better analyze their financial sustainability after the outbreak of COVID-19. To capture the mortality effect caused by COVID-19 among all ages, this study proposes a temporary adverse mortality jump model to describe the dynamics of mortality in a post-COVID-19 pandemic world based on the weekly death numbers from 2015 to 2021 in the United States. As a comparative study, the Lee-Carter model is used as the base case to represent the dynamics of mortality without COVID-19. Then we compare the force of mortality, the survival probability and the liability of a life insurer by considering COVID-19 and those without COVID-19. We show that a life insurer's financial sustainability will deteriorate because of the higher mortality rates than expected in the wake of COVID-19. Our results remain unchanged when we also consider the effect of interest rate risk by adopting the Vasicek and CIR models.

Keywords: COVID-19; financial sustainability; life insurer; mortality rates; risk.

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Conflict of interest statement

The authors declare that the research was conducted in the absence of any commercial or financial relationships that could be construed as a potential conflict of interest.

Figures

Figure 1
Figure 1
Estimated k(t) from t = 1933 to t = 2019.
Figure 2
Figure 2
(A) The death numbers from the 9th week to the 52nd week in 2020 and the average death numbers in the same period from 2015 to 2019. (B) The death numbers from the 1st week to the 17th week in 2021 and the average death numbers in the same period from 2015 to 2019.
Figure 3
Figure 3
Adverse mortality effect of COVID-19 on μ ~(x0+t,t) across ages.
Figure 4
Figure 4
(A) Simulated force of mortality from μJ~(51,t) to μJ~(56,t). (B) The difference in conditional expected k-year survival rate for age 35 at time t during the COVID-19 pandemic and pre-COVID-19 period.
Figure 5
Figure 5
The liability difference in 2020 and 2021 with COVID-19 induced mortality risk.
Figure 6
Figure 6
(A) Sensitivity of the liability difference to the parameter λτ. (B) Sensitivity of the liability difference to the parameter κ.
Figure 7
Figure 7
(A) Simulation with the interest rate at t = 2050 based on the Vasicek model. (B) Simulation with the interest rate at t = 2050 based on the CIR model.
Figure 8
Figure 8
To describe the main drawback of the Vasicek model, we also compute the likelihood of negative rates in the Vasicek model by using the formula: Value of the liability difference at time t, including both mortality risk and interest rate risk.
See this image and copyright information in PMC

References

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