The Negative Impact of COVID-19 on Life Insurers

Xun Zhang · Pu Liao

13 citations0/0 files storedFrontiers in Public Health

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Insurance, Mortality, Demography, Risk Management Insurance and Financial Risk Management Probability and Risk Models

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.

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1977An equilibrium characterization of the term structure 1992Modeling and Forecasting U. S. Mortality 2000A universal pattern of mortality decline in the G7 countries 2000The Lee-Carter Method for Forecasting Mortality, with Various Extensions and Applications 2005Affine processes for dynamic mortality and actuarial valuations 2004Stochastic mortality in life insurance: market reserves and mortality-linked insurance contracts 2001Mortality derivatives and the option to annuitise 2020The mental health effects of the first two months of lockdown and social distancing during the Covid-19 pandemic in the UK

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