US life insurance industry’s exposure to Chinese mortality remains modest

In the light of the coronavirus, the US life insurance industry’s exposure to Chinese mortality is fairly modest. The largest exposure is at life reinsurer Reinsurance Group of American (RGA), but China represents only one to two percent of its total pandemic risk and Wuhan would be a far lower percentage than that.

This is according to Ryan Krueger, who leads life insurance research for investment banking company KBW, speaking in a recent podcast titled All Things Financial—KBW Podcast 254, Virus Scares and Life Insurance Stocks.

He added that MetLife (MET) also has some Chinese exposure but it is not significant, and Principal Financial Group’s (PFG) business in China is asset management and retirement not insurance

“Given this limited exposure to Chinese mortality, coronavirus would have to become a much more widespread global pandemic to meaningfully affect the US life insurance industry,” he said. “Also keep in mind that not all life insurers actually have mortality risk. For instance, mortality risk is limited at Voya, Athene, American Equity, Aflac, and Unum.”

He added that most life insurers have not meaningfully reacted to the risk of coronavirus itself, but the stocks have pulled back along with other financials due to the drop in interest rates.

“Since coronavirus was identified, the life sector has sold off five percent, which is in line with banks but worse than the two percent pullback in the S&P 500,” he said.

Asked what he anticipates in the quarter in light of coronavirus, he said: “We expect a decent quarter for the life insurance group but not super eventful given several companies already provided 2020 outlooks in Dec.

“We forecast 10 percent core EPS growth for the overall sector against a weak year-ago quarter. Strong equity market performance is a tailwind and we’ve seen that benefit results for Ameriprise and Principal so far. Expenses also tend to be seasonally elevated for several life insurers, which we’ll be watching for MetLife, Prudential, Aflac, and Lincoln in particular.

“We expect group insurance results and capital deployment to remain strong, while individual life insurance mortality is an unknown. RGA reported unfavourable life mortality so far, but it was mostly driven by a greater number of large claims that is more difficult to read across.”

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