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Law360, London (August 27, 2020, 1:47 PM BST) -- Ratings agency Moody's warned on Thursday that the number of life insurance claims from deaths linked to COVID-19 could rise toward the end of the year, even though reinsurers have already budgeted for a $1 billion hit.
There is typically a delay of several months between a death being reported and an insurance claim being made, which means that reinsurers could face more claims later in the year. The pandemic has killed more than 830,000 people around the world, and insurers in Britain said they have paid out £90 million ($116 million) already in claims on life insurance.
"We believe mortality claims will rise in the months ahead, given the latency in reporting claims and the trajectory of infections," Moody's said in a report.
The ratings agency said there are likely to be fewer deaths in the section of the population that has taken out life insurance because of "risk selection as part of medical underwriting by reinsurers."
"Nevertheless, sums insured under some of the policies are very significant, so that a relatively low number of claims can mount to very large payouts," the company added.
Earnings for the biggest global reinsurers was "anemic" in the first half of the year, the ratings agency said. Claims linked to the pandemic have reached $8.6 billion. Most of those claims — $7.6 billion — arose from travel insurance and policies for event cancellation. Moody's said that business interruption claims are being "hotly contested" and it was uncertain how much reinsurers would have to pay out.
The industry in Britain is waiting for the result of the Financial Conduct Authority's test case on business interruption insurance, which will decide whether 370,000 businesses can claim on their policies. Moody's said that there have been numerous lawsuits in the U.S., some of which have seen rulings in favor of the insurer and others which have been allowed to proceed.
"We believe that the current uncertainty in terms of expected claims will not diminish any time soon," Moody's said.
--Editing by Ed Harris.
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