“Life insurers, while making Covid reserves last year, assumed 50–100% higher Covid deaths for FY22. Our analysis shows that reserves made by them can cover 1.5–2x the Covid-related deaths in FY21,” said a report by Macquarie.
The 5-10 times increase in the number of death claims is based on enquiries with life insurance companies and industry bodies by Macquarie. The report says that worry for investors is there could be a significant impact on embedded value for life insurance players. The embedded value is a measure used to determine the worth of a life company that factors in future liabilities based on actuarial assumptions.
Of the three listed life insurers – HDFC Life, ICICI Prudential Life Insurance and SBI Life, Macquarie Research has projected 2%, 3% and 4% impact, respectively, on embedded value should Covid-related claims for FY22 be four times of FY21.
The balance sheet impact of pandemic deaths is protected to a certain extent from the reinsurance that a life company purchases. While reinsurers have committed to cover the policies already sold, they are being careful in underwriting new covers. Some reinsurers have withdrawn from providing covers, while others have raised their rates.