Life insurance industry stabilises as mortality rates return to pre-pandemic levels: Moody’s

According to Moody’s, a provider of credit ratings, research, and risk analysis, the insurance sector has experienced significant transformations in the five years following the COVID-19 pandemic.

Moody’s special report highlights how the pandemic has reshaped various industries, with particular impacts on the insurance market, driven by heightened mortality rates, shifts in interest rates, and fluctuations in the commercial real estate sector.

The pandemic’s immediate effect on life insurers was felt through increased mortality rates.

However, despite a surge in deaths across the general population, insured mortality was notably lower, especially for individual policies, which led to only a moderate increase in death benefits for insurers.

Moody’s further notes that while the pressure on mortality has mostly stabilised by 2024, many life insurers have returned to pre-pandemic levels in terms of mortality trends.

The indirect consequences, such as movements in interest rates and the ongoing weakness in commercial real estate, have had a more prolonged effect on the insurance industry.

According to Moody’s analysis, the rise in interest rates, while initially a challenge, has proven beneficial for insurers, enhancing the profitability of their products. These higher rates have bolstered the appeal of life insurance and annuities, improving insurers’ financial positioning.

Additionally, the commercial real estate sector, where life insurers often hold considerable investments, has continued to struggle in the wake of the pandemic.

Moody’s observes that despite an improvement in credit conditions, the performance of commercial real estate remains weak, and this has exerted pressure on insurers’ balance sheets. Nevertheless, insurers have managed these challenges through strategic asset diversification and prudent financial management, according to the report.

Moody’s also highlights that while life expectancy levels in many countries have rebounded to pre-pandemic figures by 2024, lingering concerns about long-term mortality trends persist. Chronic health conditions, such as obesity and inactivity, which were exacerbated during the pandemic, continue to pose challenges to public health.

For insurers, this creates uncertainty when evaluating future risks and pricing policies, especially within the pension risk transfer markets.

Moody’s emphasises that these persistent health challenges are a critical factor in determining the future trajectory of the industry, with insurers needing to factor in these evolving mortality rates when making key business decisions.

As the insurance market adapts to these ongoing shifts, Moody’s points out that insurers are increasingly focused on refining their risk management frameworks.

With the continuing uncertainty around mortality trends and economic volatility, insurers must adjust their strategies to account for changing market conditions. This includes rethinking underwriting approaches, adjusting product offerings, and strategically managing their capital to maintain profitability and competitiveness in the post-pandemic era.

In conclusion, while the direct effects of the COVID-19 pandemic on the insurance industry have eased, the broader economic and social changes continue to influence the sector.

Moody’s report underscores the importance of insurers staying vigilant in managing evolving risks and adapting to new realities in a world that has been fundamentally altered by the pandemic.

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