alexmr2 wrote: ↑Tue Feb 02, 2021 2:32 pm
My understanding of a life insurance company is that they assume people will live to a reasonably old age with some sort of margin (+invest the premiums to grow the company over time), if thousands of people start dying 10-30 years earlier than normal I would assume they would go bankrupt.
So how can life insurance companies which rely on people living longer be so unaffected by the potential of hundreds of thousands of excess deaths? Has everyone happily been paying 200% premiums this year? I doubt a company operating on a reasonable margin could deal with that kind of excess payout. No one is putting their money where there mouth is and shorting them in the stock market anyway
Your understanding is completely wrong.
Most "old" people don't have life insurance. Why would they, they don't have any big risks to cover. And its mostly the older people that die.
The cost associated with excess deaths could impact profits in that a bigger provision may be made to company reserves. But this is bread & butter for life assurance providers. They can also mitigate the extra risk through increased charges (which will be relatively small) and/or through reinsurance (and the reinsurers themselves will reassure to spread the risk if they are worried about risk level).
Also by the same token they will make money on annuities if older people die earlier. In fact some of the big beneficiaries are those companies that have been buying up annuity books over that last 10 yrs, e.g. Phoenix Grp.
