Major U.S. life insurance providers have struggled as COVID-19 continues to spread throughout the country. However, while it's likely that many of these companies will face policy losses as the number of COVID-19-related deaths grow, they also face a threat from collapsing bond rates, which had hit historic lows earlier this week.
Should bond rates continue to stay low, major life insurers could have to charge more and reprice their products in an effort to stay financially afloat. When coupled with the possibility of further COVID-19-related deaths and the payouts that this would require from healthcare insurance providers, the sector appears to be in a riskier position than ever.
Insurance companies usually have a substantial exposure to interest-sensitive assets (including bonds) while also providing interest-sensitive products to their clients. Sudden drops in interest rates, as was seen on Monday, where the 10-year Treasury yield hit a new all-time low of 0.318%, can dramatically affect the balance sheets of these businesses.
A struggling market
The life insurance sector has seen significant declines over the past month. In comparison to the S&P 500, which fell by around 19% over the past four weeks, the S&P 500 Life & Health Insurance index declined by around 37%.
Major life insurers, such as Prudential Financial (NYSE:PRU) and Metlife (NYSE:MET), both fell significantly on Wednesday, declining 7.8% and 4.9%, respectively. Both stocks have lost almost 40% of their market value over the past couple of weeks.