Covid provision pool lowered, but 'we got you covered': Life insurers

As claims burden drops, life insurers hold enough reserves, cushioning balance sheet against risk

Although Covid cases remain at elevated levels across the country, the top three private-sector life insurers have reduced their provision pool for future Covid-linked claims because the emerging experience of other geographies suggests that mortality due to the current variant is significantly lower than the earlier mutations. Nonetheless, they continue to hold sufficient provisions to cover any liability that may arise, given the current wave in the country has not peaked yet and a section of the population remains unvaccinated or partially vaccinated.

At the end of the October-December quarter (third quarter, or Q3) of 2021-22 (FY22), ICICI Prudential Life Insurance Company (ICICI Pru Life) held excess reserves of Rs 203.35 crore. SBI Life held Rs 266.09 crore and HDFC Life Insurance Company (HDFC Life) Rs 105 crore towards future Covid claims.

At the end of the April-June quarter (first quarter, or Q1) of FY22, ICICI Pru Life held Rs 498 crore as provisions towards future Covid claims, which subsequently came down to Rs 412.06 crore at the end of the July-September quarter (second quarter, or Q2) of FY22.

Similarly, HDFC Life had excess mortality reserves of Rs 700 quarter at the end of Q1, which consequently came down to Rs 204 crore at the end of Q2. SBI Life, on other hand, had reserves of Rs 444.72 crore at the end of Q1, which came down to Rs 266.09 crore in the successive quarters.

“We are not seeing elevated claims. Also, some economies that are ahead on Omicron, be it South Africa, the US, or the UK, have not reported a spike in mortality,” said Vibha Padalkar, managing director and chief executive officer, HDFC Life, in an earnings call after the company’s quarterly results, adding, “We are reasonably confident (that this will suffice).”

Satyan Jambunathan, chief financial officer, ICICI Pru Life, said, “The emerging experience from other countries is that the mortality rate for the Omicron strain is significantly lower than the other earlier variants. In India, the third wave hasn’t peaked yet. We still have a large swathe of the population still unvaccinated. We, therefore, believe it is prudent to continue to hold the provisions for future Covid claims.”

“We hold provisions of Rs 203 crore towards potential Covid claims. These include provisions for claims that have been incurred (but not reported), as well as probable claims in the future, based on emerging trends,” added Jambunathan, in an earnings call after the company’s Q3 results.

In Q3, life insurers received very few Covid claims, against Q1 and Q2. Also, the bulk of Covid claims that came in Q1 and Q2 was because of the second wave of the pandemic. ICICI Pru Life paid Rs 2,045 crore towards total Covid claims in the first nine months (9M) of FY22. But as net of reinsurance, the insurer paid claims to the tune of Rs 982 crore.

SBI Life, on the other hand, paid Rs 1,530 crore towards Covid claims (net of reinsurance) in the same period. HDFC Life settled gross and net claims (which includes Covid claims) of Rs 4,657 crore and Rs 3,406 crore, respectively, in the same period.

While the claims burden has plunged, insurers are still holding sufficient reserves, cushioning their balance sheet against any foreseaable risk with regard to the Covid-19 pandemic.

“We continued to receive Covid claims in Q3. But most were claims pertaining to the earlier periods, i.e., delayed intimations. Covid claims germane to the current quarter have not been significant. As a result, our Covid claims' net of reinsurance stood at Rs 982 crore for 9MFY22. There is a declining impact of Covid claims for Q3,” said Jambunathan.

“In Q3, the overall Covid claims (group and individual) were Rs 940 crore. In Q2, they were Rs 1,510 crore. In Q1, Rs 956 crore,” said Padalkar, adding, “Covid-linked claims from individuals fell to Rs 17 crore in Q3, from Rs 307 crore in Q2 and Rs 155 crore in Q3.