Pandemic financial shocks show up in data. Some can be forecasted.
We’ve written about Years of Life Lost (YLL) and about the American decline in life expectancy. Each occurred in 2020. We expect a more severe result for 2021. See the links below for those prior commentaries.
“Jobs, Wages, COVID Demographic Shocks,”
https://www.cumber.com/market-commentary/jobs-wages-covid-demographic-shocks
“M2 Velocity, Fed & Years Life Lost (YLL),”
https://www.cumber.com/market-commentary/m2-velocity-fed-years-life-lost-yll
Now see affirmation of those forecasts. Life insurance companies have encountered the highest death benefit payouts since the 1918 Spanish flu pandemic, as reported in the Wall Street Journal.
(“Covid Spurs Biggest Rise in Life-Insurance Payouts in a Century,”
https://www.wsj.com/articles/covid-spurs-biggest-rise-in-life-insurance-payouts-in-a-century-11639045802)
There is another, inversely related dimension of the COVID shock. Higher deaths mean longer-term pension benefit liabilities are lowered; the people who would have received those benefits are now dead.
That means defined-benefit pension systems achieved two forms of funding improvements. They got higher stock market valuations, while their expected payment liabilities were reduced by excess deaths. John Authers details the numbers in the subsection entitled “Exciting Times for Actuaries” toward the end his December 10 Bloomberg Opinion column, “What to Watch Out For in the Inflation Numbers,” https://www.bloomberg.com/opinion/articles/2021-12-10/inflation-numbers-grab-spotlight-from-payrolls-in-biggest-shift-in-decades.
He supplied two charts. The first depicts the rise in life insurance death benefit payments.
(Source: https://www.acli.com/posting/nr21-060)
The second depicts the funding status of pension plans sponsored by companies in the S&P 1500.
(Source: https://www.mercer.us/newsroom)
For nearly two years we have been writing about pandemic shock results and pandemic disruptions to financial and economic agents. We’ve argued that in every shock there are both winners and losers. These are some examples.
For a separate account portfolio manager like Cumberland, these shocks demonstrate that this is not a “business-as-usual” economic cycle. At Cumberland Advisors, we have been working under that assumption for two years. Furthermore, the impact of Long COVID’s partial, temporary or permanent disability from post viral disease effects is just starting to rear its ugly head.
To be blunt, COVID disruptions to human health and financial and economic agents isn’t over.
David R. Kotok
Chairman of the Board &Chief Investment Officer
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Cumberland Advisors Market Commentaries offer insights and analysis on upcoming, important economic issues that potentially impact global financial markets. Our team shares their thinking on global economic developments, market news and other factors that often influence investment opportunities and strategies.
