New focus report: Swiss Re estimates level of excess deaths in life insurance portfolios due to a pandemic mortality shock
12 April 2007, Zurich
Swiss Re has today published a new focus report as part of its contribution to industry dialogue on the impact of an influenza pandemic on life insurance business. For a pandemic with a level of severity expected only once every 200 years, Swiss Re estimates excess mortality within an insurance portfolio to be between 1 and 1.5 deaths per 1 000 lives in most developed countries.
While mortality has generally been improving for many decades, pandemic influenza is a material risk that has the potential to affect all life insurance markets around the world. Because pandemics are relatively rare, with only three in the last century, the pool of historical data is limited. Further, since the catastrophic pandemic in 1918, there have been various medical developments, in particular antibiotics, vaccines and antivirals, along with changes in the way that individuals and authorities respond to a pandemic threat. This makes it difficult for life insurers to quantify the potential loss value arising from the risk and therefore difficult to manage their capital efficiently for the benefit of both policyholders and shareholders.
With the move in many markets from a rules-based solvency requirement to a principles-based approach, for example the European Union's Solvency II project, regulators are also now showing an increasing interest in the use of internal models. At the same time, there is a heightened general awareness of a pandemic threat, with various views being expressed on the possible impact. In light of these developments, Swiss Re has developed a sophisticated epidemiological model to improve the level of understanding of the potential range of outcomes from a pandemic.
The new focus report, â€˜Influenza pandemics: time for a reality check?', summarises the workings of the model, and provides key examples of the type of results that can be derived from it. The headline output from the model featured in the report is Swiss Re's estimation that, in most developed countries, a 1-in-200-year severity pandemic would give rise to excess mortality of between 1 and 1.5 deaths per 1 000 lives within an insurance portfolio.
Swiss Re's Chief Risk Officer, Christian Mumenthaler, explains: "The move towards principles-based regulatory approaches in many markets is the ideal time to explore the question of the appropriate levels of excess mortality for use in internal models and capital standards. In sharing outputs from our epidemiological model with our key clients and with regulators, we strive to contribute to the debate and reduce uncertainty in this important area."
Notes to editors
1-in-200-year severity pandemic
Under the principles-based approach, the regulator requires a life (re)insurer to conduct a comprehensive assessment of the risks faced in its business and to quantify the solvency capital needed to support these risks, including the amount required to withstand a mortality shock. The measure used by the UK's Financial Services Authority, for example, is that firms should hold enough capital to withstand a 1-in-200-year mortality shock.
Swiss Re is the world's leading and most diversified global reinsurer. The company operates through offices in more than 25 countries. Founded in Zurich, Switzerland, in 1863, Swiss Re offers financial services products that enable risk-taking essential to enterprise and progress. The company's traditional reinsurance products and related services for property and casualty, as well as the life and health business are complemented by insurance-based corporate finance solutions and supplementary services for comprehensive risk management. Swiss Re is rated "AA-" by Standard & Poor's, "Aa2" by Moody's and "A+" by A.M. Best.
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