Influenza pandemics: Time for a reality check?
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. This focus report forms part of Swiss Re’s contribution to industry dialogue on the impact of an influenza pandemic on life insurance business.
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 as well as life insurers 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 focus report, ‘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 report was followed in July 2007 with a longer technical publishing brochure entitled 'Pandemic influenza: A 21st century model for mortality shocks', which expands upon the scope and depth of the focus report.
Swiss Re believes that this information will assist insurers and regulators in quantifying the risk of a one-time ‘mortality shock’ risk arising from an influenza pandemic.
A key headline from the report is that, 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.
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Follow-up technical publishing brochure July 2007: Pandemic influenza: A 21st century model for mortality shocks
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