Pandemic influenza: A 21st century model for mortality shocks

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 technical publishing brochure forms a key pillar 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 brochure follows the launch in April 2007 of a focus report entitled 'Influenza pandemics: Time for a reality check?'. This latest publication in Swiss Re’s technical publishing series expands upon the scope and depth of the earlier report. Against the background of avian influenza and human influenza history and treatment, the report contains Swiss Re’s estimate of the excess mortality likely to arise within insured populations in a 1-in-200-year severity pandemic. Drawing extensively on authoritative external sources, it also contains an analysis of the world’s worst influenza pandemic in 1918, along with a quantification of how the many changes that have occurred since that time would impact mortality from a similar virus in a modern day setting. These are headline results; the model is capable of simulating a wide range of pandemic scenarios to help us understand potential mortality experience in the event of an influenza pandemic.

As with the April focus report, Swiss Re believes that this latest publication 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.