Influenza pandemics: Time for a reality check?

While mortality has generally been improving for many decades, life insurers still face the risk that an influenza pandemic could cause a one-time mortality shock.

It is not easy for life insurers to specify in advance the loss value from an event such as an influenza pandemic, or the amount of capital to hold. Many companies also lack the tools to determine these numbers.

Models developed

Further, with the move in many markets from a rules-based or formulaic solvency requirement to a principles-based approach, regulators are 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 results produced by the model are relevant for insurers in setting mortality shock assumptions in their own internal models.

Inside the model

Swiss Re's model works by simulating many thousands of hypothetical pandemics, each producing an estimate of the resulting excess mortality. The model factors in the different features of the three pandemics of the last century, including the rate of spread, the ability of each pandemic to cause death (its lethality), and differences in infection rates and lethality between age groups.

The model also allows for advances in pharmaceutical interventions – including antibiotics, vaccines and antivirals – and behavioural interventions such as contact modification (the reduction in mixing of infected and uninfected people) and travel restrictions.

Key results

Using the model, we have estimated 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. For South Africa, a 1-in-200 year event would cause excess mortality of almost 2.5 deaths per thousand people in an insured population (among the reasons for this figure being relatively high is the underlying burden of disease in South Africa).

Because excess influenza mortality varies with age, the results representing individual country populations have been weighted by age to better represent the age profile of an insurance portfolio.

Variations between countries are largely due to differences in the underlying health of the population, the robustness of the healthcare system, stocks of antivirals and the capacity to implement successful non-pharmaceutical interventions.

Worst case

The model also provides the key to making comparisons with the influenza pandemic of 1918, which was exceptional among all the pandemics recorded since 1580. As the worst such event on record, people understandably focus on 1918 as a possible benchmark for the future. However, the experience of 1918 is not, in our view, an appropriate level for a mortality shock assumption.

The reasons for this are explored further in a new report produced by Swiss Re – Influenza pandemics: Time for a reality check? It is an interesting report, which will be helpful to life insurers when considering mortality shock risk.