Caribbean Actuarial Association

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Pauline Morton
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1 Caribbean Actuarial Association Pandemic Coverage Presented by Annemarie Brownmiller Consulting Services of Princeton, LLC D. Grenville MacDonald Park Re Canada

2 Pandemics Where are We? Definitions and History of Pandemics Implications of Pandemic for Insurance Companies Modeling Impact of Pandemics on Insurance Portfolios

3 History of Pandemics History of Pandemics in the 20 th century: Spanish Flu (most severe) Over 40 million deaths in 60 countries Asian Flu 1 million deaths Hong Kong (mildest) 700,000 deaths

4 Characteristics of Pandemics The most common characteristics are: 1. The ability to cause illness on a global basis 2. Little or no pre-existing immunity 3. Potential for serious complications 4. Virus is new subtype 5. No vaccines available in the early stages

5 World Health Organization Phases of Pandemic Alert Inter-pandemic phase Low risk of human cases 1 New virus in animals, no human cases Pandemic Alert New virus cases human cases Higher risk of human cases 2 No or very limited human-to-human transmission Evidence of increased human-to-human transmission 3 4 Pandemic Evidence of significant human-to -human transmission Efficient and sustained human-to-human transmission 5 6

6 Current Situation Recent Outbreaks SARS: In 2002 SARS infected 8,098 people in 25 countries, 774 deaths Cost to global economy - $40 billion* Transported by air travel *Roche, CDC

7 Avian Flu Recent Outbreaks: Avian Flu Strain H5N1 Characteristics as classified by CDC An influenza pandemic resulting from it Currently little pre-existing immunity to the virus among humans No vaccines are currently available for human use Current status To date, over 281 people infected and 169 deaths Represents a mortality rate of over 60%

8 Avian Flu Potential Outcomes According to the World Health Organization (WHO) - Continued spread via flyways of migrating birds - North America is one of the flyway connections

9 Future Scenario The Future Outlook Epidemiological models from the Centers for Disease Control and Prevention, Atlanta, USA 2 to 7.4 Million deaths globally Impact greatest in low income countries High income countries Scientific consensus that: Avian pandemic will sicken 20% of the world Result in absenteeism of 40% of global workplace

10 Future Scenario *Comparing Costs *World Bank and Risk Management Solutions figures

11 Implications of Pandemic for Insurance Companies Risk is opportunity Core competency

12 Approach to Planning Denial or lack of interest in problem Recognition of problem Willingness to discuss and prepare Learn what needs to be done Implement knowledge learned Sustained readiness as new normal

13 Risks to Manage Economic Business continuity Claims surge Reinsurance

14 Risks to Manage - Economic Risks Global recession is possible Asset values may decline Liquidity risk Estimated 5% drop in GDP

15 Risks to Manage - Business Continuity Employee absenteeism Disruption of infrastructure Transportation Commerce Public Safety Health Care Communication is key

16 Risks to Manage - Claims Surge Medical claim payments Life insurance benefits

17 Risks to Manage - Reinsurance Capitalization of reinsurance market Net amounts at risk direct vs. reinsurance

18 Modeling the Impact of Pandemics on Insurance Portfolios Help life and health companies manage risk and long term viability Quantify the potential impact of various pandemic scenarios Estimate the impact of reinsurance under various scenarios and reinsurance arrangements

19 Financial Impact for Insurance Company Location of exposure Net amount at risk Conservatism of reserves Product diversification Liquidity

20 Pandemic Model Structure Input Model Assumptions Scenario Testing Output Reinsurance Options

21 Modeling Pandemic Impact on Life Insurance Portfolio Input Normal Mortality Exposure Data

22 Modeling Pandemic Impact on Life Insurance Portfolio Input Normal Mortality Exposure Data Age Health Status Product

23 Modeling Pandemic Impact on Life Insurance Portfolio Observations Insured vs. Population Access to health care Ability to distance oneself Effect of underwriting Employed lives Educational level Urban lives Nonsmokers

24 Modeling Pandemic Impact on Life Insurance Portfolio Model Assumptions Morbidity Mortality Shape of Curve Duration of Pandemic Effect of Vaccines Effect of Antiviral Medications

25 Modeling Pandemic Impact on Life Insurance Portfolio Model Assumptions Morbidity The attack rate of an influenza virus determines the percent of the population that becomes infected Attack rates can vary by age with illness among school age children tending to be highest

26 Modeling Pandemic Impact on Life Insurance Portfolio Model Assumptions Mortality The excess deaths resulting from the influenza virus can vary by age and underlying health status

27 Modeling Pandemic Impact on Life Insurance Portfolio Model Assumptions Shape of Curve The excess deaths by age during the 1968 pandemic followed the typical U shaped curve The excess deaths by age during the 1957 pandemic were highest at the oldest age brackets

28 Modeling Pandemic Impact on Life Insurance Portfolio Model Assumptions Shape of Curve The excess deaths by age during the 1918 pandemic resembled a truncated W Excess deaths by age during a severe modern pandemic would likely resemble a W

29 Modeling Pandemic Impact on Life Insurance Portfolio Model Assumptions Duration of Pandemic Pandemic flu outbreak can last several weeks Several historic pandemics occurred in waves

30 Modeling Pandemic Impact on Life Insurance Portfolio Model Assumptions Vaccines Vaccines impact transmission of disease and therefore impact the rate of infection

31 Modeling Pandemic Impact on Life Insurance Portfolio Model Assumptions Antiviral Medications Antiviral medications reduce the mortality associated with influenza

32 Modeling Pandemic Impact on Life Insurance Portfolio Scenarios Mild Pandemic (1968 Hong Kong Flu) Moderate Pandemic (1957 Asian Flu) Severe Pandemic (1918 Spanish Flu) Center for Disease Control FluAid Model Historical Influenza Mortality ( )

33 Modeling Pandemic Impact on Life Insurance Portfolio Pandemic Model Estimated excess gross claims due to pandemic Estimated excess net claims reflect net amount at risk & traditional reinsurance Estimated excess net claims reflect pandemic cover or catastrophic reinsurance

34 Reinsurance Options Abnormal Mortality Stop Loss Known Parameters Pandemic Specific Coverage Historical Parameters

35 Reinsurance Options - Stop Loss Covers Straightforward Cover Reservation Cover Indexed Mortality Cover

36 Modeling Pandemic Impact on Health Insurance Portfolios Input Assumptions Exposure Data Cost Estimates Capacity

37 Modeling Pandemic Impact on Health Insurance Portfolios Model Assumptions Infection Rate Death Rate Hospitalization Rate Admittance Rate Lengths of Stay Outpatient Rate Duration of Pandemic Pandemic Waves

38 Modeling Pandemic Impact on Health Insurance Portfolios Scenarios Mild Pandemic (1968 Hong Kong Flu) Moderate Pandemic (1957 Asian Flu) Severe Pandemic (1918 Spanish Flu)

39 Modeling Pandemic Impact on Health Insurance Portfolios Model Output Number and cost of hospital admits Non-ICU admits ICU Admits Ventilator Admits Number and cost of outpatient visits Capacity limits Hospital surge capacity Provider surge capacity

40 Summary Review of pandemics Implications for insurance company Model insurance exposure

41 Bird Flu Reaches America

42 Questions?

University of Colorado Denver. Pandemic Preparedness and Response Plan. April 30, 2009

University of Colorado Denver. Pandemic Preparedness and Response Plan. April 30, 2009 University of Colorado Denver Pandemic Preparedness and Response Plan April 30, 2009 UCD Pandemic Preparedness and Response Plan Executive Summary The World Health Organization (WHO) and the Centers for