pandemic risk
TRANSCRIPT
Pandemic risk
By Bansri Patel and Truphena Lwanga
Our motivation
The actuary
November
issue(2013)
Pages 22-24
What is a pandemic?? A pandemic arises when a disease that affects at least
25% of the globe causes high morbidity, excess mortality
and social and economic disruption.(according to AON)
According to the World Health Organization,
a pandemic can start when three conditions have been met:
the emergence of a disease new to the population
the agent infects humans, causing serious illness
the agent spreads easily and sustainably among humans
More history… Peloponnesian(430-426BC)-Typhoid(Athenian troops)
Antonine plague(165AD-180AD)-Smallpox(Near East)
Plague of Justinian(541AD)-Bubonic plague~1st outbreak
from Egypt to Constantinople
Cholera(1816AD-1834AD) From India, China~ New York,
London, Ontario
Asiatic flu 1889 AD-1890AD
Typhus fever
• Camp/Gaol fever ~Spain to France and Italy(1489AD-
1528AD)
• 1812-killed Napoleon’s ‘Grande armee’
• Killed many Nazi concentration camp prisoners
Examples of historical pandemics…
The black death(1343-53)
(Purview: Middle east to
Europe)
Spanish Flu, 1918
Poliomyelitis(1950s)
Asian flu, 1957:
Hong Kong flu, 1968:
More recent pandemics…
Ebola outbreak( February 2014-…)-west Africa
H7N9 bird flu (2013)
Swine flu (2009)
H5N1 avian flu
HIV/AIDS(1980s-2001)
Spanish flu
This is seen as by far the most deadly influenza
pandemic in recorded history (400 years).
Normally for flu 90% of the deaths are people older
than 65
However, 99% of the deaths caused by the Spanish
Flu in 1918 were people under age 65.
death toll worldwide was as high as 5- 10 million
people.
it is unclear as to how many of these deaths were
actually caused by the Spanish Flu and not due to
other consequential reasons(Incomplete statistics
!!)
Asian flu 1957
death toll resulted in around 1-2 million worldwide (in the
US this meant an additional 70,000 deaths that year
deaths were this time more amongst elderly persons and
infants.
The picture looks more like a normal seasonal flu, but with
a much higher infection rate.
“ I had a little bird
It was named enza
I opened the window
An in-flu-enza”
Questions we tried to tackle?
What do these ‘pandemic risks’ mean for LIFE
INSURANCE?
As an insurer how do you know if there’ll be a pandemic?
If so on a probabilistic scale, how bad?
How do you prepare? What can we do?
consequences Mortality rates tend to be high~ increased number of
claims(pandemics weren’t factored in calculating mortality rates)….huge losses
Affect the younger working class members more than older
members of society(Who have just taken life insurance and
not paid many premiums e.g Spanish flu).
Increase in demand for insurance products mostly basic like
health insurance.
Economic impacts.
Secondary infection as a result.
Specific impact on life insurance
Endowment policies, whole life and term insurance
policies are likely to suffer a loss as lump sum is paid
at the death of the person to the beneficiary. There
will a rapid increase in claims.
Pure endowment policies might benefit because
people would die within the policy and sum insured is
only paid if the person survives a certain age.
Pensions- Old age pension and survivor’s pension
Pure life reinsurers are likely to face losses.
Reinsurers diversification can bring down reinsurers.
The reinsurers with younger risks being
covered suffer if the death toll affects the
youngsters.
Depletion of reserves set aside.
Any other ideas….
Recommendations on what to do(how to
prepare as an actuary for pandemics)…
Lower the ω(when calculating tpx as the life
expectancy has lowered when pandemics arise.)
Use of the epidemiologists’ statistics to try and generate a ‘what if’ analysis for probability of occurrence and frequency of waves if it occurs
Find worst case scenario for insurer and work to
reserve as much.
Structuring the policies of the younger and older
persons in a manner that they offset each other if
and when the pandemic occurs.
Diversification of life insurance products and the
dates. Avoidance of pure mortality insuring or only
insuring young risks.
Raising the required solvency ratio for mortality
insurers and health insurers in case of pandemics .
E.U proposed a ratio of 0.3 but it is still in the
works.
Pandemic modelling
Decisions to be made:
Stochastic vs deterministic?
Insured vs population mortality?
Re-metrica dynamic financial analysis
tool
Hedging strategies DIRECT
Pandemic catastrophic coverage
Stop loss cover
Pandemic industry loss warranty
Extreme mortality bonds
INDIRECT
Business mix mitigation
Contingent capital
Using the pandemic risk map to index
the current mortality tables
Previous photo credited to Maplecroft who came
up with the map.
“The good news is that, even if the
insurance market seems largely ill-prepared,
the national preparedness plans can help in
model calibration”
(the actuary magazine)
WHAT about Kenya in all this?
Changes in the Kenyan insurance market due
to the 1990-2001 HIV/AIDS scourge…
Changed ω when calculating tpx to 62 years. This has led to a reduction in the annuities purchased (1% of the products sold)due to the low life expectancy.
Increment of adverse selection, because
HIV and AIDS Prevention and Control Act, 2006 – •no person shall be compelled to undergo a HIV test or to disclose his HIV status for the purpose only of gaining access to … life insurance .. •AND the organization should devise a reasonable limit of cover for which a proposer shan’t need to disclose HIV/AIDS status
An estimated 49,126 people died of AIDS-related causes in 2011,
approx 35% of the figure in 2002–2004. Encouraging !! For that reason
we no longer use the UK 1949-1952 tables we now use the KE-2003-05
tables.
The solvency ratio in the country for life assurers has
changed(increased)
This HIV/AIDS pandemic has increased the underwriting costs for both
new businesses and for claims
Apparently unit-linked policies are better choice for the insurer and
insured in the market with the HIV risk?(food for thought)
A suggested method of increasing the average mortality rates is that
the high withdrawals would be compounded by a HIV risk coefficient
Any questions on pandemic risk???
Thank you for your time….stay frosty