|
Risk Management Solutions Estimates a 20%
Probability of Next Influenza Pandemic Being Worse Than 1918 Outbreak
RMS Releases First Probabilistic Model for
Assessing Pandemic Influenza Risk
Newark, Calif. – May 2, 2006– In response to a
growing insurance industry need, Risk Management Solutions (RMS) today
announced the completion of a probabilistic model for assessing the risk
of influenza pandemics across multiple countries. Many published studies
have already illustrated the effects of various pandemic scenarios, most
commonly a repeat of the 1918 influenza pandemic that had a mortality
level of 0.67% in the U.S. and even more severe effects in other
countries. Analysis of the virology and epidemiological science shows
that more severe pandemics are possible, and probabilistic estimation of
virus characteristics incorporating the recent H5N1 suggests that there
is a one in five chance of a pandemic that is more severe than that
experienced in 1918. H5N1, the virus that recently caused avian flu in
Asia, has viral characteristics that will increase the likelihood of a
virulent pandemic if it provides genetic material for human-to-human
influenza transmission.
RMS believes that many companies may be
underestimating their risk if they assume that the 1918 pandemic is the
worst-case scenario. The RMS® Influenza Pandemic Risk Model is intended
to help insurers assess the losses they will experience from pandemics
with all of the different permutations of potential characteristics and
outcomes.
“At AIG, we take seriously the threat of an influenza
pandemic" said Charles Dangelo, Senior Reinsurance Officer. “The RMS
model, based on an innovative science-based framework, will be a useful
tool for us as we consider how to best manage our risks.”
Although a number of pandemic influenza scenarios
have been publicized, effective risk management requires quantification
of not only the severity of an event, but also the likelihood of the
event occurring. The RMS model incorporates over 1800 pandemic influenza
scenarios that take into account such factors as likelihood of the
pandemic occurring, infectiousness and lethality of the pandemic,
demographic impact, country of outbreak, vaccine production, and
national countermeasures.
RMS has been studying influenza pandemic risk since
2004. The development of the RMS probabilistic model has benefited from
the input of some of the world’s leading authorities on influenza,
national preparedness, and infectious diseases. RMS advisor Neil
Ferguson, Professor of Mathematical Biology at Imperial College, London,
added: “Understanding the science is essential to understanding the risk
- this is as true for governments as it is
for insurance companies in making decisions about how to manage the
risk.”
“Pandemic influenza could potentially deal insurers a
triple whammy, simultaneously causing unprecedented life and health
claims losses, investment portfolio downturns at a time when insurers
most need liquidity, and reduced staff and management productivity
through the spreading of sickness among company personnel,” stated Dr.
Andrew Coburn, RMS project lead on influenza pandemic risk modeling.
“Moreover, influenza pandemics can last 2-3 years, making it essential
for insurers to put in place a multi-year risk management strategy that
considers the reinsurance crunch that will likely occur in the event of
a pandemic. The RMS model provides a probabilistic assessment of losses
to help insurers make decisions on risk transfer and medium-term
portfolio management, as well as detailed scenarios for planning short
and long-term risk management strategies.”
Life and health insurance portfolios are very
different than property portfolios. The RMS model enables insurers to
incorporate detailed analysis of their own specific portfolio, allowing
the characteristics of individual company’s policy-holders to play an
important role in the risk assessment process.
The RMS model addresses insurance applications with
the following capabilities:
-
Loss Modeling: Complete probabilistic loss
assessment (claims costs, fatalities, and illness levels) for 10
countries with major life insurance markets, based on over 1800
pandemic influenza scenarios of varying lethality. Business lines
include group & individual life, personal accident, and health.
-
Investment Strategy: Asset impacts from losses on
the capital markets.
-
Business Continuity Planning: Operational
productivity losses through staff sickness and office closures.
Another potential application of the model involves
securitizations of influenza pandemic risk for companies looking to find
capacity in the capital markets. Tanguy Claquin & Alexandre Vigier,
Executive Directors at CALYON Corporate and Investment Bank, commented:
“As an additional tool to quantify the risk of catastrophe mortality,
the RMS probabilistic pandemic influenza model should be well suited for
securitizations purposes. As such, it was much awaited by issuers and
financial players.”
The new model and its implications for the insurance
industry will be presented at an RMS Seminar on the Management of
Influenza Pandemic Risk being held June 1, 2006 in New York City. The
seminar will feature a guest presentation, ‘Understanding the Threat of
Pandemic Influenza,’ by Professor Marc Lipsitch of the Department of
Epidemiology, Harvard School of Public Health. Advance registration and
approval by RMS is required.
|
