Avian Influenza-H5N1Implications for the Insurance Industry

Casualty Actuarial Society Meeting

San Francisco

Al Fine - Willis Risk Solutions

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Facts

• Influenza viruses are highly species specific

• Avian influenza is an infectious disease caused by the “A” strain of the virus

• Since 1959 only 10 documented incidences where an “A” strain influenza has infected humans

• H5N1 is highly pathogenic virus transmitted by migrating birds to farm poultry; humans infected tend to work with or ingest sick poultry

• Disease spread via intersecting migratory flyways and international human and product movement

• A major pandemic is likely when disease mutates to allow efficient transmission between humans-at least one case has been identified

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History

• 1997 Hong Kong Outbreak –first known cases of bird to human transmission; 2003-2005 period defined as the “Second Wave”

• According to WHO, in 2006 H5N1has killed a person every four days- double the 2005 rate

• As of October 18, 2006:• 256 Diagnosed Cases

• 151 Deaths

• 50+ Cases in Indonesia in 2006

• 90+Cases in Viet Nam

• Cases in 10 countries located in Southeast Asia, Central Asia, Europe, and the Middle East

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Scenarios

Congressional Budget Office Assessment• Severe: US Exposure- 90 Million Cases/2 Million Deaths• Mild: US Exposure- 75 Million Cases/100K Deaths

Fitch• 400 K Deaths Projected in Europe• 209 K Deaths Projected in US

Y2K or 9/11?• Potentially 25% of the Workforce Infected on Global Basis• Broken Supply Chains/Border Closings

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Risk Factors

• Population density and demographic of infected population

• Speed of Infection and ability to quarantine

• Availability of cure and logistical, political and financial impediments affecting distribution

• Duration of disease and lingering economic and social effects of countermeasures

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Insurance Exposures

Employee Benefits• Health and Welfare• Life

Property/Business Interruption/Political Risk• Contamination• Civil Authority• Supply Chain

General Liability• Premises Liability• Strict Liability in Tort• Independent Contractors

Workers’ Compensation/Employers’ Liability• Sole Remedy?• Number of Occurrences• Foreign Voluntary Compensation

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Implications for Insurers and Reinsurers

• Exclusionary Language to Remove Ambiguity

• Coverage Definition and Rationing

• Arguments for Coverage Based On Public Policy Concerns

• Emergence of Potential New Case Law

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Possible Financial Implications

• Loss impact uncertain• WC/GL flu-related claims up• WC/GL non-flu-related claims down as businesses

shrink or close• Economy Suffers

• Revenues & Payroll down Premiums down• Stocks & Bonds lower Assets down

Less money to pay claimsPredicted 2% - 5% hit to assets on $4 trillion in

assets= $80 billion - $200 billion or 30% to 80% of surplus

• Investment Downgrades for Insurers- combination of underwriting losses and portfolio losses

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New Opportunities?

• Contingent Business Interruption• Example:

• ABC Co. performs accounting services for private schools on an outsource basis

• Avian flu Excessive Absenteeism (Teachers & Students) School Closures Reduced Income to ABC Co. Need for Contingent Business Interruption coverage

• Could possibly be done w/parametric trigger (e.g. pay $100,000 if U.S. incidences exceed 50,000) to make loss quantification easier

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H5N1 Data Tracker

• World Health Organization: http://www.who.int/csr/disease/avian_influenza/en/index.html

• UN Food and Agricultural Organization: http://www.fao.org/ag/againfo/subjects/en/health/diseases-cards/special_avian.html

• US Center for Disease Control: http://www.cdc.gov/flu/avian