Canadian Institute of Actuaries L’Institut canadien des actuaires 2006 Seminar for the Appointed Actuary Colloque pour l’actuaire désigné 2006

Agenda Insurance Implications of Pandemic Risk Mitigation Life Health Individual Group Health P&C Personal lines Commercial Risk Mitigation

Pandemic Assumptions Limited access to vaccines Managed by gov’t health care authorities 10% hospitalization rate Average hospital stay 4 days Persons infected will be away from work for 21 days No long term impact from virus

Pandemic Statistics “A Potential Influenza Pandemic: Possible Macroeconomic Effects and Policy Issues” Congressional Budget Office, July 27, 2006 10-13 pandemics since 1700 3-4% chance of pandemic in any year 0.3% chance of severe pandemic 1918 was severe (25-30% infection, 11% death rate) 1918 hit 18-40 hardest

Life Insurance Individual Life Group Life Annuities Increased mortality Increased benefit levels Group Life Concentration risk Larger employer groups = higher exposure Annuities Increased mortality is a benefit

Life Insurance Individual claims will be larger than normal averages Companies with higher recent sales may see more severe experience Claims will depend on age of those most susceptible to infection Working ages are most likely to buy or have life insurance

Health Insurance Short Term Disability Long Term Disability Moderate to severe impact Long Term Disability Few claims (6 month elimination period) Long Term Care Few claims Increased lapses Critical Illness Medical Anti-selection Increased demand on services reduced by fewer elective procedures

Personal Lines Insurance Auto Little effect Accident Benefits? Homeowners Possible clean up costs, to the extent covered Similar issues to mould Travel Out of country medical Trip cancellations rise dramatically

Commercial Insurance Property coverages Liability coverages Clean up costs Business interruption (if covered) Liability coverages Bodily injury definition/employment excl. Duty to defend Medical Malpractice Increase in medical service = increased claims D&O Pandemic plan in place?

Mitigation Options Modifying coverage terms Aggregate caps on exposure Exclusions Aggregate caps on exposure Portfolio event limit Geographic limitations Reinsurance Capacity Issues

Summary Historical probability of severe pandemic low Impact to life insurance Significance proportional to severity Impact to accident & health insurance Modest - medical coverages & STD Impact to P&C insurance Modest – travel & commercial covers