Bird Flu Could Cause Billions In Insured Losses

Modeling for an influenza pandemic is a challenge, as modern record-keeping began only with the 1918 Spanish Influenza epidemic, which had a worldwide death toll of at least 40 million.

Infection or death rates that rise to or above 1918 levels would impair and weaken insurance companies materially, S&P analysts write. But prevention and treatment have improved considerably since 1918, however, and the analysts say such extreme casualties do not look likely.

Insurers in developed countries are generally well capitalized and have sufficient reserves to cover a significant epidemic, but typical catastrophic reinsurance coverage does little to protect primary companies from the risk of prolonged epidemics, S&P says.

Although an avian flu pandemic is unlikely in a large metropolitan area, those at highest risk if it erupts are in areas with extensive public transportation systems, such as New York, Chicago, Tokyo, Paris and London, S&P says.

A pandemic could last for several months, and insurers with geographic concentrations in such areas might be exposed to an aggregation of losses not fully protected by reinsurance, S&P says.