Close Close

Influenza Pandemics: Time For A Reality Check?

Your article was successfully shared with the contacts you provided.

While populations are living longer than ever, life insurers still face the risk of a “mortality shock” from an influenza pandemic. But many companies lack the tools to determine the loss value and the amount of capital to hold for such an event.

With the trend in many of the world’s insurance markets toward principles-based approaches to solvency, internal capital models are assuming increasing importance. At the same time, there is a heightened general awareness of a pandemic threat, with various views being expressed on the possible impact.

Mortality shocks occur when death rates peak over a short period of time at levels significantly above the norm. The results from a sophisticated epidemiological model developed by Swiss Re improve the understanding of the potential range of outcomes from a pandemic, and can help insurers set mortality shock assumptions in their internal models.

Inside the model

The model simulates many thousands of hypothetical pandemics, with each simulation producing an estimate of how many extra deaths occur. It factors in the distinctive characteristics of the 3 pandemics of the 1900s, including the ability to cause death (lethality), the speed of spread, and differences in infection rates and lethality between age groups.

The model also allows for advances in pharmaceutical interventions, including antibiotics, vaccines and antivirals. Certain behavioral interventions–including the reduction in mixing between infected and uninfected people, and travel restrictions–are also accounted for.

The effect of each potential pandemic produced by the model on an insurer’s life portfolio can be estimated by applying weightings for exposures by age group and country.

Any pandemic simulated by the model produces a level of excess mortality that would occur in that hypothetical pandemic. From this, we can examine the probability that mortality over a one-year period will exceed a certain level. The results are weighted by age to better represent an insurance portfolio.

Headline results

In most developed countries, a 1-in-200-year severity pandemic (0.5% annual probability) would give rise to excess mortality of between 1 and 1.5 deaths per 1,000 lives within a life insurance portfolio.

The accompanying graph shows some country-specific examples: about 1 per 1,000 (%) in the U.S., .7% in Canada, 1.0% in Switzerland and 1.1% in the United Kingdom for a 1-in-200-year severity pandemic.

These estimates are based on interventions available today. The results vary by country largely due to differences in the underlying health of the population, the robustness of the healthcare system, stocks of antivirals and the capacity to implement successful non-pharmaceutical interventions.

Comparisons with 1918

Swiss Re does not believe the influenza pandemic of 1918 is an appropriate level for a mortality shock assumption, as it was exceptional among all the pandemics that have been recorded since 1580–the strain was unusually virulent, so mortality was extremely high and concentrated at much younger ages than in other pandemics. The model also shows that “Spanish flu” would have a much lower impact on mortality today than in 1918 due to the various major changes that have occurred since then.

A key factor making 1918 so severe was that no antibiotics, vaccines or antivirals were available. Since then, penicillin has been discovered, virological research and knowledge has grown rapidly, and influenza vaccines and antiviral drugs are available.

World War I was also a likely contributor to 1918′s severity. Media blackouts meant a widespread lack of awareness of the virus, troop movements provided the ideal environment for disease, and military needs left fewer doctors and nurses available to care for civilians.

Another contributor was underlying disease. Contagious disease, including tuberculosis, was widespread in 1918. Many apparently healthy young adults who died at that time were infected with tuberculosis, explaining the unusually high mortality rates in this age range. Tuberculosis, and many other infectious diseases, are now successfully treated with antibiotics and vaccines.

Swiss Re’s model indicates that the probability of a pandemic with the same transmissibility and lethality as 1918 is about .2%, i.e. a 1-in-500 year event.


Pandemic influenza is a material risk with the potential to affect all life insurance markets around the world. But it is not easy to predict the loss value from such an event, and therefore the amount of capital to hold. With the increasing need to develop internal models and the move toward principles-based supervisory approaches in many markets, considering the appropriate levels of excess mortality in capital models is a priority for life insurers.

Kicker: Expectations

Keith Woolnough is a risk and pricing actuary at Swiss Re.