Colin Dutkiewicz, Head of Life at Aon’s Reinsurance Solutions business, has said that the ongoing coronavirus outbreak should serve as a “wakeup call for insurers” to further analyse their exposure to epidemics and pandemics.
With analysts now suggesting that the coronavirus could represent a significant risk for re/insurers across the globe, Dutkiewicz argues that the crisis should prompt the market to reassess its risk appetite using specialist catastrophe models.
These models, he said, help to shape reinsurance strategies to both manage exposures and align with local regulatory requirements such as Solvency II in Europe and local risk-based capital regimes in Asia Pacific.
“In the meantime, it is important to note irregular regional and global epidemics like the Coronavirus are anticipated by the re/insurance market,” Dutkiewicz stated.
“Indeed, modern risk-based capital regulatory regimes now require insurers to specifically hold capital against this sort of event if the insurer does not reinsure the risk.”
The coronavirus has infected more than 43,000 people since first being identified by the World Health Organisation (WHO) on December 31st.
The vast majority of cases are in China, particularly in the city of Wuhan where the virus is thought to have originated, with 1,018 people now believed to have been killed.
Currently, only two deaths have been recorded outside of China, but the virus has spread to at least 29 countries, including the US, the UK, France, Australia, Japan, Canada and South Korea, sparking fears of a global crisis.
Notably, the number of coronavirus cases worldwide has now surpassed that of the 2003 SARS epidemic, and the death count already much higher than the 774 documented over the roughly 6-month SARS outbreak.
Rating agency AM Best said recently that reinsurers are likely to face the highest levels of risk related to the coronavirus, due to their typically higher exposures to mortality and morbidity risks.
“In almost all instances, epidemics and pandemics are covered in traditional proportional Life and Health reinsurance policies, Dutkiewicz continued.
“For portfolios without proportional reinsurance, Aon works with insurers to implement specific epidemic, pandemic or excess-of-loss reinsurance to cover the remote possibility of large losses due to a pandemic.”
Despite this assessment, larger reinsurers such as Hannover Re do not seem to be overly concerned about the potential for major losses, with CEO Jean-Jacques Henchoz recently saying the company is not anticipating any significant exposure to the virus.
On this point, Dutkiewicz added: “Many insurers, especially the large UK and the large multinational reinsurers, will have significant diversification measures in place to offset their risk through longevity programmes they hold from annuity business.”
