Reinsurance News

Industry viewed pandemic risk through too narrow a prism: SCOR’s Kessler

17th September 2020 - Author: Luke Gallin

For the most part, pandemic had historically been viewed as a life catastrophe exposure, but the COVID-19 outbreak has shone a light on the potential impacts of a pandemic on the global property & casualty (P&C) sector.

Denis Kessler, SCORIn a keynote held this morning as part of insurer and reinsurer SCOR’s virtual Monte Carlo season, Denis Kessler, the company’s Chairman and Chief Executive Officer (CEO), addressed the ongoing COVID-19 pandemic.

Describing pandemic as an “invisible” and “truly systemic risk, unrestricted by time and space,” Kessler noted that it appears as if the current crisis is going to be more of a P&C market shock than a life shock.

“The overall estimate in P&C insurance and reinsurance market exposure, looks set to be several times greater than the overall estimated exposure for the life insurance and reinsurance market,” he said. Continuing to explain that of the COVID-19-related charges booked by global re/insurers in H1 2020, roughly 90% falls to P&C and 10% to life business.

“So, pure P&C players are faced with a COVID-19 impact, whose magnitude is comparable to that of a major natural catastrophe. This is a bigger surprise, the crisis, because it’s the opposite of what broadly speaking had been anticipated, and modelled for pandemic risk,” said Kessler.


As noted by Kessler during his speech, pandemic risk isn’t new and the majority of re/insurers did have this low-frequency, high-intensity risk on the radar.

“It has been many years since risk carriers first began developing pandemic risk models for pricing, reserving and capital requirement calculation. But, the COVID-19 crisis has demonstrated, broadly speaking, that most of the industry previously viewed pandemic risk through too narrow a prism.

“Pandemic had traditionally largely been considered a life catastrophe risk. The modelling approaches for this risk had a very strong life focus, with the P&C and macroeconomic components being treated in a more simplified way,” said Kessler.

According to Kessler, the majority of pandemic models that have been developed by the industry, so far, focus on the probability distribution of the number of victims. And, while modelling has certainly evolved over-time, the main objective has not and may need a calibration of the excess mortality distribution curve.

“Many of these models omit the fact that a pandemic may have a greater impact on the P&C market than on the life market,” said Kessler. “In the vast majority of cases, only risk managers with a significant life book of business, had traditionally tried to monitor and manage the estimated pandemic risk exposure.”

Of course, the experience of the COVID-19 outbreak will provide insurers and reinsurers with more data and a greater understanding of the potential impacts of a global pandemic, which in turn should lead to improved modelling capabilities and ultimately greater resilience.

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