IP-19 Pandemics – Impact on Group Insurance 2006 General Meeting Chicago, Illinois

1. Canadian Institute of Actuaries L’Institut canadien des actuaires IP-19 Pandemics – Impact on Group Insurance 2006 General Meeting Chicago, Illinois Hugo Maureira Cathy Shum-Adams Philippe Trahan

2. Session Content • General overview of Avian Flu (H5N1) • Impact of a Pandemic on the economy and businesses • BCP & risk management for a Pandemic • Pandemic planning – info from OSFI, CLHIA , AMF • Impact of a Pandemic on Group Benefits – what one insurer has tried to quantify • Modeling of a Pandemic scenario & reinsurance solutions available • Conclusion • Q&A

3. Session Content • General overview of Avian Flu (H5N1) By Cathy Shum-Adams • Impact of a Pandemic on the economy and businesses • BCP & risk management for a Pandemic • Pandemic planning – info from OSFI, CLHIA , AMF • Impact of a Pandemic on Group Benefits – what one insurer has tried to quantify • Modeling of a Pandemic scenario & reinsurance solutions available • Conclusion • Q&A

4. WHO – Current Alert Level November 2005 Source: www.who.int

5. WHO – Current Alert Level • WHO Level 6 Pandemic – Efficient & sustained human-to-human transmission • Connection between Bird flu, Human flu & Pandemic flu: • Bird flu + Human flu = Pandemic flu

6. General Overview of Avian Flu • Nations with confirmed cases H5N1 Avian Influenza: July 7, 2006 Source: www.pandemicflu.gov

7. General Overview of Avian Flu Cumulative Number of Confirmed Human Cases of Avian Influenza Reported toWHO October 11, 2006 Mortality rate = 58.7% Source: www.who.int

8. Pandemics – Trivial Questions • Last 3 pandemics in the 20th century – 1918, 1957 & 1968: • Did they all involve a strain of the Avian flu? • Did they originate from southeast Asia? • Why was the 1918 pandemic named the Spanish Flu then?

9. Preparedness Mindset • What the medical experts are saying … 1918  1957  1968  ?? • “That will never happen” mentality & short-term memories • Short history of potential disasters… that never happened. Remember these? • Y2K • The Ebola Virus • Mad Cow Disease • Killer Bees

10. Preparedness Mindset • Pandemic – planning for the unknown – STUFF HAPPENS! • Accept that we’re planning for a risk where much is unknown • Donald Rumsfeld’s approach to analysis: • The known knowns • The known unknowns • The unknowns unknowns

11. Session Content • General overview of Avian Flu (H5N1) • Impact of a Pandemic on the economy and businesses By Hugo Maureira • BCP & risk management for a Pandemic By Hugo Maureira • Pandemic planning – info from OSFI, CLHIA , AMF • Impact of a Pandemic on Group Benefits – what one insurer has tried to quantify • Modeling of a Pandemic scenario & reinsurance solutions available • Conclusion • Q&A

12. Outline Social and Economic Impact Pandemic Business Continuity Planning Legal Considerations 12

13. Objectives • To give an overview of the potential economic impact that a pandemic may have on Canada, the United States and the World • To stress the importance of emerging economies in considering the potential economic impact • To offer a balanced view free of fear mongering on the one hand, and cynicism on the other • To explain the uniqueness of pandemic BCPs, what they might contain and specific items to consider • To explain how the post-SARS legal environment might affect businesses particularly with respect to workplace health and safety and 3rd party liability

14. I. Social and Economic Impact Behavioural Changes Projected Losses Emerging Economies 14

15. I. Social and Economic Impact1. Behavioural Changes Consumer Confidence Consumer habits and social patterns New opportunities The economics of mass panic: SARS 15

16. Social and Economic Impact1. Project Losses Public Health Impact

17. Social and Economic Impact1. Projected Losses A brief word on projected loss modeling… • Meltzer, Cox & Fukuda • FluAid 2.0

18. Social and Economic Impact1. Projected Losses Economic Loss: World, Canada, and US

19. Social and Economic Impact1. Projected Losses Impact on U.S. GDP Under Severe and Mild Scenarios

20. Social and Economic Impact1. Projected Economic Loss Impact on U.S. Labour Force Under Mild and Severe Scenarios

21. I. Social and Economic Impact2. Emerging Economies The influence of emerging economies Avian influenza pandemic in Asia: Implications for the world economy 21

22. III. Pandemic Business Continuity Planning The Uniqueness of Pandemic Planning Basic Structure Issues to Consider 22

23. III. Legal Considerations Lessons from SARS Emergency Legislation Employment Related Legislation (Ontario and Canada) 23

24. BCP – Canada & U.S. Surveys • Surveys from Conference Board – both Canada and U.S. - how prepared businesses are for a potential flu pandemic: Canadian: 75 organizations U.S.: 553 organization More than 40% Canadian companies surveyed do not have a communication strategy in their pandemic planning

25. Session Content • General overview of Avian Flu (H5N1) • Impact of a Pandemic on the economy and businesses • BCP & risk management for a Pandemic • Pandemic planning – info from OSFI, CLHIA , AMF By Cathy Shum-Adams • Impact of a Pandemic on Group Benefits – what one insurer has tried to quantify • Modeling of a Pandemic scenario & reinsurance solutions available • Conclusion • Q&A

26. Pandemic Planning- OSFI • In April 2006, OSFI sent a pandemic letter to: • Federally regulated financial institutions (FRFIs) • CLHIA • Insurance Bureau of Canada (IBC) • Canadian Bankers Association (CBA) • Credit Union Centre of Canada • Letter to organizations, other than FRFIs: • Would like to know any initiatives each organization has undertaken

27. Pandemic Planning- OSFI Letter to FRFI’s: • Pandemic preparedness an area of increasing supervisory focus • Discussing approaches in domestic and international regulatory agencies for possible best practices • Board/Senior Mgmt should: • Understand the potential implications of a pandemic on operations and financial condition • Review the institution’s preparedness pans • Consider a pandemic scenario in financial stress tests

28. Scenario Testing - OSFI • Survey of big companies to test such a scenario: • Assume 6.2M Canadians fall ill • 133,000 die • On average, sick workers miss 2 weeks of work In DCAT, consider an integrated scenario with increase in morbidity, mortality and other impacts (e.g. economic).

29. Pandemic Preparedness Update - CLHIA • Activities underway to develop a network of federal & provincial health agency… communication • Collaborated with Authorité des marchés financiers (AMF)… guidance on developing business continuity planning • CLHIA will continue to work with AMF, OSFI and other regulators in planning initiatives evolve.

30. Influenza Pandemic Guide - AMF • Intended for Quebec financial institutions • In line with guidelines of the IMF & Joint Forum of the Basel Comm. • Assumes major economic impact, followed by a rapid recovery • Effects would be different from one industry to another • BCP to assume pandemics over a lengthy period, several waves of varying intensity could occur Following data from AMF Influenza Pandemic Guide, August 2006

31. Influenza Pandemic Guide - AMF • Table 1 – Characteristics of the risk of an influenza pandemic

32. Influenza Pandemic Guide - AMF • According to the World Economic Forum: • Scenario-based analysis: • Base-case scenario – current trend • Worst-case scenario – worst plausible developments • Scenarios considered for two different time periods: • Short-term over one year (2006) • Long-term over 10 years (by end of 2015)

33. Influenza Pandemic Guide - AMF • According to the World Economic Forum: Table 2 – Levels of severity of the impact of an influenza pandemic

34. Influenza Pandemic Guide - AMF • According to the World Economic Forum: Table 3 – Assessment of the risk of an influenza pandemic in terms of probability & severity

35. Influenza Pandemic Guide - AMF • Anticipated impact on Quebec – from Quebec Department of Health: Morbidity rate = 35% Mortality rate = 0.33%

36. Session Content • General overview of Avian Flu (H5N1) • Impact of a Pandemic on the economy and businesses • BCP & risk management for a Pandemic • Pandemic planning – info from OSFI, CLHIA , AMF • Impact of a Pandemic on Group Benefits – what one insurer has tried to quantify By Cathy Shum-Adams • Modeling of a Pandemic scenario & reinsurance solutions available • Conclusion • Q&A

37. General Overview of Avian Flu • Insurance Company Implication: • Excess claim risk • Liquidity risk • Credit risk • Supply-line disruptions e.g. TPA’s, assistance co’s • Counterparty risk • Reputation risk - Red Cross during Hurricane Katrina • Workforce disruption with an increased demand for services • Sales may go up? Premium rates may rise?

38. Excess Mortality Caused By Flu • The rates of infection, morbidity and mortality, as well as their distribution by age group, would no doubt have an effect on the amount of claims & benefits to be paid.

39. Hypothetical Group Portfolio

40. Financial Impact – Group STD

41. Financial Impact – Group Life

42. Financial Impact – Group LTD • Normal flu recovery period is 10 days • With average EP of 90 days, the impact will likely be small • Maybe spillover from STD into LTD: • Complication/residual physical effects • M&N

43. Financial Impact – Group Dental • Some expected claims to go down temporarily… back to avoidance of large gathering places

44. Financial Impact – Group Medical • Claims will likely increase for hospitals, drugs & OOCM? • Who will pay for a vaccination program? • Travel advisory • Borders may be closed and repatriations not possible

45. Financial Impact – Group AD&D • As the cause is accident-related, should have no impact?

46. Financial Impact – Group CI • Is it plausible for those that are seriously infected to go into a Coma, Paralysis, damage to hearing…? • How does this translate into additional morbidity rate?

47. Group Insurance – considerations • Stop writing new business during a pandemic? • Do we expect sales to go up during a pandemic? • Do we expect to increase rates to mitigate the risks or recoup losses? • Do we charge more now and build up a pool for a possible pandemic?

48. Session Content • General overview of Avian Flu (H5N1) • Impact of a Pandemic on the economy and businesses • BCP & risk management for a Pandemic • Pandemic planning – info from OSFI, CLHIA , AMF • Impact of a Pandemic on Group Benefits – what one insurer has tried to quantify • Modeling of a Pandemic scenario & reinsurance solutions available By Philippe Trahan • Conclusion • Q&A

49. Meet H5N1

50. Risk Transfer Solutions • Insurance • Reinsurance • Capital Market