Munich Re Group Annual Report 2006 (PDF, 1.8

Munich Re Group Annual Report 2006
modification. This, of course, also
applies to other viruses carried by
animals, because H5N1 is not the only
possible cause of a pandemic. In order
to assess the risk involved, we put our
analyses on a technical and scientific
basis whenever possible.
What are the starting points of your
analyses?
Manuela Zweimüller_ First of all,
we look at historical events. The
Spanish flu of 1918, which killed an
estimated 20 to 40 million people
worldwide, is the most important reference
scenario. However, it cannot
be directly applied to the situation we
have today. We have to bear in mind
that things have changed consider-
20
ably, for example due to enormous
medical advances such as antibiotics
and vaccines. Public and private
hygiene, too, have improved significantly.
There has also been a substantial
increase in overall life expectancy.
This is why it would be inappropriate
to apply last century’s mortality rates
to current population numbers. Starting
from comprehensive historical
and scientific research, we develop
our own scenarios, which are updated
on a regular basis to take account of
trends and developments regarding
the geographical spread of the disease,
vaccination research and other
aspects.
What scenarios are used by Munich Re?
Manuela Zweimüller_ We are
using a number of scenarios which
differ in key parameters such as the
duration and spread of the pandemic,
and infection and mortality rates. The
WHO scenario with the highest occurrence
probability is comparable to the
Asian flu of 1957/58 and the Hong
Kong flu of 1968, which were both
fairly mild. This scenario did not produce
any pronounced changes to
original mortality rates when we
applied it to selected industrialised
countries. Of course, we have also
looked at a worst-case scenario, although
we do not consider it realistic.
And we are investigating scenarios
which are in between the two extremes.
This has been the basis for
analysing our portfolios. It is important
to bear in mind that a pandemic
would affect a large number of countries
and regions around the world
within a short period of time. This
means that geographical risk diversification
is no longer an option.
What areas of Munich Re would be
affected by a pandemic, and how is it
preparing for such an event?
Manuela Zweimüller_ First of all,
like any other company, we must
ensure that business can go on when
a pandemic occurs. This is part of our
overall business continuity planning.
The WHO strongly advises all companies
and public authorities to identify
possible shortcomings in this respect,
for example by means of checklists.
Our overall insurance exposure
from a potential
pandemic does not exceed
that from a major natural
catastrophe.
Manuela Zweimüller_ Higher
mortalities and an increased number
of visits to the doctor, hospital admissions
and absences from work as a
result of mass infections would, of
course, primarily affect our life and
health portfolio. Property and casualty
lines (e.g. business closure insurance),
would not be hit nearly as hard, but of
course also contribute to our overall
exposure. We can monitor the pandemic
risk by using the scenarios to
regularly check our portfolios and take
appropriate action if required. And of
course, we closely monitor how the
threat develops by continuously analysing
the official data gathered by
the WHO around the world. Therefore,
the underwriting risk can be assessed
quite accurately. Our overall insurance
exposure from a potential pandemic
does not exceed that from a
major natural catastrophe. What is
most difficult to evaluate, however,
is the impact on the global economy
and, consequently, on the investments
of the Munich Re Group. On the
basis of the WHO scenario which we
consider the most likely, we predict
that the global economy will only be
temporarily disrupted and that the
ensuing shock to the capital markets
will be short term and non-persistent.