Avian Influenza-H5N1 Implications for the Insurance Industry Casualty Actuarial Society Meeting San Francisco Al Fine -

1. Avian Influenza-H5N1Implications for the Insurance Industry Casualty Actuarial Society MeetingSan FranciscoAl Fine - Willis Risk Solutions

2. Facts • Influenza viruses are highly species specific • Avian influenza is an infectious disease caused by the “A” strain of the virus • Since 1959 only 10 documented incidences where an “A” strain influenza has infected humans • H5N1 is highly pathogenic virus transmitted by migrating birds to farm poultry; humans infected tend to work with or ingest sick poultry • Disease spread via intersecting migratory flyways and international human and product movement • A major pandemic is likely when disease mutates to allow efficient transmission between humans-at least one case has been identified

3. History • 1997 Hong Kong Outbreak –first known cases of bird to human transmission; 2003-2005 period defined as the “Second Wave” • According to WHO, in 2006 H5N1has killed a person every four days- double the 2005 rate • As of October 18, 2006: • 256 Diagnosed Cases • 151 Deaths • 50+ Cases in Indonesia in 2006 • 90+Cases in Viet Nam • Cases in 10 countries located in Southeast Asia, Central Asia, Europe, and the Middle East

4. Scenarios Congressional Budget Office Assessment • Severe: US Exposure- 90 Million Cases/2 Million Deaths • Mild: US Exposure- 75 Million Cases/100K Deaths Fitch • 400 K Deaths Projected in Europe • 209 K Deaths Projected in US Y2K or 9/11? • Potentially 25% of the Workforce Infected on Global Basis • Broken Supply Chains/Border Closings

5. Risk Factors • Population density and demographic of infected population • Speed of Infection and ability to quarantine • Availability of cure and logistical, political and financial impediments affecting distribution • Duration of disease and lingering economic and social effects of countermeasures

6. Insurance Exposures Employee Benefits • Health and Welfare • Life Property/Business Interruption/Political Risk • Contamination • Civil Authority • Supply Chain General Liability • Premises Liability • Strict Liability in Tort • Independent Contractors Workers’ Compensation/Employers’ Liability • Sole Remedy? • Number of Occurrences • Foreign Voluntary Compensation

7. Implications for Insurers and Reinsurers • Exclusionary Language to Remove Ambiguity • Coverage Definition and Rationing • Arguments for Coverage Based On Public Policy Concerns • Emergence of Potential New Case Law

8. Possible Financial Implications • Loss impact uncertain • WC/GL flu-related claims up • WC/GL non-flu-related claims down as businesses shrink or close • Economy Suffers • Revenues & Payroll down  Premiums down • Stocks & Bonds lower  Assets down  Less money to pay claims Predicted 2% - 5% hit to assets on $4 trillion in assets = $80 billion - $200 billion or 30% to 80% of surplus • Investment Downgrades for Insurers- combination of underwriting losses and portfolio losses

9. New Opportunities? • Contingent Business Interruption • Example: • ABC Co. performs accounting services for private schools on an outsource basis • Avian flu  Excessive Absenteeism (Teachers & Students)  School Closures  Reduced Income to ABC Co.  Need for Contingent Business Interruption coverage • Could possibly be done w/parametric trigger (e.g. pay $100,000 if U.S. incidences exceed 50,000) to make loss quantification easier

10. H5N1 Data Tracker • World Health Organization: http://www.who.int/csr/disease/avian_influenza/en/index.html • UN Food and Agricultural Organization: http://www.fao.org/ag/againfo/subjects/en/health/diseases-cards/special_avian.html • US Center for Disease Control: http://www.cdc.gov/flu/avian