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Property insurers--as well as life carriers and their reinsurers--would all be affected by any falls in the investment market that could accompany a flu outbreak, according to a rating firm report.

The study released today by Fitch Ratings in New York found that while a stock slump could be significant, the overall impact is likely to be temporary if the outbreak is relatively short-lived.

Reinsurers, Fitch said, could be partially protected with a diversified book of business both in non-life and life products, as well as by country. However, Fitch added, there is limited geographic diversification available since 66 percent of the life reinsurance market is in North America and 25 percent in Europe--of which 50 percent comes from the United Kingdom.

As a result, Fitch said it does not envision a significant threat of widespread ratings downgrades to either the life or non-life sector, at present.

"Downgrades would be most likely if the virus mutates to allow human-to-human transmission and leads to a considerable increase in mortality claims or investment market losses," said Lauren Kalinowski, an associate director in Fitch's U.S. Insurance Group in New York. "The companies most affected would be those with concentrations of mortality risk."

Based on published research, Fitch said it estimates 400,000 deaths could occur in Europe and 209,000 in the United States in a bird flu pandemic.

Using Insurance Information Institute numbers, Fitch said it considers that the increase in claims could amount to as much as $18 billion in the United States--8 percent of the industry's statutory surplus.

The rating firm said it is difficult to assess how much of the risk could be passed onto reinsurers, but it is likely to be substantial.

Fitch said it expects the increase in claims in such a scenario would be tolerable for the life insurance industry. However, some players would likely be more affected than others.

The firm noted that non-life insurance policies do not tend to offer coverage for flu pandemics. If a pandemic were to occur, it would probably result in an increase in employee absenteeism.

However, business interruption due to absent workers is not likely to be covered by business interruption coverage, as this type of policy relates more to physical damage or restricted access to buildings, Fitch noted.

Property and marine policies generally exclude damage due to the spread of infectious disease, according to Fitch.

However, Fitch said contingency coverage--a specialized form of insurance that tends to cover non-physical damage, such as event cancellation--may well include coverage relating to disease. The company noted that this type of insurance tends to be event-specific--and as a result, the losses arising for insurers are likely to be modest.

In terms of agriculture, Fitch said there would probably not be coverage for operations impacted by government-ordered slaughters of farmed poultry.

Fitch added that awareness of the risks of a pandemic has risen over the past year, and insurers have been encouraged to review their business continuity plans to ensure they would be able to cope with a significant increase in staff absenteeism.

Business continuity planning is a factor in Fitch's rating analysis. Fitch said if business plans were found to be inadequate, this could be a further reason for downgrades--although this, too, is expected to be limited.

Fitch said it will hold a teleconference on Wednesday, March 29, at 9:00 a.m. Eastern Time to discuss the agency's views. The report--"Bird-Flu--Will It Ruffle The Industry's Feathers?"--is available on the agency's Web site, www.fitchratings.com.

Special Reports /

Fitch Assesses Bird Flu Impact

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