S&P paints grim picture of flu epidemic

The looming threat of avian influenza turning into a human epidemic could cause the world's insurance companies major losses, Standard & Poor's warned yesterday.

In the industry's worst-case scenario, once the disease jumps from bird-to-human transmission to human-to-human transmission, overall losses worldwide could range from US$71.3 billion to US$200 billion, S&P said yesterday, citing its report, Determining the Insurance Ramifications of A Possible Pandemic, released on Tuesday.

More optimistic models suggested a range of US$15 billion to US$20 billion for insured losses, reflecting medical advances and containment efforts of the type that corralled SARS in 2003, S&P said.

No matter what the final total is, a human pandemic would cause losses in nearly all sectors of the insurance industry -- health, commercial insurance, life, life and property reinsurance, and retrocession, it said.

Cathay Life Insurance (國泰人壽), the nation's largest life insurer, said it had made an evaluation of the possible losses if there was widespread human-to-human transmission, but it would not disclose them, executive vice president Lee Young-jann (李永振) said.

Cathay Life has more than 10 million effective policies and more than 80 percent to 90 percent of those include compensation for statutory diseases, including avian influenza, Lee said.

Shinkong Life Insurance Co (新光人壽), the nation's second-largest life insurer, said it did not have such estimates, due to the difficulty in predicting how many people would get infected.

Shinkong Life, however, saw NT$200 million (US$5.96 million) to NT$300 million minus health-insurance compensation a month during the SARS outbreak in 2003, as fewer people put off going to the doctor unless it was absolutely necessary, company spokesman Victor Hsu (許澎) said.

This could be a reference to the case of avian flu if the threat escalates, Hsu said.

Shinkong Life paid a total of NT$100,000 to NT$200,000 in compensation for SARS claims, he said.

Businesses that depend on large numbers of people, such as airlines, lodging, leisure and restaurants, would suffer serious setbacks, S&P said.

Closing down movie theaters, shopping malls, sporting events and public transportation in major cities would hurt businesses, and, ultimately, the companies that insure them, it said.

Distribution of perishable goods by truck could also be jeopardized and cause losses, it said.

Stock and bond markets could be negatively affected as well while air travel, for both individuals and tours, carries the most risk -- something international carrier companies had to deal with during the SARS outbreak -- the ratings agency said.