Epidemic and pandemic risk solutions

Risk transfer and investment solutions for protection against catastrophic disease outbreaks

Epidemic and pandemic outbreaks are becoming more frequent and severe. They cause serious economic impacts on all business sectors, economies and societies. To create more resilient organisations and global financial ecosystems, we need robust approaches to risk sharing.

Are you prepared for future pandemics?

Frequency and severity of epidemics and pandemics are increasing

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200

On average, 200 epidemic outbreaks and five emerging infectious diseases are reported per year.

174

The World Health Organization (WHO) notified 1,483 epidemic outbreaks in 174 countries between 2010 and 2018.

> US$10trln

The estimated financial impact of previous pandemics range from single-digit US$ bn to over US$10trln for COVID-19 and rising.

Transferring and distributing epidemic and pandemic risk

To better address the severe impact of epidemics and pandemics, risk exposure needs to be efficiently reallocated across a variety of stakeholders – including capital market participants.

The ability of Munich Re’s Epidemic Risk Solutions (ERS) unit to price, structure and transact epidemic and pandemic risks, as well as actively manage risk exposure, is key to help closing a significant insurance gap. As an industry thought leader and market maker, providing professional investors with the opportunity to participate in a new premium paying asset class with attractive yields.

With the balance sheets of the whole insurance industry being by far not large enough to bear all economic losses resulting from global pandemic events such as COVID-19, the creation of an Epidemic Risk Markets platform is key to providing innovative risk transfer solutions.

Together we help to close epidemic and pandemic insurance gaps

Non-life segment:
severe financial impact to corporates

Life segment:
mortality stop loss risk profiles

Public sector segment:
outbreak response financing

Our portfolio of risk transfer and investment solutions

Risk transfer solutions – providing worldwide and regional covers*

In the event of an outbreak, rapid action is required. Customised risk transfer solutions, with simple and transparent settlements, are crucial for insurers, corporates and the public sector alike. That is why we design policies depending on the client's individual exposure. Premium, coverage, as well as epidemic and pandemic, economic and geographical triggers are customised in advance. In a period where the risk transfer market for epidemic and pandemic solutions is nascent, the current aggregate capacity available for the product is limited.

Key benefits of epidemic and pandemic covers

Risk transfer: financial coverage for viral epidemic and pandemic outbreaks
Customisation: policy defined depending on the client's individual exposure and the financial capabilities
Transparency: pre-defined triggers and geographical scope
Liquidity: improve cash flow management with faster access to liquidity
Expert knowledge / advice: access to epidemiological and specialised risk management expertise

Triggers of the risk transfer solution in the insured event

Interested? Let's help closing protection gaps.

Factsheet risk transfer solutions

* Capacity varies while market is forming. Munich Re has licensed fronting arrangements in most jurisdictions including all US states.

Investment solutions – increasing capacity via a market platform

The approach of Epidemic Risk Solutions is to transform the risk into a transferable, premium-paying asset class that can be exchanged with the capital markets at a fair price. This increases the availability of capacity and rewards participants at the same time. This new asset class is based on proven risk distribution techniques which enable the risk transformation from insurance markets to capital markets.

The creation of a fixed premium-paying asset class can bridge the gap between an insurance need and a latent investor demand for diversified return enhancement. Insureds and investors can exchange risks to manage potential risk concentrations that could negatively impact financial ecosystems and socities. Thus, an Epidemic Risk Markets platform is created to broaden available risk transfer options, in particular for non-damage business interruption insurance risk. The platform enables risk transfer in different formats and is also open for public sector participation.

Key benefits of this new asset class compared to conventional investments

Low correlation
Low mark-to-market volatility
Short maturity
Yield pick-up

Epidemic risk transfer – platform and actors

Interested? Let's create a resilient financial ecosystem.

Factsheet investment solutions

Academic research paper on risk transfer solutions and options for public sector support

Captive solutions – making the best use of Captive vehicles*

The Epidemic Risk Solutions team of Munich Re provides specialist structuring, pricing and underwriting expertise to Captives – enabling it to robustly offer broader cover and retain or transfer separately. Insurance is available for almost all known and unknown viral diseases.

Our collaborative approach allows us to address your specific needs. For you, this means that we can underwrite tailor-made solutions, including new risks.

Key benefits for Captives

Coverage for viral epidemic and pandemic outbreaks
Cost-effective risk transfer
Strategic risk management
Compliance with regulations
Liquidity and cost control
Access to specialised risk management expertise

Combine your strengths with ours

Requirements and challenges	Captive	Munich Re	Together	How a joint solution could work
Creating an insurance policy for this new Non Damage Peril is complex and requiring epidemiological expertise.	Х	✓	✓	Munich Re has spent many years creating solutions to fit differing risk profiles and can structure/price products.
Policy structure must meet regulator’s approval.	Х	✓	✓	Munich Re is a globally regulated, rated and trusted reinsurance partner since being founded in 1880.
Premiums and limit must be justifiable and reasonable and “arms length”.	Х	✓	✓	Munich Re uses Big Data and epidemiological expertise to justify premiums and limits.
Policy should cover all aspects of parent’s loss resulting from the epidemic or pandemic.	✓	Х	✓	If Munich Re’s participation in all aspects of parent’s loss is not desired or feasible, these exposures nevertheless can be modelled for the captive. For example coverage for liability.
Policy should cover COVID-19 losses.	✓	Х	✓	If the captive has appetite to cover COVID-19 losses (including further waves), Munich Re can model this exposure for the captive.
Licencing for all covered areas is challenging and expensive for a captive.	Х	✓	✓	Munich Re has licensed fronting arrangements in most jurisdictions including all US states.

Interested? Let's enhance your Captives' capacity.

Factsheet Captives solutions

* Capacity varies while market is forming. Munich Re has licensed fronting arrangements in most jurisdictions including all US states.

Risk distribution for global sustainable development and resilience

Pandemics, such as Covid-19, have an overarching impact on Environmental, Social and Governance (ESG) sustainability and resilience factors. As a consequence of globalisation and deforestation the frequency and intensity of disease outbreaks will only increase in the future. Creating a platform to manage, monitor and transfer future pandemic risks can contribute towards the UN Sustainable Development Goals (UN SDG’), most specifically #11.

Why work with Munich Re’s Epidemic Risk Solutions

Epidemic Risk Solutions has long been an active contributor to risk sharing structures. The team has concluded various transactions in Non-Life, Life and Public Sector insurance and has successfully transferred pandemic risks to investors. Historically, the required capabilities to structure and transact epidemic and pandemic risk had been developed for the management of Munich Re’s own exposure.