Vaccinating insurers against pandemics – a review of capital requirements for pandemic risk

Highlights

• The Covid-19 pandemic crisis provides an opportunity to review existing regulatory requirements and to sharpen them so that they remain appropriate for future pandemics. This is despite insurers, in general, not facing significant solvency issues from increased Covid-19-related deaths.
• Currently, most regulatory frameworks do not prescribe specific capital requirements for pandemic risks. Selected regulatory capital frameworks cover pandemics mainly in terms of mortality risk. Cross-jurisdictional comparison on relative levels of these requirements is complex given other determinants of the final capital requirement calculation.
• The Covid-19 pandemic crisis shows that risk exposures of insurers extend beyond mortality. Regulatory frameworks, though not necessarily through capital requirements, may consider incentivising insurers to address other risks that could arise from future pandemics, including heightened market, credit and operational risks, as well as their increased interdependencies.