Actuarial Modelling of Pandemic Risk and Its Implications for Life Insurance Pricing and Solvency in Nigeria

This study develops a comprehensive actuarial model of pandemic risk and examines its implications for life insurance pricing, reserving, and solvency in Nigeria, drawing on the COVID-19 experience as the empirical anchor. The COVID-19 pandemic demonstrated that pandemic mortality shocks can simultaneously affect insurance claims, lapse rates, new business volumes, and investment returns, creating a complex multi-dimensional stress for life insurers. Conventional life insurance pricing and reserving models treat mortality as a predictable, slowly-evolving process and are not designed to accommodate pandemic-scale mortality shocks. This study develops a stochastic pandemic mortality model incorporating epidemic transmission dynamics, healthcare capacity constraints, and mortality burden distribution by age, sex, and geopolitical zone, calibrated to Nigeria's COVID-19 mortality experience from 2020 to 2022 using the NCDC database and civil registration excess mortality estimates. The pandemic model is integrated into a full life insurer balance sheet simulation framework to assess solvency outcomes under pandemic scenarios of varying severity. Reserve adequacy, capital buffer requirements, and product-level stress losses are quantified. Findings reveal that a COVID-19-scale pandemic event would have depleted the solvency margins of approximately 40 percent of Nigerian life insurers below regulatory minimums, had it produced mortality rates proportional to international experience rather than Nigeria's relatively low official rates. The study contributes an original Nigerian pandemic actuarial model and recommends NAICOM mandate pandemic stress testing for life insurer solvency capital requirements.

Keywords: pandemic risk, life insurance, mortality modelling, solvency, COVID-19 Nigeria.