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    Pandemic Bonds Archived Message

    Posted by Gerard on May 14, 2020, 12:18 pm

    "In 2017 the World Bank issued a pandemic bond designed to help fund the response to any widespread outbreak of a number of diseases, including coronavirus. The $320 million bond was part of a bigger $425 million risk transfer that included a concurrent $105 million swap with six reinsurance counterparties. Should it already be paying out? Euromoney Pandemic Bond Timeline As of March 16, the answer was no, principally because the required time period has not yet elapsed since the start of the outbreak, which is 84 days, or 12 weeks. The World Bank confirmed to Euromoney on March 5 that the official start of the outbreak has been set at December 31, 2019, meaning that the first day following the 12-week period will be tomorrow, March 24. Contrary to rumours circulating online, there was no requirement for a body like the World Bank or the World Health Organisation to formally declare that the outbreak is a pandemic for the bonds to pay out. When the criteria are met, the bonds will be triggered, whether or not a pandemic has been declared. However, the WHO did in any case declare a pandemic as of March 11. Some of the bond trigger criteria have been met, but two - the growth rate of cases and the ratio of confirmed cases to total cases (including suspected) - can only be calculated after the initial 84 days, and are determined during an additional period of up to two weeks. The growth rate calculation is particularly problematic: in the case of coronavirus, it is calculated on the basis of individual IBRD or IDA countries only, meaning that it is highly dependent on those countries' ability to test and report cases. It is also difficult to assess externally because it uses for its calculation the total case amount, which includes probable cases that are not routinely reported publicly by the WHO in its situation reports. The timeframe means that although March 24 marks the end of the 12-week period since the start of the outbreak, the growth rate and confirmation ratio data that relate to that day would not be known until April 6. Two days is then set aside for calculation of those rates.

    Full article: https://www.euromoney.com/article/b1klyqsykl0d0m/when-will-coronavirus-covid19-trigger-the-world-bank39s-pandemic-bond?copyrightInfo=true
    Visit http://www.euromoney.com/reprints for additional distribution rights. For more articles like this, follow us @euromoney on Twitter." https://www.euromoney.com/article/b1klyqsykl0d0m/when-will-coronavirus-covid19-trigger-the-world-bank39s-pandemic-bond

    "The pandemic bonds work like this: Investors buy the bonds and receive regular coupons payments in return. If there is an outbreak of disease, the investors don’t get their initial money back. There are two varieties of debt, both scheduled to mature in July 2020. The first bond raised $225 million and features an interest rate of around 7%. Payout on the bond is suspended if there is an outbreak of new influenza viruses or coronaviridae (SARS, MERS). The second, riskier bond raised $95 million at an interest rate of more than 11%. This bond keeps investors’ money if there is an outbreak of Filovirus, Coronavirus, Lassa Fever, Rift Valley Fever, and/or Crimean Congo Hemorrhagic Fever. The World Bank also issued $105 million in swap derivatives that work in a similar way.

    These bonds are similar to catastrophe bonds, a $90 billion market used by insurance companies to shift risks of hurricanes, earthquakes, and other natural disasters onto the financial markets. The World Bank’s bond sale was 200% oversubscribed, with investors eager to get their hands on the high-yield returns on offer. The majority of buyers were from Europe and included dedicated catastrophe-bond investors, pension funds, and asset managers.

    Despite recent innovations, such as a genetic tool that maps how viruses spread in real-time, the world remains unprepared to deal with an epidemic on a global scale. The World Bank estimates that the annual cost of “moderately severe to severe” pandemics is roughly $570 billion, or 0.7% of global GDP. If—or when—there is another severe outbreak, these new bonds are meant to cut the cost, in terms of both human lives and financial resources, of fighting infectious diseases. Ebola killed more than 11,000 people and reduced GDP in Guinea, Liberia, and Sierra Leone by $2.8 billion." https://qz.com/1017805/the-world-bank-issued-425-million-in-pandemic-bonds-and-derivatives-designed-so-investors-pay-in-the-event-of-an-outbreak/

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