The catastrophe bond issuance launched to back the World Bank designed Pandemic Emergency Financing Facility (PEF) is now targeting up to $400 million of parametric risk transfer coverage through the International Bank for Reconstruction and Development issued IBRD CAR 111-112 capital at risk notes.
At launch just over a week ago, a $100 million preliminary target had been set for the IBRD debt issuance of two series of catastrophe-linked Capital At Risk notes (CAR Series 111 and CAR Series 112), which have been marketed to qualified investors and insurance-linked securities (ILS) specialists.
Now, we’re told that the target size for the transaction has been lifted with as much as $400 million mooted, and a lower-end target of at least $175 million sought. At the same time the price guidance for both tranches has fallen to below the at-launch marketed range.
This IBRD CAR 111-112 transaction will provide parametric risk transfer protection designed to benefit the Pandemic Emergency Financing Facility (PEF), with payouts linked to the occurrence of specific pandemics, so as to provide the needed liquidity and capital to help stricken countries or regions in their response and recovery.
Two tranches of IBRD Capital At Risk notes are being issued and sold to fully-collateralize underlying swap agreements. The payment is based on a parametric trigger for both tranches of notes, linked to World Health Organisation (WHO) reported deaths and cases from pandemics that hit the covered area, which for some perils is global, others a subset of countries. The coverage is per occurrence and will run for a three-year term.
A Series 111 Class A tranche of notes had launched targeting at least $75 million of coverage that will be linked to the outbreak of pandemic flu or coronavirus events, but this tranche is now targeting from $150 million to $200 million of cover. This tranche had launched with price guidance of 7.25% to 8%, but this has dropped to below that range now at 7% to 7.25%, we understand.
A Series 112 Class B tranche was targeting $25 million of cover or greater, and the target is now set at between $25 million and $150 million, we hear. This tranche covers a wider range of pandemic perils, including Coronavirus, Crimean Congo Hemorrhagic Fever, Filovirus, Lassa Fever and Rift Valley Fever. As a riskier tranche of protection, these notes were offering price guidance of between 12.25% to 13%, but this has been lowered and tightened to 11.75% to 12.25%.
It’s no surprise to see both tranches now targeting increased sizes and with pricing below the initial guidance. Being a new issuance and the first pure pandemic cat bond to utilise this type of health data linked parametric trigger it is a new proposition for ILS investors to gain an appreciation and understanding of.
The World Bank could eventually target much larger issues of these pandemic cat bonds, to provide the necessary insurance or risk transfer backing that its Pandemic Emergency Financing Facility (PEF) would need at the scale required.
Of course, the ILS market can only absorb so much of this peril at one go, due to investors and fund managers need for diversification, and so this first issuance looks a successful attempt to test the structure, trigger and investors appetite for pandemic linked risk exposures.
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