ILS providing “action oriented” pandemic risk protection: Cory Anger, GC Securities

As capital markets investors become increasingly comfortable and understanding of pandemic risk, third-party reinsurance capital is having an influence at the start, during and after an infectious disease outbreak, according to Cory Anger, Global Head of ILS structuring, GC Securities.

Since 2003 alternative, or third-party reinsurance capital has shown it’s capable of providing life insurers and reinsurers with extreme mortality protection, with more than $3.5 billion of extreme mortality catastrophe bond transactions being completed, explained Anger.

Typically, extreme mortality cat bonds are triggered when a certain level of mortality has occurred as a result of a pandemic, or natural catastrophe event that causes a large loss of life, such as an earthquake, or terror events, outbreaks of war and nuclear accidents, as shown by the Artemis Deal Directory.

“As investors become comfortable with pandemic risk, alternative capital is beginning to pivot its capacity to providing more action oriented pandemic protection during the beginning or ongoing phases of a pandemic rather than focusing solely on replenishing capital post-event,” explained Anger, as part of a Public Sector Risk Financing Perspectives article.

The volume and scale of public entities that utilise capital markets-based risk transfer structures and capacity to de-risk their balance sheets against natural disaster losses has increased in recent times.

And as investors look for more opportunities and public entities increasingly understand the benefits and capabilities of the insurance-linked securities (ILS) market, Anger explained that market innovators are transferring their expertise and experience with natural catastrophe risks to other public sector severity losses, such as pandemics.

But as noted by Anger, alternative capital isn’t just being used to provide efficient and rapid-response capacity after a pandemic event has occurred, and is increasingly looking to provide meaningful capacity at earlier stages of a pandemic outbreak.

“The capital markets may help fund resources to rapidly contain the spread of a pandemic, share the burden of associated medical expenses and/or manage the financial impact of the higher mortality rates,” said Anger.

Furthermore, ILS can also provide public entities with multi-year protection, which is important for governmental organisations as it supports interim response structures that help to manage the need for monetary support, explained Anger.

“Alternative capital can provide protection for interim response structures that focus on managing morbidity and other healthcare costs (which can equally affect government healthcare programs, private healthcare plans and hospitals/medical facilities) for treatment for afflicted individuals, containing the spread of pandemic and for cleaning and disinfecting potential contaminated sites.

“The growing use of alternative capital sources for assuming pandemic-related risks brings a more meaningful pool of capital to help health organizations, development banks, sovereigns, local governments and private industry better manage the impact of pandemics – globally, one of the most underinsured risks,” concluded Anger.

In June 2017, GC Securities supported the World Bank Group’s first catastrophe bonds linked to pandemics, part of the innovative Pandemic Emergency Financing Facility (PEF) which aims to provide rapid, surge funding to emerging countries that face a possible pandemic outbreak.

Efforts by global organizations, both public and private, to establish adequate financing and response mechanisms in the case of pandemic outbreaks is vital to mitigating the impact such events have on the development of vulnerable, emerging parts of the world.

And with the potential risk so vast it’s essential the insurance, reinsurance and ILS markets collaborate with public entities to provide protection and response that supports countries both before, during and after an event.