Risk to pandemic cat bond creeps up as Lassa fever deaths rise in Nigeria

The number of confirmed deaths from the Lassa fever outbreak in Nigeria has risen according to the latest information available from the World Health Organisation (WHO), which means that the risk posed to investors in the World Bank’s pandemic swaps and catastrophe bonds has crept up slightly.

As we reported a fortnight ago, the lassa fever outbreak in Nigeria was confirmed by the World Bank as an “Eligible Event” under the terms of the Class B pandemic swaps and pandemic catastrophe bonds that were issued to support the financing of the Pandemic Emergency Financing Facility (PEF).

Lassa fever is one of the pandemic risks covered under the terms of the Class B tranches of pandemic swaps and cat bonds issued under the PEF transaction by the World Bank’s International Bank for Reconstruction and Development (IBRD) last year.

That deal consists of $320 million of IBRD CAR 111-112 capital at risk notes and $105 million of pandemic risk linked swaps (derivatives), which were sold to investors to provide emerging economies with insurance linked protection against outbreaks of diseases.

A $95 million Series 112 Class B tranche of pandemic cat bond notes and an unknown sized Class B set of pandemic swaps cover a range of pandemic perils including, Coronavirus, Crimean Congo Hemorrhagic Fever, Filovirus, Lassa Fever and Rift Valley Fever.

These Class B notes and swaps are the ones exposed to the Nigerian Lassa fever outbreak and the World Health Organisation (WHO) is the all-important reporting agency for the pandemic catastrophe bonds and swaps.

When we reported a fortnight ago on this, the outbreak had resulted in 1081 suspected cases and 90 suspected deaths, according to the WHO, and the number of confirmed deaths, which is an important metric for the parametric trigger of the pandemic bonds and risk swaps, sat at 72 out of 317 confirmed cases of Lassa fever.

Now, according to the WHO, the number of suspected cases has risen to 1495 and suspected deaths to 119, while the number of those confirmed is now put at 95 deaths out of 376 confirmed cases.

The WHO has said that the number of cases being reported slowed from mid-February, but the latest data shows that overall the ratio of deaths reported to confirmed has risen slightly.

The figures remain a long way below where the trigger for the parametric pandemic cat bonds sits, with the Class B notes only beginning to payout once there are 250 WHO confirmed deaths from the outbreak, reaching that point could result in a 15% payout of the principal from the tranche.

It’s assumed that the pandemic swaps also cover the same layer of risk, so would begin to payout at the same time as the pandemic cat bond notes.

So while there is a long way to go to the trigger and the number of confirmed Lassa fever deaths from this outbreak in Nigeria would need to rise significantly for the noteholders principal to be at risk, the increased number of deaths now confirmed does erode some of the deductible style protection under the parametric trigger.

It’s worth noting still that the death rate from the Nigerian Lassa fever outbreak is higher than would normally be anticipated though, as we reported in our last article on this event.

A more normal death rate from Lassa fever would be around 1%, but currently the death rate is running at just over 25% of the confirmed cases, which is an increase from the just under 23% seen a week ago.

The number of confirmed cases and deaths from Lassa fever in Nigeria reported by the World Health Organisation remains well below the Class B trigger level, but the World Bank will continue to monitor developments closely ,as will investors in the pandemic cat bond and swaps.