World Bank’s PEF to pay another $20m for Congo Ebola response

The World Bank’s Pandemic Emergency Financing Facility (PEF) will make its second contribution to the Democratic Republic of Congo Ebola response, with a $20 million grant from its cash window approved to be made.

Last year the Pandemic Emergency Financing Facility (PEF) made its first cash disbursement, providing a $12 million grant to assist in the response to the Ebola virus outbreak in the Democratic Republic of Congo.

With the number of cases of Ebola and deaths still rising in the country a further $20 million grant has now been approved from the PEF’s cash window, but at this stage the pandemic catastrophe bonds, that make up a significant chunk of the PEF’s potential capacity, have not been triggered.

The steering body of the Pandemic Emergency Financing Facility (PEF) has now approved a request from the Government of the Democratic Republic of Congo (DRC) for up to $20 million from the so-called Cash Window.

The money will be used to finance surge response activities for the Ebola outbreak affecting the provinces of North Kivu and Ituri in the country, the World Bank said.

The first payout of $10 million will support the implementation of a Strategic Response Plan, to be carried out across the 6-month period from February to July 2019.

The PEF Steering Body then plans to reconvene in one month’s time to take a decision on the remaining $10 million and how it will be distributed.

So the cash window distributions from the World Bank’s Panedemic Emergency Financing Facility (PEF) are set to rise to $32 million, after the two latest payments occur.

But so far the so-called Insurance Window, which is made up of $105 million of pandemic risk linked swaps and $320 million of pandemic catastrophe bonds to provide the necessary reinsurance capital to back the facility, so totaling $425 million, has not been triggered.

The arrangement was backed by institutional investors, specialist ILS and collateralized reinsurance funds, and leading global reinsurance firms.

For the pandemic catastrophe bonds to pay out the number of deaths confirmed from the outbreak by the World Health Organisation (WHO) needs to surpass a pre-defined trigger level, but at the same time for a payout to be triggered the Ebola outbreak has to cross borders internationally and also a growth factor for the number of cases confirmed has to be rising at a pre-defined rate.

The number of confirmed deaths is now well above the trigger attachment point of 250, for the $95 million of higher risk Class B cat bond notes issued to support the Pandemic Emergency Financing (PEF) transaction by the World Bank.

Back in January we reported that there were 640 confirmed Ebola virus disease cases and the number of confirmed deaths had reached 373.

As of the latest WHO update on Feb 23rd, the number of confirmed cases had reached 804, while the number of confirmed deaths stood at 481.

But the outbreak of Ebola remain confined to the Demcratic Republic of Congo (DRC), hence the notes and swaps issued to provide the reinsurance capacity to back the PEF continue to be at-risk, but are safe from loss so far.

Some have questioned the fact that the pandemic cat bond notes have not paid out for what is among the worst outbreaks of Ebola ever seen.

But the trigger points for the pandemic cat bond notes and swaps were designed to respond to very specific conditions, of international spread and a certain level of escalation.

Hence, the PEF cash window will contribute to the escalated level of response that is expected over the coming months, but the pandemic cat bonds and swaps of the insurance and reinsurance window will remain available should the Ebola outbreak spread further.

If that happens the capital provided by these cat bond notes will be made available very quickly to assist in the response, providing the emergency financing coverage that the PEF was designed to deliver.

Brokers secondary cat bond market pricing sheets still have the Class B tranche of the PEF cat bond marked down for a potential loss, with most marking the notes at around 70 cents on the dollar, but one sheet still has it marked down to around 40, we understand.