Congo Ebola deaths rise heightening pandemic cat bond risk

The number of deaths from the latest Ebola outbreak in the Democratic Republic of Congo has risen to over 200 according to the latest media reports, while the World Health Organisation (WHO) reported 154 confirmed deaths as of November 8th. As a result, the risk that the World Bank’s pandemic catastrophe bond gets triggered has risen.

This latest outbreak of the Ebola virus in the Democratic Republic of Congo is likely to be considered a qualifying or eligible event under the terms of the coverage provided by the Class B tranches of pandemic swaps and catastrophe bonds that were issued through the PEF transaction by the World Bank’s International Bank for Reconstruction and Development (IBRD) last year.

It is the number of confirmed deaths reported by the WHO which is vital to understanding the risk of this pandemic cat bond being triggered and so far the latest official statement from the organisation reports 189 deaths, 154 of which are confirmed and so count towards the trigger of the cat bond, while the other 35 deaths are considered probable and could be confirmed in the coming days.

Still, more cases are being reported and identified in the region of the Congo that has been worst affected, particularly the city of Beni in the northern region of Kivu, and this current outbreak may become the largest in the country’s history.

Vaccinations are ongoing in the region, but the WHO warns that further cases are expected to be reported over the next few days.

The World Bank’s pandemic catastrophe bond, which provides some of the insurance and reinsurance risk capital underpinning its Pandemic Emergency Financing Facility (PEF), can be triggered by the number of confirmed deaths reported for an outbreak of Ebola or another infectious disease.

News reports today state that the death toll has now passed 200, suggesting that the next official update from the WHO will see the number of confirmed deaths rise further.

The PEF’s so-called insurance window amounts to $425 million of protection, made up of the $320 million of IBRD CAR 111-112 capital-at-risk pandemic catastrophe bond notes which were sold to investors, along with $105 million of pandemic risk linked swaps (derivatives), also sold to investors to expand the transaction to those seeking a different risk-linked asset.

The PEF backing pandemic catastrophe bond can be triggered and payout for a Filovirus like Ebola once the confirmed deaths pass 250 and it had a wider impact than to just one country. The payout would be a 30% loss of principal if between 250 and 750 deaths are reported and the Ebola outbreak has spread to another country.

At the moment this outbreak remains considered local, so has not spread to more than one country and as a result the catastrophe bond would not payout unless it became regional, so impacted more than one but less than eight countries.

However, despite this the pandemic cat bond can definitely be considered at-risk again as the current Congo Ebola outbreak continues to be ongoing.