Swiss Re Insurance-Linked Fund Management

Xactanalysis Insights and PCS

Ebola outbreak crosses border, risk of pandemic cat bond triggering rises


The risk that the World Bank’s pandemic catastrophe bond transaction triggers and makes a payout appears to have risen significantly, as the World Heath Organisation (WHO) reports that the Ebola outbreak in the Democratic Republic of Congo has now spread across the border to Uganda.

ebola-isolation-imageThe WHO said that it has now confirmed a case of Ebola Virus Disease in Uganda, noting that it is the first confirmed case to be found in Uganda during the Ebola outbreak on-going in the neighbouring Democratic Republic of the Congo.

The confirmed case is a 5-year-old child from the Democratic Republic of the Congo that had travelled into Uganda with its family.

The Ugandan The Ministry of Health and the WHO have dispatched a Rapid Response Team to the region where the case was found, to identify other people who may be at risk from its spread.

So far there are no other confirmed cases in Uganda.

The spread of the disease outbreak across borders is one of the necessary factors that could cause one tranche of the World Bank’s IBRD CAR 111-112 catastrophe bond that backs the Pandemic Emergency Financing Facility (PEF) to default and payout some of its principal.

The so-called Insurance Window of the PEF, which consists of $105 million of pandemic risk linked swaps and the $320 million of pandemic catastrophe bonds, which provide the necessary reinsurance capital to back the facility, has so far not been triggered by the Congo Ebola disease outbreak as it has remained contained within the single country.

The trigger for the $95 million of higher risk Class B cat bond notes that were issued to support the Pandemic Emergency Financing (PEF) transaction by the World Bank needs to see the number of confirmed deaths from the outbreak pass a pre-defined trigger point.

There also needs to be a certain rolling number of cases being confirmed at the time of the triggering, while the disease also needs to have spread internationally and at the same time a growth factor in terms of the rate of new cases being reported, must also all be met in order for the trigger to be breached.

So far the number of confirmed deaths from the Ebola outbreak in the Congo has more than exceeded the necessary level, currently standing at 1,396, far exceeding the trigger point of 250 deaths.

Now, the disease has spread internationally as well, which is another trigger parameter that is a requirement to be met before any payout could come due from the pandemic cat bond notes and the reinsurance related capital backing them.

With confirmed deaths now at 1,396, the regional spread to Uganda confirmed (albeit only a single case), it all comes down to the other factors in the trigger, such as this growth rate, to define whether a payout of the World Bank’s pandemic cat bond is now due.

A 30% payout is due for between 250 and 750 deaths, while between 750 and 2,500 would mean a 60% loss of principal for the ILS and reinsurance-linked investors backing this pandemic ILS deal.

With deaths sitting where they are the payout level would now be 60% of the at-risk $95 million of notes, we understand, so $57 million, should the tranche be triggered.

So it’s very hard for us to know whether a triggering is on the cards, but the addition of the regional spread to a neighbouring country suggests the risk has certainly risen to the notes and that a 60% loss of principal has increased in likelihood as the outcome.

The calculation agent will need to run its numbers and the World Bank confirm whether a payout is due, or not, before we can confirm this.

If we receive any further insights into the fate of the $95 million Class B tranche from the IBRD CAR 111-112 pandemic catastrophe bond we will update you.


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