Pandemic Emergency Financing Facility

Media reports state that the World Bank has shelved plans for any future issuance of pandemic catastrophe bonds and for a version two of its Pandemic Emergency Financing Facility (PEF).

Payments from the World Bank’s Pandemic Emergency Financing Facility (PEF) to member countries of the International Development Association (IDA) could begin as early as next week, as the capital lost by holders of the triggered pandemic catastrophe bonds and swaps looks set to be mobilised rapidly.

The World Bank issued pandemic catastrophe bonds and pandemic risk-linked swaps have now been triggered and will pay out $195.84m, we’ve learned today, after the final trigger parameter of the growth-rate of coronavirus cases turned positive.

The World Bank issued pandemic catastrophe bonds, as well as the pandemic risk-linked swaps that were issued at the same time, have not yet been triggered by the Covid-19 coronavirus pandemic as the growth rate hasn’t reached the necessary level to breach the parametric trigger.

The World Bank’s pandemic catastrophe bond issuance looks increasingly likely to suffer a significant loss of investor principal due to being triggered by the ongoing Covid-19 coronavirus outbreak, but John Seo of Fermat doesn’t think that will dent investor appetite for the risk.

The payout from the World Bank issued pandemic catastrophe bonds, as well as the pandemic risk-linked swaps that were issued at the same time, may reach just under $196 million in total, if the ongoing Covid-19 coronavirus outbreak triggers the financial instruments.

The President of the World Bank Group David Malpass has highlighted the importance of financial preparation for pandemic emergencies, of the kind provided by the Pandemic Emergency Financing Facility (PEF), which is backed by insurance including the now much-discussed World Bank issued pandemic catastrophe bonds.

The insurance-linked securities (ILS) fund market does hold some exposure to contingency related risks, including from event related exposures, which means there is a chance of some claims leaking to ILS funds from coronavirus triggered claims, Hudson Structured partner Edouard von Herberstein said today.

The secondary market price for the tranche of the World Bank’s pandemic catastrophe bond that is most at-risk of paying out due to the spreading global coronavirus outbreak has plummeted, while the lower risk tranche has now also been marked down.

Secondary market pricing for the World Bank’s pandemic catastrophe bond notes are set to decline, significantly for one tranche, after the coronavirus outbreaks spread resulted in a second triggering condition being met, Plenum Investments believes.