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World Bank adds $105m of pandemic swaps to $320m of PEF cat bonds


The World Bank has added $105 million of pandemic risk linked swaps to its now $320 million of pandemic catastrophe bonds, in order to support the majority of the $500 million of backing for the Pandemic Emergency Financing Facility (PEF).

World Bank logoThe International Bank for Reconstruction and Development issued IBRD CAR 111-112 capital at risk notes has now been priced and the pandemic catastrophe bond issuance is set for $320 million of notes to be issued.

Important to note that this transaction has a settlement date of July 7th, making these a third-quarter 2017 issue.

This successful deal is the first time that the pandemic risks of low-income countries has been transferred to the capital markets. Previously, a number of mortality cat bonds have transferred pandemic risk from high income countries to ILS investors, but the World Bank’s PEF deal is a first for the markets.

The Class A tranche of notes was priced to offer $225 million of notes to investors, with a bond coupon of 6.5% above Libor (so a risk margin of 6.9% we understand). The Class B, riskier tranche, priced offering $95 million of notes at a bond coupon and risk margin of 11.5%.

With the transaction pricing now fixed and the deal set for launch 7th July, the World Bank and other participating parties have revealed that the backing for the PEF also includes a $105 million of pandemic-linked catastrophe swap derivatives, which also transfer the risk of pandemic outbreaks to capital market investors.

The reason for issuing the swap derivatives as well as the pandemic bonds was to broaden the investor base for the transaction, with some seeking the liquidity of the bond issuance while others are happy to invest in the less liquid pandemic derivative deal.

The PEF will in total offer over $500 million of coverage to developing countries against the risk of pandemic outbreaks across the next five years, through a combination of the pandemic bonds and also the swap derivatives that were both priced yesterday. Additionally, a cash window, and future commitments from donor countries will provide additional coverage for the facility.

The World Bank said that the issuance was oversubscribed by 200%, which it said reflects an “overwhelmingly positive reception from investors and a high level of confidence in the new World Bank sponsored instrument.”

Hence the transaction achieved such attractive pricing, as we’ve been documenting for the pandemic bonds, with pricing coming in well below the initial guidance making the PEF’s coverage incredibly efficient.

With a total of $425 million of risk transferred to the capital markets, through the pandemic-linked cat swaps and the pandemic catastrophe bonds, the core of the Pandemic Emergency Financing Facility’s insurance (or reinsurance) backing is from the insurance-linked securities (ILS) market, catastrophe bond investors and other institutions such as pension funds.

“With this new facility, we have taken a momentous step that has the potential to save millions of lives and entire economies from one of the greatest systemic threats we face,” World Bank Group President Jim Yong Kim commented on the arrangements.

“We are moving away from the cycle of panic and neglect that has characterized so much of our approach to pandemics. We are leveraging our capital market expertise, our deep understanding of the health sector, our experience overcoming development challenges, and our strong relationships with donors and the insurance industry to serve the world’s poorest people. This creates an entirely new market for pandemic risk insurance.

“Drawing on lessons from the Ebola Outbreak in West Africa, the Facility will help improve health security for everyone. I especially want to thank the World Health Organization and the governments of Japan and Germany for their support in launching this new mechanism,” Kim added.

The PEF is designed to rapidly disburse cash to regions affected by pandemics, hence using a parametric trigger based on World Health Organisation (WHO) data allows for a transparent payout to be made as quickly as possible, likely reaching those in need before more traditional sources of aid would be able.

The World Bank Treasury developed the pandemic risk transfer structures working alongside reinsurance companies Swiss Re and Munich Re. AIR Worldwide provided the necessary risk modelling, using the AIR Pandemic Model.

Swiss Re Capital Markets acted as sole book runner for the transaction, while both Swiss Re Capital Markets and Munich Re were the joint structuring agents. Munich Re and GC Securities, were co-managers.

Swiss Re Capital Markets, Munich Re and GC Securities all acted as joint arrangers for the pandemic linked derivatives transactions as well.

The reinsurance industry plays a vital role in transactions such as these, with its expertise enabling structures to be created and underwritten, while the capital markets and ILS investors also provide expertise to assist in getting a transaction to market that is investable and attractive to do so, as well as providing the vital capacity to back the deal.

Christian Mumenthaler, Group CEO of Swiss Re, commented on the transaction, saying; “We are very proud to have supported the World Bank over the past two and a half years in the endeavor to build an innovative insurance vehicle to better respond to epidemic outbreaks. Swiss Re was co-mandated by the World Bank to develop and design the “insurance window” of PEF and lead the marketing efforts of the transaction in its role as sole book-runner for the capital market placement.

“The combined derivative/capital markets structure is just one of many pioneering elements of this transaction. Addressing one of the world’s most systemic risks, it underpins Swiss Re’s commitment to making the world more resilient and its continued leadership in the insurance linked securities market.”

Joachim Wenning, Chairman of the Board of Management of Munich Re, added; “The PEF shows how close collaboration between the public sector and insurers can help limit the negative effects of catastrophes in developing countries. Munich Re is proud to have played a major part in this proactive and reliable financing mechanism from the very beginning.

“I’m confident that our core competences in risk modelling, identification and management will further this very good cause – strengthening the resilience of companies and societies alike. We truly hope that the PEF will become a sustainable and integral part of a global health architecture to make our planet more resilient to dangerous epidemic and pandemic risks.”

Peter Hearn, President and CEO of Guy Carpenter & Co, commented; “Our capital agnostic perspective delivers an innovative combination of catastrophe bonds and swaps, giving the World Bank a diverse range of cost-effective risk transfer products supported by both capital markets investors and traditional (re)insurers.

“This facility will enhance funding for emergency response and give ILS investors and (re)insurers greater access to a non-correlating class of risk, and we are honored to have assisted the World Bank with implementation of its financing.”

Thomas Blunck, member of Munich Re’s Board of Management, also said; “In any case of a pandemic outbreak, time is of the essence: With a robust global risk management facility in operation, funds will be released much more quickly to countries and qualified international responding agencies. This will allow and facilitate effective countermeasures.”

Interestingly, the World Bank revealed the investor breakdown for the pandemic catastrophe bonds, with dedicated cat bond investors taking the majority of the risk in total, but direct pension fund investors taking the bulk of the higher risk tranche of Class B notes.


Distribution by Investor Type


Class A

Class B

Dedicated Catastrophe Bond Investor






Asset Manager



Pension Fund



Distribution by Investor Location

Class A

Class B














The success of this first transaction has clearly proven the ability of the ILS and capital market to invest in pandemic risks and also the appetite to do so. This should help the World Bank to increase the size of the PEF in years to come, by issuing additional tranches of pandemic cat bonds or risk swaps.

ILS investors have clearly demonstrated their ability to support the risk transfer needs of emerging countries and their desire to support insurance and risk transfer that provides a clear social good.

You can read all about the catastrophe bond portion of the PEF backing, the IBRD CAR 111-112 first pandemic catastrophe bonds from the World Bank, in the Artemis Deal Directory and we’ll keep you updated as the transaction comes to market.

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