The World Bank is working hard on its initiative that it terms the “first-ever insurance market for pandemic risk”, the Pandemic Emergency Financing Facility (PEF) and hopes to see a transaction come to market this year.
Speaking at the SIFMA Insurance and Risk-linked Securities (IRLS) 2017 conference yesterday, World Bank representative Michael Bennett, Head of Derivatives and Structured Finance in the Capital Markets Department at the World Bank, said that progress is being made on this initiative.
The Pandemic Emergency Financing Facility (PEF) has been in development for almost two years now, and will be the first time that World Bank cat bonds have been used to transfer the risk of severe infectious diseases and pandemic outbreaks to the capital markets.
In May 2016 the World Bank laid out its vision for the PEF, explaining that it would speed up response to outbreaks that show pandemic potential, by rapidly disbursing the capital and financing required to put in place response measures.
At the event yesterday, Bennett said that the World Bank has been working hard on the facility, with part of the arrangements set to be risk transfer to the market. The World Bank has already been communicating with the insurance-linked securities (ILS) market, to get feedback and input into the product design.
“We expect that, the transaction is proceeding well, so we expect that this year we’ll be able to do a risk transfer transaction of pandemic,” Bennett stated.
He said that the benefits, if there is a payout, will be for the poorest group of World Bank member countries, which is countries that are among the 77 poorest countries in the world.
The reporting agency for the transaction is expected to be the World Health organisation (WHO), Bennett said, adding that having their involvement in the transaction will be one of the many firsts for the market from this deal.
The ILS market will be keen to support this pandemic risk coming to market, as long as the pricing is right of course. ILS investors and managers have experience in pandemic risk through a number of mortality catastrophe bond transactions, which have largely been a transfer of pandemic risk to the capital markets.