The World Bank’s Pandemic Emergency Financing Facility (PEF) has made its first cash disbursement, providing a $12 million grant to assist in the response to the recent Ebola virus outbreak in the Democratic Republic of Congo, as the number of cases and deaths reported by the World Health Organisation (WHO) rises.
As we wrote last week, the outbreak of the Ebola virus in the Democratic Republic of Congo could become 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.
Since our article last week, in which we detailed the WHO reported cumulative total of 44 Ebola virus disease cases and 23 deaths, another fourteen cases of Ebola with four resulting in deaths have been reported today.
The WHO explained the current status of the outbreak, “As of 21 May 2018, a cumulative total of 58 Ebola virus disease (EVD) cases, including 27 deaths (case fatality rate = 47%), have been reported from three health zones in Equateur Province. The total includes 28 confirmed, 21 probable and 9 suspected cases from the three health zones: Bikoro (n=29; ten confirmed and 19 probable), Iboko (n=22; fourteen confirmed, two probable and six suspected cases) and Wangata (n=7; four confirmed and three suspected case).”
Additionally, the WHO said that 600 contacts have also been identified and are being followed-up on, while further field investigations are ongoing.
The international response to the outbreak has been considerable, with funding now flowing into Congo to provide resources to try to stem the spread of the Ebola virus outbreak in the country and prevent any spread into neighbouring countries.
The $12 million grant from the World Bank’s Pandemic Emergency Financing Facility (PEF) will go towards these efforts and is the first disbursement made by the facility, coming from the so-called cash window and so not affecting any insurance, reinsurance or ILS markets that backed the pandemic insurance, swaps and catastrophe bonds.
The cash window was designed as a way to channel funds to an emerging outbreak before the insurance window of bonds and swaps was even triggered.
“This robust and timely grant from the PEF signals a major change in the way the global community approaches pandemics,” World Bank Group President Jim Yong Kim explained. “It shows that we have learned some of the stark lessons of the deadly 2014 Ebola outbreak and are well on our way to stopping the cycle of panic and neglect. The PEF is built to have the speed and flexibility that’s needed to fight pandemics. Along with World Bank Group’s own financing, it is a critical part of our effort to ensure that money does not hold back effective pandemic response.”
Enabling a rapid disbursement of cash to support efforts to stem the spread of diseases is precisely what the PEF was designed to support, with the catastrophe bonds and swaps a major component of this.
The support of international insurance, reinsurance and insurance-linked securities (ILS) investors has made this possible, particularly the efficient capital markets financing from institutional markets.
The pandemic catastrophe bonds and swaps are currently not deemed especially at risk, given the number of confirmed cases and deaths would have to rise significantly and the Ebola outbreak likely spread around the region before any payout would be required under their terms.
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 World Bank explained that the insurance window (pandemic cat bonds and swaps) would only be triggered if a much larger, multi-country response was required to the Ebola outbreak, with triggering criteria based upon the publicly available data from the WHO.
But the continuing rise in the death toll does heighten the exposure of the pandemic cat bond notes and swaps to this Ebola outbreak, raising the risk of attachment at some point in the future should the outbreak worsen.
But, by getting relief efforts underway rapidly and making cash available quickly, the response to this Ebola outbreak has been swifter than in historical events, which the international community hopes will mean the spread can be contained.
Vaccines have been mobilised as well, as experimental drugs have been made available to try to quash the spread of Ebola this time around.
But financing is key, alongside medical care, and the PEF’s early distribution of $12 million from its cash window will surely assist.
“Today’s grant commitment from the PEF, along with strong Government, WBG and other partner support, enables us to focus entirely on the Ebola response and the health needs of our people at this challenging time, instead of on raising funds,” Dr Oly Ilunga Kalenga, Minister of Health of DRC commented. “The challenges are steep but we are committed to pushing forward an effective and transparent response.”
“This historic first commitment from the PEF sends a strong message that we can act in a swift and bold manner against a serious infectious disease threat,” added Gerd Müller, German Minister for Economic Cooperation and Development. “This would not have been possible even a year ago.” The PEF’s Cash Window has been set up through an $61 million commitment from Germany.
“We always believed that the PEF offered a new model for financing pandemic response. That’s why we decided to support the PEF as the first international partner to contribute to the Insurance Window,” explained Masatsugu Asakawa, Vice Minister of Finance for International Affairs, Ministry of Finance of Japan. “Today’s decision reinforces the importance of this mechanism.”
For the PEF pandemic catastrophe bonds and swaps, it is the $95 million Series 112 Class B tranche of pandemic cat bond notes that cover pandemic perils including, Coronavirus, Crimean Congo Hemorrhagic Fever, Filovirus, Lassa Fever and Rift Valley Fever, with Ebola falling within the Filovirus category.
At the moment the number of confirmed deaths is still well below the trigger point for the Class B pandemic catastrophe bond notes and related swaps, which would only begin to payout for a Filovirus like Ebola once the confirmed deaths pass 250 and it had a wider impact than to just one country.
We’ll keep you updated as more information becomes available on the developing Ebola outbreak.
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