World Bank’s PEF adds $10m for Ebola response, risk of spread increasing

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The World Bank’s Pandemic Emergency Financing Facility (PEF) has disbursed another $10 million from its cash window to aid the Democratic Republic of Congo (DRC) Ebola outbreak response.

World Bank logoThe Pandemic Emergency Financing Facility (PEF) has made $32 million in grants from its cash window so far, to assist in the response to the Ebola virus outbreak in the Democratic Republic of Congo.

The number of cases of Ebola and deaths from it are still rising across the DRC and fears of a geographic spread internationally are high, with the risk of spread increasing, according to the World Health Organisation (WHO).

There have now been 1,534 confirmed cases in the current Ebola outbreak, with 1,003 confirmed deaths.

The WHO warns that efforts in neighbouring countries to control the spread of Ebola across international borders must be stepped up, as it sees a number of factors increasing the risk of geographical spread at this time.

The Insurance Window of the PEF, which consists of $105 million of pandemic risk linked swaps and $320 million of pandemic catastrophe bonds, which together provide the necessary reinsurance capital to back the facility, has not been triggered.

The arrangement was backed by institutional investors, specialist ILS and collateralized reinsurance funds, and leading global reinsurance firms.

In order for the trigger conditions associated with the pandemic catastrophe bonds to be met and a pay out to come due, the number of deaths confirmed from the outbreak by the World Health Organisation (WHO) needs to surpass a pre-defined trigger level, while at the same time the Ebola outbreak needs to have crossed borders internationally and a growth factor for the acceleration of number of confirmed cases must be rising at a pre-defined rate.

So far, the number of confirmed deaths stands well above that trigger parameter, as the trigger attachment point is 250 for the $95 million of higher risk Class B cat bond notes issued to support the Pandemic Emergency Financing (PEF) transaction by the World Bank.

But as the outbreak of Ebola is still confined to the Democratic Republic of Congo (DRC) these notes and swaps that provide the reinsurance capacity to back the PEF continue to be considered at-risk but have not paid out.

International spread would be the next parametric trigger parameter that could cause a significant decline in the value of the cat bonds, which so far remain priced at varying levels, depending on broker sheet or investor portfolio that you examine.

The Class B notes from the IBRD CAR 111-112 PEF backing issuance are still marked down for bids in the 40’s by one broker, while others now have them marked closer to 70 or 80.

So the market’s confidence in the riskier tranches chances of avoiding a loss remain similar to the last time we reported and that likely won’t change much until spread across international borders is seen, although remember that even then the growth rate factor must also be met for the notes to be triggered and pay out.

The WHO’s latest disease outbreak report highlights increasing risks of geographic spread due to numerous factors associated with this outbreak.

The WHO commented, “The high rates of population movement occurring from outbreak affected areas to other areas of the Democratic Republic of the Congo and across porous borders to neighbouring countries during periods of heightened insecurity further compounds these risks. Additional risks are posed by the long duration of the current outbreak, fatigue amongst response staff, and ongoing strain on limited resources.”

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