World Bank launches first pandemic bond with insurance sector support

The World Bank (International Bank for Reconstruction and Development) has launched bonds that will support the Pandemic Emergency Financing Facility (PEF), which will channel first-response surge funding to developing countries facing the risk of a pandemic.

This marks the first time that World Bank bonds are being used to combat infectious diseases. It is also the first time that pandemic risk is being transferred to the market to cover low-income countries.

Swiss Re Capital Markets acted as the joint structurer and sole book-runner for the transaction.

The PEF was formed as part of a joint effort in response to the Ebola crisis in West Africa, during which it took the affected countries and international community several months to mobilize the resources necessary for an adequate response.

The PEF’s structure combines funding from the insurance and reinsurance market with proceeds of catastrophe bonds issued by the World Bank. The mechanism is designed to allow funds to reach affected countries more rapidly, with the goal of making sufficient resources available early enough to prevent an outbreak from developing into a fully-fledged pandemic.

The insurance window will provide coverage of $425 million for an initial period of three years. The PEF covers six viruses that are most likely to cause a pandemic. These include new Orthomyxoviruses (new influenza A pandemic virus), Coronaviridae (SARS, MERS), Filoviridae (Ebola, Marburg) and other zoonotic diseases (Crimean Congo hemorrhagic fever, Rift Valley fever, Lassa fever). PEF financing to eligible countries will be triggered when viruses reach a certain level of contagion, including number of deaths, the speed the disease spreads and whether the disease crosses international borders.

The PEF insurance window was developed with leading re/insurance companies Swiss Re and Munich Re, and uses modelling provided by AIR Worldwide.

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