ORIGINAL PUBLICATION HERE
The World Bank is targeting the development of a second iteration of the Pandemic Emergency Financing Facility, an improved PEF 2.0 as it is being called, which it expects to be marketed around May 2020, prior to the maturing of the first transaction.
The World Bank is calling for assistance from risk modelling firms, asking for proposals from companies that can provide modelling services to help as it improves the efficacy of the PEF risk transfer program.
Version 1 of the Pandemic Emergency Financing Facility (PEF) was established in 2017 and saw the World Bank tapping into the capital market’s appetite for relatively uncorrelated sources of insurance and reinsurance risk as investments.
This involved leveraging the insurance-linked securities (ILS) market and institutional investor appetite for reinsurance linked assets to provide the risk capital necessary to back the so-called three-year initial term of the insurance window of the PEF facility.
The $500 million PEF set up involved issuance of $320 million of pandemic catastrophe bonds and a further $105 million of pandemic risk linked swaps as the core of its risk transfer arrangements, providing the reinsurance capacity to back the parametric insurance window’s risk transfer to protect developing countries against pandemic outbreaks.
The idea of the parametric financing is to enable liquidity that can be put to work in halting the spread of rare, high-severity disease outbreaks, preventing them from becoming pandemics.
Now, work is already underway on a second iteration of the PEF, or PEF 2.0.
The World Bank said that it is already working with select structurers (re/insurance brokers) to design an improved PEF for issuance and funding in 2020.
This process will involve, “reviewing all aspects of the PEF 1.0 structure in order to improve the program, where necessary,” the World Bank said.
Part of this work will undoubtably involve looking at the still ongoing case of the Ebola outbreak in the Democractic Republic of Congo and evaluating whether the PEF’s triggers could be adjusted to disburse financing in a more effective manner.
As of April 7th there have been 665 confirmed deaths and 66 classed as probable from the Ebola virus outbreak in the DR Congo, ample to have breached the trigger point for number of confirmed deaths, but the PEF has not been triggered as the virus would need to spread across borders and also have a certain growth rate or factor, in terms of its continued spread.
The Ebola disease outbreak in the Congo has accelerated in recent weeks, with deaths recorded rising significantly so far in 2019. But until the spread of the disease meets the trigger parameters the insurance window of the PEF cannot payout.
It’s still highly possible that spread could occur, with preparations being made in case that happens in Uganda which is considered the country most at risk right now as DR Congo’s Ebola outbreak is spreading into areas where there is ongoing cross-border people traffic.
While the first PEF has not yet paid out, it could well do so in the coming months.
But the work of the World Bank and structuring brokers will likely include looking at how a PEF version 2.0 could be developed with triggers that are responsive to outbreaks that do not cross borders, but that may reach pandemic levels within a single country, as well.
The World Bank expects that marketing of the PEF 2.0 risk transfer mechanism will take place around May 2020, in advance of the current financings maturity in July 2020.
As a result it is calling on risk modelling firms to deliver proposals now, detailing how they could conduct risk modelling exercises and if necessary develop a risk model specifically to support PEF 2.0.
Interested risk modelling firms should visit this page of the World Bank website where contact details can be found.