World Bank pandemic bonds (PEF, 2017)
Catastrophe bonds issued in 2017 to fund epidemic response in poor countries, triggered by the Covid-19 pandemic in 2020 after weeks of delay, and now a cautionary tale in trigger design.
After the 2014 Ebola epidemic, whose response had been funded too late, the World Bank created an emergency financing mechanism against pandemics. In 2017, it issued two tranches of catastrophe bonds, for about 320 million dollars, exposing investors to loss of principal in the event of an influenza, coronavirus, Ebola or other disease outbreak, according to numerical criteria. Coupons were high, especially on the riskier tranche. The triggers required a combination of conditions: a minimum number of deaths, spread to several countries, confirmed growth of the outbreak over a given period, and a lag after the start of the crisis. When the Covid-19 pandemic came, the conditions were only met in April 2020, when the virus was already circulating worldwide; the payout, about 196 million dollars, arrived after the emergency it was meant to fund. The mechanism was not renewed. For the insurance-linked securities market, it is a design lesson: a parametric trigger must be fast, understandable and aligned with the buyer's need. A trigger designed to protect investors from a premature payout can strip the cover of its purpose.
In June 2017 the World Bank issued 320 million dollars of pandemic bonds, backed by another 105 million dollars of swaps, to fund its emergency financing facility. Covid-19 did not meet the criteria until April 2020: the 195.84 million dollar payout arrived when the virus was already circulating on every continent, and many observers judged it too late.
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