World Bank launches 'pandemic bond' to tackle major outbreaks

(REUTERS) The World Bank has launched a "pandemic bond" to support an emergency financing facility intended to release money quickly to fight a major health crisis like the 2014 Ebola outbreak.

The catastrophe bond, which will pay out depending on the size of the outbreak, its growth rate and the number of countries affected, is the first of its kind for epidemics. It should mean money is disbursed much faster than during West Africa's Ebola crisis.

Ebola spread across the region in the early months of 2014. Michael Bennett, head of derivatives and structured finance at the World Bank's capital markets department, said that if the pandemic emergency financing facility (PEF) had existed in 2014, some $100 million could have been mobilised as early as July.

World Bank Group President Jim Yong Kim delivers his speech during the Belt and Road Forum for International Cooperation in Beijing, China May 14, 2017. REUTERS/Lintao Zhang/Pool

In reality, money did not begin to flow on this scale until three months later, by which time the number of deaths from Ebola had increased tenfold.

"In the end about 11,000 people died in that pandemic and it's estimated that the cost to the countries most affected – Guinea, Liberia and Sierre Leone - was about $2.8 billion," Bennett said.

The PEF will offer coverage to all countries eligible for financing from the International Development Agency (IDA), the arm of the World Bank dedicated to the world's poorest countries.

It covers outbreaks of infectious diseases most likely to cause major epidemics, including pandemic influenza strains; coronaviruses, including SARS; filoviruses, which include Ebola and Marburg; plus others such as Crimean Congo fever, Rift Valley fever and Lassa fever.

Bennett said the PEF as a whole would provide more than $500 million of coverage against pandemics over the next five years. This includes today's $425 million transaction, comprising $320 million raised through the bond market and $105 million through swaps transactions.

The transaction was oversubscribed by 200 percent, attracting interest from dedicated cat bond investors, asset managers, pension funds and endowments, the World Bank said.

For the pandemic bond, the World Bank will pay bondholders a coupon that replicates an insurance premium plus a funding spread, in return for a payout if the bond is triggered.

"If a trigger event occurs, instead of repaying the bond in full, some or all of the principal is transferred to the PEF trust fund," Bennett said. "So essentially the investors are acting like insurance companies."