Posted on 06/14/2019 5:56:36 AM PDT by BenLurkin
The spread of the disease outbreak across borders is one of the necessary factors that could cause one tranche of the World Bank’s IBRD CAR 111-112 catastrophe bond that backs the Pandemic Emergency Financing Facility (PEF) to default and payout some of its principal.
The so-called Insurance Window of the PEF, which consists of $105 million of pandemic risk linked swaps and the $320 million of pandemic catastrophe bonds, which provide the necessary reinsurance capital to back the facility, has so far not been triggered by the Congo Ebola disease outbreak as it has remained contained within the single country.
The trigger for the $95 million of higher risk Class B cat bond notes that were issued to support the Pandemic Emergency Financing (PEF) transaction by the World Bank needs to see the number of confirmed deaths from the outbreak pass a pre-defined trigger point.
There also needs to be a certain rolling number of cases being confirmed at the time of the triggering, while the disease also needs to have spread internationally and at the same time a growth factor in terms of the rate of new cases being reported, must also all be met in order for the trigger to be breached.
With confirmed deaths now at 1,396, the regional spread to Uganda confirmed ... it all comes down to the other factors in the trigger...
A 30% payout is due for between 250 and 750 deaths, while between 750 and 2,500 would mean a 60% loss of principal for the ILS and reinsurance-linked investors backing this pandemic ILS deal.
With deaths sitting where they are the payout level would now be 60% of the at-risk $95 million of notes, we understand, so $57 million, should the tranche be triggered.
(Excerpt) Read more at artemis.bm ...
I had no idea this existed! So there was a bet out there that allowed counterparties to BENEFIT if a pandemic occurred?
This seems like a stupid thing, and maybe something illegal. I know that deadpools (I forget the actual name of them), the ones where pilots or people in risky professions all put money in a kitty, and the last guy living takes the money, those are illegal for similar reasons.
The temptation for the last remaining alive to knock off the others is big enough that it fosters crime.
How is this any different?
On first reading, I thought that is what it meant. But if you look at the Wikipedia article it seems to have more to do with establishing a source of funds for paying insurance claims on disasters where the insurance company couldn’t pay them.
In other words earthquake insurance would require monstrous payouts if a major quake wee to strike California, so the insurance company sells these short term ‘cat” bonds to investors who recover their principal (and interest) should there be no need for a massive payout.
If you are holding one of these bonds when eh quake hits - you lose your principal.
Or something like that.
I always find out about these pandemic scares after they don’t happen. I do it by glancing at headlines and ignoring stories.
Gee, and I read the headline and feared a major cat culling.
More and more I'm just reading the headlines.
Ebola spreading in America would be quite a windfall.
Imagine what a huge “benefit” it would be to the bank if they could ship a few infected individuals to the US border. This could answer the question why all these Congolese have suddenly decided to swim across the ocean and hike through Mexican deserts to get here.
Shovel ready jobs!
So, cats aren’t spreading Ebola across borders?
Don’t know if someone can hold a short position on these bonds, but if so then having them all called might be a lucrative event?
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