Monday, December 21, 2020

"WHO discusses catastrophe bonds to close COVID funding gaps"

Hang on. I was told you couldn't buy insurance after you set the fire the fire started.

And if they are talking cat bonds modeled on the IBRD CAR 111-112 – World Bank pandemic catastrophe bond, well sign me up as a buyer in size.

Reinsurance: "No coronavirus price response from World Bank’s pandemic cat bond yet"

We saw with Ebola that, even after both triggers—1) a minimum 250 victims and 2) the crossing of an international border—were reached, the World Bank's Pandemic Emergency Facility was very reluctant to declare the payout, eliciting some snark from yours truly:

"And if the cross-border contagion is reported on a day ending in a 'Y' all contracts will be null-and-void and coverage denied."

Those bonds did eventually pay out on Covid-19 after a lot of foot-dragging.

From Artemis, December 16:

The World Heath Organization (WHO) has raised the subject of catastrophe bonds as a potential source of capital for funding development of tools to help in the response to the global COVID-19 pandemic.

The Access to COVID-19 Tools (ACT) Accelerator is an initiative set up by the WHO alongside partners, with the goal of delivering on tools for diagnostics, treatment, vaccines and health system strengthening.

At the 3rd ACT Accelerator Facilitation Council meeting yesterday on December 14th, the subject of gaps in funding was raised.

A huge $28 billion in capital is required, according to the Council members, with US $4.3 billion required immediately and an additional US $23.9 billion needed in 2021.

“We are gravely concerned that the current ACT Accelerator’s funding gaps will impede global equitable access to these products and ultimately delay the end to the crisis everywhere. Leaders must acknowledge the broader macroeconomic benefits of investments in the ACT-Accelerator and accept that stopping the pandemic globally will require additional funding beyond current health and official development assistance budgets,” the Co-Chairs of the Council explained in a statement.

Adding that, “The Council is exploring all new and existing financing sources and mechanisms to develop a robust financing framework to ensure the promise of the ACT Accelerator is realized.”

Which brought the subject of private capital to the conversation and it’s reported by Reuters that catastrophe bonds were raised as one structure that could be used to secure financing for these COVID-19 response and mitigation related tools.

Reuters reports that Bruce Aylward, a senior adviser to the WHO and the WHO’s coordinator for and the ACT Accelerator, said that new financing mechanisms were discussed at the Council, including concessional loans and catastrophe bonds....


If the triggers on the cat bonds are set high enough, say all other funding sources have to pay out, say, $50 billion before we'll even discuss the cat bonds all you've done is a fancy sort of interpositioning, which in the securities biz has been illegal in the U.S. since the Investment Company Act back in 1940.