It’s becoming apparent that the World Bank’s pandemic bond is not a good advert for the market’s ability to innovate.
Structured by the World Bank’s treasury team alongside Munich Re and Swiss Re Capital Markets in 2017, the bond was intended to provide surge funding to help prevent disease outbreaks from becoming pandemics in 76 of the world’s poorest countries. But here we are, long past the point of prevention, and it is still far from clear if the bond will pay out a single cent.
This has angered some development specialists. “It’s the worst pandemic since 1918, the whole world is going down the drain and this thing doesn’t trigger?” says Olga Jones, a senior fellow at Harvard Global Health Institute and a 30-year veteran of the World Bank. “That’s terrible.”
When asked about the delay a month ago, the World Bank said that the bond was structured as the insurance component of its pandemic emergency financing facility, designed to complement a cash window that could respond much more quickly.
In fact, the cash window has reportedly been almost completely depleted since the facility was established in 2017 and has not been replenished as intended — so all that is left of the emergency financing facility is indeed the bond.
If not now, when?That turns out to be a difficult question to answer. The bonds were structured with a 12-week delay from the first notification of a disease outbreak to the WHO, which China made on December 31 (belatedly).
Yesterday marked exactly 12 weeks since New Year’s Eve, so are the bonds paying out today? Nope.
“It’s the worst pandemic since 1918 . . . and this thing doesn’t trigger?” Olga Jones, Harvard Global Health Institute
There are further conditions that must now be met, such as the growth rate of the outbreak and the “confirmation ratio threshold”, which will be measured over the next two weeks.
And then calculation agent AIR Worldwide will need another two days to work out if this is a sufficient “event”, meaning that the earliest date for releasing the funds is April 9, or possibly even sometime in May, according to some estimates. Nobody really seems to know, which is in itself fairly damning for a structure that was originally hailed as a transparent, predictable source of funding.
Instead, it is turning out to be a good demonstration of why pandemic risk is very difficult to insure.
PurposeEven after all the complexity involved in determining if any money will be paid, the World Bank will receive a maximum of just US$196 million.
To put that figure into perspective, the bank last week unveiled a US$14 billion financing package to help companies and countries in their efforts to prevent, detect and respond to the rapid spread of Covid-19. And it didn’t pay millions of dollars in fees or coupons to raise that much.
Jonas says that the bond wasn’t set-up properly in the first place. “They wanted a US$500 million number and in order to get that, given the risk model and the inability to model these outbreaks in a way that’s insurable, they had to reduce the probabilities of payout,” says the Harvard academic.
That US$500 million number includes US$320 million from the bond’s two tranches, US$100 million from a swap with a group of undisclosed reinsurers and the rest from the cash facility.
“It is difficult to see anyone wanting to replicate this structure in the future.”
A generous interpretation of the deal might see it as an exercise in market development, with the World Bank supporting the growth of an innovative insurance solution that could gain traction with emerging-market sovereigns and perhaps even private-sector players. But it is difficult to see anyone wanting to replicate this structure in the future.
Even by the bond’s own terms, the virus is well past the point of being a “global outbreak”, defined as cumulative confirmed deaths of at least 20 in eight or more countries. At the time of writing there were 19 countries with at least 20 deaths, spread across Asia, Europe, the Middle East and North America. More than 14,500 people have died.
On the face of it, the pandemic has not yet reached serious levels in the 76 poor countries the bond is intended to help. Of them, only Pakistan has more than 100 cases. But this highlights some of the weaknesses of the structure — the poorest countries are the least equipped to monitor and report cases, and a major pandemic requires a global response.
“Epidemiologically, diseases know no borders,” says Jonas.
What we have learned from Covid-19 is that the response to a potential pandemic must be quick, methodical and comprehensive. Unfortunately, the World Bank facility is none of these things.

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