Coronavirus outbreak meets another pandemic cat bond trigger condition | WHAT REALLY HAPPENED X-Frame-Options: DENY X-Frame-Options: SAMEORIGIN

Coronavirus outbreak meets another pandemic cat bond trigger condition

The spreading global outbreak of the novel coronavirus (2019-nCoV or Covid-19) has now met another of the conditions within the trigger mechanism of the World Bank’s pandemic catastrophe bond transaction, raising the chance that noteholders face losses in the coming weeks.

coronavirus-cat-bond-china: As we have explained, the novel coronavirus (2019-nCoV or Covid-19) outbreak that began in the city of Wuhan in Hubei province China poses a threat to the World Bank’s $320 million IBRD CAR 111-112 pandemic catastrophe bond transaction that provides a source of insurance or reinsurance capital to back the Pandemic Emergency Financing Facility (PEF).

The coronavirus outbreak has the potential to become an eligible event under the terms of the World Bank’s pandemic catastrophe bond notes that provide insurance or reinsurance like capacity to back a pandemic financing facility.

The bonds and reinsurance like component of the financing behind the facility can be triggered if the outbreak reaches pandemic levels and meets certain pre-defined trigger criteria, in terms of officially confirmed cases, growth rate, fatalities and international spread.

The first condition that was met was for the number of confirmed deaths occurring in China, the source country of the outbreak.

As deaths in China have continued to escalate, reaching some 2,744 as of today (Feb 27th), this trigger condition had already been met.

Now, Iran has reported deaths in the country from the coronavirus have reached 26, which is higher than the trigger condition concerning international spread of any outbreak, further heightening the risk of default to the pandemic catastrophe bond notes.

We have to stress here that this is the Iranian government’s figure, not the official WHO reported number that would be used to determine whether any default or payout was due. So while the number has surpassed the point required by the trigger, it would still need to be reported as such by the WHO and also be subject to a calculation agent review as well, before it would be determined whether a payout came due.

But at 26 already it seems like we can consider that this second important trigger condition for the pandemic catastrophe bond will now be breached.

Webmaster's Commentary: 

Next week could potentially be one of the worst week ever, for financial houses; stocks; and bonds.