June 28th, 2017

GC Securities* Supports First Ever World Bank Catastrophe Bonds and Catastrophe-linked Swaps to Combat Infectious Disease

Posted at 9:31 PM ET

GC Securities, a division of MMC Securities LLC, a U.S. registered broker-dealer and member FINRA/NFA/SIPC, participated in today’s pricing of bonds and catastrophe-linked swaps supporting pandemic risk. Part of an innovative new public-private partnership aimed at improving global resiliency and health security, the mechanism provides surge funding to developing countries facing a possible pandemic outbreak. GC Securities served as co-manager of the bonds and joint arranger of the swaps. Data from the World Health Organization (WHO) was used by AIR Worldwide to provide expert risk modeling.

The Pandemic Emergency Financing Facility (PEF), announced in 2016 largely in response to the 2014 Ebola outbreak in West Africa, was created to rapidly deliver funds to member countries of the International Development Association (IDA) facing a major disease outbreak. The IDA is the World Bank Group arm providing concessional finance to the world’s poorest countries. The PEF’s unique structure combines swap funding along with proceeds from the bonds, with Japan and Germany financing the cost of premiums and bond coupons.

“Our capital agnostic perspective delivers an innovative combination of catastrophe bonds and swaps, giving the World Bank a diverse range of cost-effective risk transfer products supported by both capital markets investors and traditional (re)insurers,” said Peter Hearn, President and CEO of Guy Carpenter & Company. “This facility will enhance funding for emergency response and give ILS investors and (re)insurers greater access to a non-correlating class of risk, and we are honored to have assisted the World Bank with implementation of its financing.”

The PEF’s insurance component provides cover for viruses most likely to cause a pandemic.  Financing is activated when parametric triggers determined by public WHO data are tripped, such as the number of deaths, the speed of the disease spread and if it has crossed international borders. In early 2018 a cash component will provide more flexible funding for pathogens that do not meet these criteria.

Technical details for each respective bond class are as follows:

Bond Class

Covered Viruses

Annualized Attachment Probability

Annualized Expected Loss

Risk Margin portion of Coupon

Class A

Influenza, Coronavirus

4.92%

3.57%

6.90%

Class B

Filovirus, Coronavirus, Rift Valley Fever, Lassa Fever, Crimean Congo Hemorrhagic Fever

9.44%

7.74%

11.50%

According to Jim Yong Kim, President of the World Bank Group, “we have taken a momentous step that has the potential to save millions of lives and entire economies from one of the greatest systemic threats we face. We are moving away from the cycle of panic and neglect that has characterized so much of our approach to pandemics.”

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* Securities or investments, as applicable, are offered in the United States through GC Securities, a division of MMC Securities LLC, a US registered broker-dealer and member FINRA/NFA/SIPC. Main Office: 1166 Avenue of the Americas, New York, NY 10036. Phone: (212) 345-5000. Securities or investments, as applicable, are offered in the European Union by GC Securities, a division of MMC Securities (Europe) Ltd. (MMCSEL), which is authorized and regulated by the Financial Conduct Authority, main office 25 The North Colonnade, Canary Wharf, London E14 5HS. Reinsurance products are placed through qualified affiliates of Guy Carpenter & Company, LLC. MMC Securities LLC, MMC Securities (Europe) Ltd. and Guy Carpenter & Company, LLC are affiliates owned by Marsh & McLennan Companies. This communication is not intended as an offer to sell or a solicitation of any offer to buy any security, financial instrument, reinsurance or insurance product.

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