July 26th, 2017

Public Sector Risk Financing Perspectives – Pandemic Risk: Part II

Posted at 1:00 AM ET


Cory Anger, Global Head of ILS Structuring, GC Securities*


As investors become comfortable with pandemic risk, alternative capital is beginning to pivot its capacity to providing more action oriented pandemic protection during the beginning or ongoing phases of a pandemic (1) rather than focusing solely on replenishing capital post-event. Alternative capital also has the ability to provide multi-year protection when interim response structures are important for governmental organizations such as development banks, health organizations and sovereigns, to rapidly manage the needed monetary support. The goal is to contain and mitigate epidemics at their origin and prevent their potential global migration. The migration may impact key industries (tourism, hotels and transportation) and government budgets.

Recently, the World Bank Group (2) collaborated with the World Health Organization and other public and private sector partners to create the Pandemic Emergency Financing Facility (PEF) “to provide surge funding to prevent rare, high severity disease outbreaks from becoming more deadly and costly pandemics. The PEF is intended to be financed through insurance and cash based on the resources of the reinsurance market and the proceeds of catastrophe bonds (capital-at-risk notes) issued by the International Bank of Reconstruction and Development (IBRD).”

In June, GC Securities supported the first ever World Bank Group catastrophe bonds and catastrophe-linked swaps to combat infectious disease. 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.

Alternative capital can provide protection for interim response structures that focus on managing morbidity and other healthcare costs (which can equally affect government healthcare programs, private healthcare plans and hospitals/medical facilities) for treatment for afflicted individuals, containing the spread of pandemic and for cleaning and disinfecting potential contaminated sites.

The growing use of alternative capital sources for assuming pandemic-related risks brings a more meaningful pool of capital to help health organizations, development banks, sovereigns, local governments and private industry better manage the impact of pandemics - globally, one of the most underinsured risks.

Link to Part I>>

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1. “Interim response structures.”

2. http://www.worldbank.org/en/topic/pandemics/brief/pandemic-emergency-facility-frequently-asked-questions

*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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