What the Coronavirus Outbreak Means for Pandemic Bonds
Feb.26 — Olga Jonas, Harvard Global …
In the wake of the Ebola outbreak in 2014, the World Bank rolled out its Pandemic Emergency Financing Facility (PEF). Under the scheme, investors who buy pandemic bonds receive generous premiums of around 13% annually. This offsets the risk that the bonds will make payouts to fight pandemics. Otherwise, cash returns to the investors when the bonds mature.
The mechanism works in a similar way to insurance and the futures market as a mechanism to hedge risk.
However, Professor Purnanandam, writing in Forbes, suggests that a “a reliable, manipulation-proof index of Pandemic events based on well-established criteria” or Pandemic Index is required to act as a the trigger for payouts, along with other considerations to improve the design of the contracts.
Feb.26 — Olga Jonas, Harvard Global …