Read More: Ebola Funding Needs to Triple as International Risk Escalates
Critics say the bond’s complicated triggering mechanism slows its ability to stem infectious contagions. The 386-page bond prospectus lays out scenarios for global or regional spread that would trigger the insurance portion to be distributed to poor countries where cases are accumulating.
For example, a $95 million tranche insuring against an Ebola virus outbreak pays investors more than $1 million each month. For the funds to flow to Congo, the disease must cause at least 20 deaths in at least one other country within a specified time window. Deaths must also increase at a minimum rate during this period, shown by a formula that looks like this:
While Ebola continues to spread, just three infections have been confirmed in a neighboring country, all traced back to Congo. The example suggests that the bond’s conditions make it unlikely that the insurance funds would become available early, when they would do the most good, said Andrew Farlow, an economist at the University of Oxford who studies pandemics.
‘Missed the Boat’
“If you wanted to trigger it early, you would drop the requirement for spread to other countries,” said Farlow, who’s working on a paper about the bonds. “If you’re too late, you’ve missed the boat.”
Former World Bank President Jim Yong Kim presented the idea for the bonds at a meeting of G20 nations in Brisbane, Australia, in 2014, after the start of the Ebola outbreak in West Africa that killed more than 11,000 people. World leaders embraced it.
Tapping the private sector to fund a pandemic emergency response has merit, said Tore Godal, an adviser on global health to the Norwegian government who reviewed the plan at the time. However, new vaccines and treatments have become available to fight diseases like Ebola; that changes the possibility that scenarios identified in the bond prospectus will occur, he said.
Bond Experiment
“It was necessary to do the experiment,” Godal said. Still, future issues will probably pay a lower premium and may have less restrictive requirements for release.
The World Bank is now in a difficult spot. It must honor the terms of its own debt while facing criticism for a bond that appears to be mainly helping investors. The debate could trigger changes in future pandemic bond issues. There is already talk of another pandemic facility next year.
“Investors and policyholders will be conscious of different scenarios,” said Raymond Tam, an analyst at CreditSights Ltd. in London. “You need better structuring for policyholders, but you also need to maintain a certain level of integrity for investors; otherwise they won’t come back.”