African catastrophe insurance pool launched for drought-prone areas

The first African catastrophe insurance pool has been launched to help protect food insecure regions prone to drought, with the goal of reducing dependence on emergency aid.

African Risk Capacity, a specialized agency set up by the African Union, has created a specialist hybrid mutual insurance company, ARC Insurance Company Ltd., domiciled in Bermuda.

ARC will issue policies to African governments, beginning with  Kenya, Mauritania, Mozambique, Niger and Senegal. 

The policies issued this month by ARC provide a total of about US$135 million in drought insurance coverage specific to the insured countries.

Germany and the United Kingdom are founding members of the mutual, according to ARC.

“I’m proud to have overseen the establishment of ARC Ltd, and am pleased to acknowledge the financial support of US $200 million by the UK and German governments through DFID and KfW respectively,” chairman of the board of directors and former head of the International Finance Corporation, Dr. Lars Thunell said in a press release from ARC.

“ARC Ltd’s insurance programme goes a step further than previous sovereign risk pools thanks to its close ties with ARC Agency. Through the development of contingency plans linked to rapid payouts under the parametric insurance policy, the benefits of ex ante sovereign risk financing will flow directly to the most affected food insecure populations.”

Willis Group Holdings has also secured US$55 million of index- based reinsurance capacity from the international weather risk markets for the pool. Teams from both Willis Re and Willis’s Global Weather Risks Practice were involved in shaping the structure of the reinsurance program.

“The underlying insurance policies issued by ARC Limited are cutting-edge index-based coverages, with parametric triggers tailored to reflect each country’s specific rainfall requirements for growing staple crops,” David Simmons, managing director of analytics at Willis Re said in a press release.

“The calculation of claims to the programme is based upon satellite rainfall data which is used to objectively determine whether a drought has occurred. This then allows claims to be calculated quickly, and as a result, funds can be deployed in a timely and efficient manner. This is one of the first times in Africa that the reinsurance process has become such a key instrument in achieving humanitarian and development goals.”

Other partners for the insurance pool include legal firms Stroock & Stroock & Lavan and Appleby Bermuda, and Marsh IAS assurance manager in Bermuda.