ARC Insurance Company has been launched as the first African catastrophe insurance pool, aiming to lessen the continent's reliance on foreign aid.
African Risk Capacity (ARC) was set up by the African Union to insure member states against natural disasters, including droughts. In such cases food will be protected in secure populations.
Germany and the UK contributed to the initial capita, and are founding members.
Marsh’s captive solutions practice in Bermuda will manage ARC, which is domiciled in the jurisdiction. The mutual insurance company will issue policies to governments in Kenya, Mauritania, Mozambique, Niger and Senegal.
The insurance pool will help member states become more resilient to extreme weather conditions in light of climate change.
Dr Ngozi Okonjo-Iweala, chair of the ARC agency board and Nigeria’s minister of finance, said: “The creation of the first ever African catastrophe insurance pool is a transformative moment with Africa taking the lead.”
Willis has also secured $55 million of index-based reinsurance capacity for ARC from the international weather risk markets especially commissioned for natural disasters.
David Simmons, managing director of analytics of Willis Re, said: “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.”
Simmons added: “The insurance policies are index-based coverages, with parametric triggers tailored to reflect each country’s specific rainfall requirements for growing staple crops.”
“The calculation is based upon satellite rainfall data, which can determine whether a drought has occurred. This then allows claims to be calculated quickly, and funds can be deployed.”
“We noted significant appetite for this risk from both the reinsurance and index-based weather market, which were very keen to support something so innovative and ground-breaking,” said Claire Wilkinson, partner of Willis’s global weather risks practice.
“Despite keen pricing, the core layers of the programmes were around three times over-subscribed. It is heartening to see so much support from the re/insurance industry for a project that has the potential to do so much good.”
