15 May 2014 Alternative Risk Transfer

Willis secures $55m weather cover for first African cat pool

The African Risk Capacity (ARC) agency has launched the first ever African catastrophe insurance pool. The deal is underpinned by $55 million of index-based reinsurance capacity from the international weather risk markets secured by Willis.

The agency has created a specialist hybrid mutual insurance company to administer the scheme. ARC Insurance Company (ARC) is domiciled in Bermuda.

The scheme is designed to reduce dependency on external emergency aid. The pool provides $135 million in drought insurance coverage to the governments of Kenya, Mauritania, Mozambique, Niger and Senegal.

Germany and the UK contributed the initial capital and are also founding members of the mutual.

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 in our efforts to take ownership and use aid more effectively. It is an unprecedented way of organising ourselves with our partners, with Africa taking the lead – taking our collective destiny into our own hands, rather than relying on the international community for bailouts.”

Henry Rotich, Kenya’s Cabinet secretary for the National Treasury, added: “Droughts undermine our hard-won development gains, just as Africa is beginning to realise its vast potential. ARC will help us build resilience among vulnerable populations, protect our agriculture investments, thereby increasing productivity, as well as promoting fiscal stability by preventing budget dislocation in a crisis.”

David Simmons, managing director of Analytics at Willis Re, said: “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.

“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.”

Julian Roberts, executive director of Willis’s Global Weather Risks Practice, added: “A mechanism such as ARC Ltd demonstrates the very best of what can be achieved when governments and the re/insurance sector work together, and has the potential to increase the resilience of African countries to the climatic challenges which they face.”

Claire Wilkinson, partner of Willis’s global weather risks practice, said: “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. 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.”

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

“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.”

ARC’s incorporation and start-up has been supported by a number of partners, including Stroock Stroock & Lavan, Appleby Bermuda, Marsh IAS as Insurance Manager in Bermuda, and Willis Group as reinsurance broker.

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