Successful first year of African drought pool

The renewal of reinsurance programme for African Risk Capacity Insurance Company Ltd (ARC Ltd) has been completed with Munich Re as one of the leading reinsurers.

Munich/Zürich. The African Risk Capacity (ARC), through its financial affiliate ARC Ltd, has expanded its pioneering catastrophe insurance pool to provide up to $192mn in parametric drought cover for the 2015/16 policy year. More than $70mn of that risk will be transferred to the global reinsurance markets. Munich Re provides reinsurance capacity to ARC Ltd via NewRe.

“We are very happy to be part of this programme, and again to support this new sovereign insurance pool. The recipe for success of African Risk Capacity is the combination of risk assessment, contingency and implementation planning, risk transfer, and rapid availability of funds. The combination of these elements make it a new innovative approach to drought risk mitigation and food security,” says Andreas Molck-Ude, CEO at NewRe. He sees a considerable potential for growth of this type of cover, as additional African countries are likely to join the programme, and the cover will be extended to flood and wind risk and potentially also pandemic risk.

Burkina Faso, Malawi, Mali, The Gambia and Zimbabwe are expected to join the catastrophe pool this year. With these countries expected to join, the total coverage is set to rise to US$ 192m.

In its first year (2014/15), ARC Ltd. insured Niger, Senegal, Mauritania and Kenya for aggregate limit of $129mn, $55mn of it placed with reinsurers by Willis Re who are brokers to the programme.

For Michael Roth, from Munich Re’s Public Sector Business Development, the strength is that this insurance mechanism allows for different development goals to be reached: “It is not only about adaptation to climate change, disaster resilience and food security. It is also about good governance and cooperation between the participating states. ARC demonstrates that risks of developing countries can be insured in an efficient and market oriented way.”

Germany has set climate protection at the top of the agenda during its G7 presidency, as climate change and extreme weather events are a huge challenge for developing countries and can push them deeper into poverty. ARC is a specialised agency set up by the African Union to help member states to cope better with extreme weather events. Through its financial affiliate, catastrophe insurance pool ARC Ltd, participating countries can buy parametric drought insurance to protect their vulnerable population against the negative impact of drought. ARC is targeting a total of 20 to 30 African countries to become Members over the next four years.

The press release by ARC is available for download at www.africanriskcapacity.org/press-releases.