African Risk Capacity (ARC) Payouts to Exceed $25 Million

January 26, 2015

The African Union’s African Risk Capacity’s affiliated mutual insurance company, ARC Ltd, is set to make claim payouts of more than $25 million to three of its member states belonging to its catastrophe insurance pool, which was recently established to help them become more resilient to extreme weather events and protect food insecure populations.

The ARC’s announcement said: “Defined growing seasons in three Sahelian countries, Niger, Mauritania and Senegal, have recently ended and payouts totaling over $25 million will be made by ARC Ltd based on parametric calculations using ARC’s in-house drought monitoring and loss calculation software, Africa RiskView (ARV).

“Following certification of each Government’s Final Implementation Plan (FIP) by the ARC Governing Board’s Peer Review Mechanism, payouts will be made in the coming week. FIPs define the use of the insurance payout to provide immediate support to food-insecure populations.”

Robert Piper, the UN Regional Humanitarian Coordinator for the Sahel, commented: “These first payments by ARC represent a milestone in Government leadership and financial innovation for emergency response across the Sahel.”

The bulletin also explained that an “initial review of ARV modelled impacts suggests that the number of food-insecure people has been accurately captured; indeed, ARC’s information and action is spearheading what will be a substantial global emergency response over the coming months to mitigate what could otherwise become a major food security crisis. ARC Ltd payouts are parametric so quickly disburse and have impact; that impact can be more than four times greater than traditional drought response. In the case of the Sahel, payouts will benefit several million food-insecure people through programs targeted to the specific needs of each country.”

Dr. Lars Thunell, Chairman of ARC Ltd’s Board of Directors commented: “We are pleased that ARC’s support of Governments’ comprehensive planning for and financing of drought risk is being proven so quickly to be a paradigm shift in the way drought is managed across the African continent.”

The Sahel region of West Africa has long been a focus of attention in the humanitarian community, with major droughts in the mid-1980s and early 1990s causing widespread loss of life and trapping millions in a cycle of low economic growth potential. While rainfall has generally been increasing in the Sahel since the mid-1990s, food insecurity remains a chronic problem when seasonal rains are insufficient for staple crop production.

Dr. Richard Wilcox, Founding Director General of ARC Agency, noted: “This is a transformative moment in African food security demonstrating the potential for cost effective disaster financing.”

ARC Ltd. represents a new way of providing coverage to some of the world’s poorest regions. It was capitalized through financing by the UK’s Department for International Development and Germany’s KfW on behalf of BMZ, the German Ministry for Economic Cooperation and Development.

“It operates under sustainable business principles, consistent with regulatory requirements and international best-practice for capital adequacy,” the bulletin explained. “ARC Ltd pools the $134 million of pan-African risk taken on through issuance of policies for the 2014/15 policy year, and above a first-loss retention, ARC Ltd placed $55m of risk into the international markets, who will be participating in covering the payouts to be made in the Sahel.

“While contributing to payment of claims is the ultimate proof of value for reinsurers, other recognition for ARC Ltd has also been forthcoming in recent weeks. In early December, Willis, ARC Ltd.’s reinsurance broker, was awarded an insurance industry Transaction of the Year award for its role in securing reinsurance for ARC, adding to the award for (Re)insurance Transaction of the Year in September.”

Dr. Simon Young, CEO of ARC Ltd, commented:
“ARC has recently been receiving the plaudits of its peers in the global reinsurance sector, while simultaneously serving its primary purpose, providing early response funding for its African sovereign clients when faced with food insecurity due to poor seasonal rainfall.

“Working with the team at Willis to bring new risk to market has been both challenging and rewarding, and to be recognized by the global risk market is testament to the hard work of a small but incredibly talented and dedicated team of innovators who moved ARC from being a high-level concept in a niche of the global humanitarian space to the reality of making a difference in Africa.”

Source: African Risk Capacity (ARC)

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