Willis brokered reinsurance for first African catastrophe insurance pool

Insurance and reinsurance brokerage Willis Group brokered the $55m of reinsurance protection that supports the first African parametric catastrophe insurance pool, which we announced the launch of yesterday by African Risk Capacity (ARC Ltd).

Willis secured $55m of index-based reinsurance capacity from the international weather risk markets for the African catastrophe risk pool, according to the brokers announcement this morning. Teams from both Willis Re as well as Willis’s Global Weather Risks Practice were instrumental in shaping the structure of ARC Ltd’s reinsurance programme.

The African catastrophe insurance pool has been established to enable parametric insurance policies to be sold to African countries, providing them with post-disaster event financing which is predictable and has a rapid payout mechanism due to the parametric nature of the policies. Parametric disaster insurance policies have initially been issued to a group of African governments, starting with Kenya, Mauritania, Mozambique, Niger and Senegal.

David Simmons, Managing Director of Analytics at Willis Re, commented; “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.”

The reinsurance and weather risk markets supported the reinsurance needs of ARC strongly, with demand outstripping supply for access to the programme, according to Willis. This perhaps shows the continued appetite for diversifying perils and also the willingness to support emerging market risks on an index basis when the underlying indices are well-designed and deal well-structured.

There was strong appetite to support the ARC facilities reinsurance needs within the markets providing index-based weather cover. Claire Wilkinson, Partner of Willis’s Global Weather Risks Practice, explained; “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.”

This should perhaps serve as a lesson to the insurance linked securities and collateralized reinsurance market that supporting new indices and the creation of index-based covers in emerging markets is an important way to access new diversifiers.