African Risk Capacity targets independence within five years

Parametric development insurance provider the African Risk Capacity (ARC) targets becoming an independent institution within the next five years, with its current cooperation agreement with the World Food Programme (WFP) extended until 2024.

The African Risk Capacity (ARC) provides parametric disaster insurance, alongside resilience and contingency plans, education and advice.

ARC makes best use of the efficiency of global reinsurance markets to pool risk from African nations and transfer the exposure in bulk to reinsurance and insurance-linked securities (ILS) players.

This strategy provides economies of scale for the users of its products, as the expanding ARC climate and catastrophe risk pool benefits from increasingly attractive reinsurance pricing and conditions.

Since it’s launch in 2012 as a Specialized Agency of the African Union, ARC has worked with the support of the WFP under an administrative service agreement.

This agreement was extended until August 31st 2024 last week, providing ARC with the support and certainty required as it continues to scale out and aims to become an independent institution.

“The provision of support by the WFP through the Agreement has been very critical to our success, and we hope that within the next 5-year period of its operation, ARC would have grown into a fully independent institution,” commented Dr Ngozi Okonjo-Iweala, Chairperson of the African Risk Capacity Agency, at the official signing of the Extension at the WFP Offices in Rome.

ARC aims to help Africa shift to a more proactive management of climate, weather and catastrophe risks by using the depths of capacity available in global reinsurance markets to build capacity for Member States through provision of parametric climate risk insurance against specific perils, as well as helping them establish early warning systems.

“In its first four years of operations, the ARC insurance mechanism triggered over US $36 million to countries in the Sahel and Southern Africa to provide timely assistance for over 2.1 million people and 900,000 livestock affected by extreme droughts. For a paid-up premium of $67m by 8 countries, we were able to provide a $500m coverage, so we know the Mechanism works,” Dr Okonjo-Iweala concluded.

Executive Director of the World Food Programme, David Beasley also commented, ” The WFP is happy to continue providing ARC with the ongoing assistance to enable farmers in Africa achieve better food security and resilience against climate induced disasters.”

The support the agreement will provide will not just support Arc but also help to ensure donor funds continue to flow, by boosting the confidence of partners in ARC’s ability to continue delivering on its parametric disaster insurance remit over the coming years.

Within the five years it is to be hoped that ARC becomes the defacto sovereign climate and disaster insurance pool for the African continent, providing efficient access to global reinsurance and capital markets and helping governments transfer some of their risks, while securing rapid paying finance to help in recovery from disasters.

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