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Captive Insurer Helps African Nations Respond to Climate Change

Drought Coverage
September 19, 2016

The African Risk Capacity Insurance Company Limited (ARC Ltd), a Bermuda-domiciled captive insurer, is an African natural disaster insurance pool. This creative captive venture was created by the African Union entity African Risk Capacity (ARC), described in a September 8, 2016, article published on the Ventures Africa website as "a specialised agency for financing climate resilience and crisis response."

According to the Ventures Africa article, which is titled "Enhancing Africa's Capacity for Climate Risk Response" and is written by Chinedu Moghalu, a returnable fund of $90 million was provided by Germany’s Federal Ministry for Economic Cooperation and Development and KfW Development Bank, and the United Kingdom through its Department for International Development.

The Ventures Africa article goes on to explain as follows. 

No less than 37 countries have signed up to the initiative, including Nigeria. The initial risk pool, which covered the 2014/2015 rainfall seasons, consisted of Kenya, Mauritania, Niger and Senegal. The drought insurance policies issued to the countries totalled an estimated $130 million in coverage for a total premium cost of $17 million.

The first set of insurance payouts—over $26 million—has been made under this initiative in January 2015, with Mauritania, Niger and Senegal benefiting as a result of drought conditions in these countries in 2014. Five other countries have since signed up. This has increased the drought coverage for the 2015/2016 rainfall seasons to over $190 million.

According to its website, ARC uses advanced satellite weather surveillance and software that was developed by the UN World Food Programme. The technology is used to estimate and distribute funds to African countries hit by severe weather events.

The first catastrophic risk pooling venture was the Caribbean Catastrophe Risk Insurance Facility (CCRIF), a segregated portfolio company.

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