African Risk Capacity: protecting agriculture investments in Africa

Swiss Re supports the launch of Africa's first-ever natural disaster insurance pool to protect rural livelihoods and investments in a region highly exposed to drought risk.

Drought is a recurring threat across Sub-Saharan Africa and one of the biggest risks to the region's burgeoning economy. With 65% of the workforce employed in agriculture, millions of Africans not only depend on farming for their food but also for their incomes and livelihoods. Without enough rain to feed the land, the effects can be devastating. In addition to the human suffering caused by famine, the costs of aid relief and falling revenues can have a severe impact on the local economy, sometimes wiping out years of hard-won development gains.

Since 1980, the countries of Sub-Saharan Africa have experienced over 200 droughts. To better prepare for such events in the future, the African Risk Capacity (ARC), a specialized agency set up by the African Union, established the continent's first-ever natural disaster insurance pool together with partners from the public and private sector. Supported by Swiss Re Corporate Solutions, the newly created ARC Insurance Company Ltd will initially offer drought insurance to five governments, including Kenya, Mauritania, Mozambique, Niger and Senegal. 

 ARC Ltd is only the third sovereign risk transfer pool in the world, following the Caribbean Catastrophe Risk Insurance Facility (CCRIF) and the Pacific Catastrophe Risk Insurance Pilot, and will be the first to bring the benefits of such a scheme to African governments.

"The African Risk Capacity is a landmark initiative to help governments manage risk in a better way by moving from post-disaster aid to pre-event risk management," says Martyn Parker, Swiss Re's Chairman Global Partnerships. "Through insurance, governments can significantly reduce the cost of emergency contingency funds in the case of a catastrophic drought and channel resources to where and when they are most needed."

In addition to the funding provided by the governments of Germany and the United Kingdom, ARC Ltd has secured USD 55 million of capacity from the international reinsurance and weather risk markets. It will provide a total of USD 134 million in coverage through an innovative weather index scheme which uses the latest in satellite weather surveillance technology to estimate drought-related crop losses. The policy triggers automatic payouts to governments when there is not enough rain during a particular harvest season.

As a major capacity provider, Swiss Re supports ARC Ltd with its expertise in an effort to make it a commercially attractive and affordable proposition for African countries which are seeking to reduce the risk of loss and damage caused by drought and other extreme weather events. Besides the ARC, we are working with a number of partners to build rural resilience and accelerate investments for sustainable growth in African agriculture, such as the R4 Rural Resilience Initiative, an innovative micro-insurance programme, and the Grow Africa partnership.

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