African Risk Capacity (ARC) targets ILS with Gallagher Re’s support

The African Risk Capacity (ARC) has selected reinsurance broker Gallagher Re to assist it with its own risk transfer needs, with the design of alternative risk transfer mechanisms, such as insurance linked securities (ILS) part of a development plan for its portfolio hedging and risk transfer arrangements.

African Risk Capacity Limited is a specialist insurance company providing parametric disaster insurance products to countries and other entities in Africa.

Gallagher Re has now been appointed as its reinsurance broker and risk advisor, the immediate priority under this appointment being the placement of portfolio cover for ARC, in the reinsurance and capital markets, by May 1st 2023.

On top of this, Gallagher Re will provide strategic advisory for ARC’s sustainable growth and portfolio diversification, while designing alternative risk transfer mechanisms, including ILS, is also in scope as for ARC the efficiency of its own risk transfer and reinsurance remains key.

ARC has ambitious growth plans that entail the combined use of traditional and alternative capacity providers, with a goal to develop a unique risk carrier structure utilising the private sector for a wide range of resilience applications across Africa.

Gallagher Re is now the lead and sole reinsurance broker to ARC Ltd, CCRIF SPC (formerly the Caribbean Catastrophe Risk Insurance Facility) and the Pacific Catastrophe Risk Insurance Company (PCRIC), the three of whom signed an MOU to collaborate more closely last year.

“Gallagher Re is now uniquely placed to support the goals of the MoU which is to raise their global visibility, reach and influence,” the broker explained this morning.

Antoine Bavandi, Global Head of Public Sector, Parametric & Climate Resilience Solutions at Gallagher Re, explained, “We are deeply honoured to be selected by ARC Ltd to support its critical mission of promoting resilience solutions across Africa. We feel passionate about ARC, what it stands for and the actual impact it is making on livelihoods on the ground.

“ARC Ltd’s mission in particular resonates extremely well with our vision for climate resilience by leveraging traditional markets as well as ILS and ESG capital to support African Union countries with the most efficient risk solutions. We very much look forward to applying our expertise for the benefits of public and private sector clients, to continue to push for scaled-up resilience solutions.”

Malvern Chirume, Chief Underwriting Officer of ARC Ltd, added, “The emergence of new risks and the high degree of global interconnectedness offer a unique opportunity to rethink our approach to climate and systemic events on the African continent. ARC Group plays a critical role in this environment, strengthening the capacity of member states to minimise the risk and actual impact from these events, and providing targeted and swift access to finance, tools and products in the aftermath of disasters.

“To date, ARC Ltd has provided financial protection in excess of USD 1 billion to 19 countries. We aim to reduce the protection gap even further and our partnership with Gallagher Re will be a key element of our growth.”

As ARC’s risk pool grows, it becomes increasingly possible for the insurer to access the capital markets as part of its reinsurance and risk transfer arrangements.

There has been insurance-linked securities (ILS) fund manager capacity in its reinsurance program in the past, but in recent years we understand this has become more limited a component.

It will be interesting to see how ILS and alternative capital solutions could assist ARC Ltd. in lowering its own cost-of-capital, ultimately to make the coverage it provides more cost-effective and efficient.

It’s also interesting to consider how diversification and scale, across the three parametric risk pools Gallagher Re now acts as sole broker for, could aid their access to reinsurance and capital markets as well.