Gallagher Re – Africa Re initiative may bring third-party capital to African risks

A new collaborative initiative between global reinsurance broker Gallagher Re and pan-African reinsurer Africa Re aims to strengthen countries against a broad range of climate, crisis and disaster risks and may utilise third-party reinsurance capital alongside traditional to augment capacity.

The pair announced their protection gap focused initiative named ‘Accelerating action through scalable risk transfer schemes’ with a goal to create a robust, replicable, and modular framework to help address a wide range of threats and to protect both assets and liabilities.

The framework features a toolkit of analytics solutions, regulatory and policy advice, as well as financial optimisation services, bringing together public and private sectors in the delivery of customised, at-scale financial resilience solutions across Africa.

The idea is to customise solutions to match countries’ needs and priorities, with a primary focus on existing resources and domestic capacity.

However, the announcement also says that domestic capacity will be “complemented where most relevant with third-party capital” suggesting a potential role for the insurance-linked fund market, as well as other global reinsurance firms.

Risk transfer solutions employed will support financing emergency response costs in the aftermath of a crisis, national insurance schemes targeted on agriculture and crop risks, plus alternative solutions such as weather derivatives and parametric insurance products for public infrastructure, energy or tourism sectors, the collaborators explained.

“The partnership between Africa Re and Gallagher Re’s Public Sector & Climate Resilience Solutions global practice is an important stepping-stone towards sustainable economic growth and better protected livelihoods on the continent.” the collaborators explained.

The goal is to generate momentum behind the delivery of at-scale risk transfer and financing solutions that can support Africa’s response to local disasters, such as droughts, as well as to global issues such as the global political environment and how that is currently impacting imports such as wheat.

Dr. Corneille Karekezi, Group MD & CEO of Africa Re, explained, “Africa is already bearing the brunt of climate change – and the threat of global, interconnected shocks further jeopardises hard-won development gains and livelihoods on the continent. In line with our 2022-2025 strategy, this ambitious initiative aims to leverage private sector and governments’ expertise and capabilities for improved resilience and financial protection. It will also contribute to re-positioning Africa Re as the risk transformer of the African continent’s systemic risks. To achieve such strategic objective requires large-scale solutions and top-notch expertise, and we are extremely pleased to be teaming up with Gallagher Re in that respect.”

Antoine Bavandi, Global Head of Public Sector, Parametric & Climate Resilience Solutions at Gallagher Re, added, “We are thrilled to begin this journey with Africa Re and its partners. We will be putting to work our expertise in various domains to come up with the most practical and cost-efficient solutions to various risks, exposures and country contexts. We look forward to laying out together the various building blocks of societal and financial resilience against drought, food insecurity and emerging risks in Africa with a deep sense of urgency.”

Natalie Van de Coolwijk, Regional Director, Middle East & Africa at Gallagher Re, also said, “Economic resilience is of critical importance to our continent, particularly in the wake of a rapidly changing risk landscape. It is important that this project is designed and driven by Africans for Africans, hence why Africa Re is central to its success. They not only have a vested social interest, but also a fundamental understanding of the challenges facing the continent and its citizens. As their chosen partner, we are very proud of our involvement in this initiative aimed at bridging the protection gap and bringing together key stakeholders to achieve this.”

The initiative will be presented at a high-level event titled ‘Private-Public Catastrophe Risk Transfer Schemes: Bringing Resilience to Scale’ on 26 July 2022 in Cairo, Egypt on the side of Africa Re’s General Assembly.

The potential for third-party sources of reinsurance capital to augment the domestic industry capacity this initiative may use, could be a valuable way to add capital efficiency and to diversify these catastrophe and disaster risks outside of Africa.

While at the same time offering interesting underwriting diversification opportunities to ILS funds that have the capabilities to price and invest in such risks.