ARC grows, diversifies, but keeping reinsurance expenses in check crucial: Ndlovu

African Risk Capacity Limited (ARC Ltd.), the financial affiliate and parametric insurance underwriting entity of the African Risk Capacity (ARC) Group, has commemorated its ten-year anniversary and said it has now paid out over $170 million in claims.

“From covering 12.9 million people in 2014, we protected 26.4 million in 2023. We have also expanded our footprint to 39 member states,” ARC Ltd. CEO Lesley Ndlovu explained. “We are pleased that behind the figures are communities that have benefited.

“We are also encouraged to see an increase in the number of countries utilising insurance as part of their disaster risk financing matrix.”

Expansion and diversification across Africa has helped ARC Ltd. to deliver a net profit of $13 million in 2023, much better than the $29 million loss it experienced over the last two years.

Of its gross written premiums, amounting to $56.1 million, ARC Ltd.’s non-sovereign business segment, an area of expansion and diversification where it sells parametric and replica parametric insurance to non-governmental entities, delivered gross written premiums amounting to $14.78 million in the last year.

Gross earned premiums reached $46.8 million and ARC has reported a net income of $14.2 million.

Also key to ARC Ltd’s expansion and diversification has been the addition of more perils to its parametric risk transfer coverage, which now includes crops and livestock, and additional perils like floods, outbreaks and epidemics, and tropical cyclones, as well as the original drought risk transfer it had launched with.

“Pioneering innovative products and risk transfer solutions tailored to individual countries’ changing needs are central to our activities,” explained ARC Ltd.’s COO Ange Chitate. “With the increasing severity and frequency of natural disasters, this phenomenon highlights the importance of having multiple financial instruments to complement the insurance we provide.”

Key successes in the last year include the roll-out of parametric flood coverage to Madagascar, Mozambique, Malawi, Côte d’Ivoire, Ghana, and Togo, as well as a multi-year, multi-peril insurance product for Djibouti that covers the country’s primary risks of drought and excess rainfall.

A five-year parametric agreement, ARC said this is “the first of its kind on the continent, providing ongoing capacity building and disaster risk insurance.”

Continuing to expand the risk pool through onboarding more sovereign and non-sovereign clients for its parametric insurance solutions is key to ARC’s mission to become a self-sufficient entity.

ARC Ltd. sees growth, innovation and the ability to have increased impact as critical here and plans to expand its climate and health insurance solutions across all 55 African Union member states by 2034.

CEO Ndlovu said that reaching such a level of scale and diversification will enable ARC Ltd. to become financially self-sufficient, fully deliver on its mandate from the African Union, and to optimise its balance sheet.

Ndlovu added that funding is also key, saying, “As the global reinsurance market hardens, costs rise while capacity shrinks. Keeping reinsurance expenses in check will be crucial for maintaining affordable premiums for member states.”

Attaining an expanded level of scale and diversification will open up new reinsurance opportunities for ARC and allow it to benefit from efficiencies through its own risk transfer, to the benefits of its clients and member countries.

Ndlovu also sees enhancing ARC’s processes as key, saying, “At the same time, we will automate and streamline processes to improve efficiency as our business volumes increase.”

“With concerted effort across these priority areas, we can take our vision to the next level and create an even more substantial impact for African citizens. We have built strong momentum, and now is the time to accelerate,” Ndlovu concluded.