African Risk Capacity

This case study describes the African Risk Capacity (ARC), a sovereign risk pool and early response mechanism that provides drought insurance to African Union member states to protect food security for vulnerable populations.

• The African Risk Capacity (ARC) operates as a sovereign risk pool that leverages the natural diversification of weather risk across Africa to provide financially efficient risk management for member states. To participate, countries must customize the Africa RiskView (ARV) software, sign MOUs for capacity building, establish contingency plans for payouts, and set risk transfer parameters. Payouts are triggered when rainfall deviation exceeds a pre-defined threshold determined by the ARV software.
• As of 2020, 34 African Union member states are part of ARC, with 24 having active MOUs and 13 designated as Class A Members who have purchased policies. Since its inception in 2014, ARC Ltd has collected more than USD 100 million in premiums, provided USD 720 million in insurance coverage protecting 72 million people, and issued USD 65 million in payouts. Current maximum coverage is USD 30 million per country per season for drought events occurring with a frequency of 1 in 5 years or less.
• ARC is structured into two main entities: the ARC Agency, which handles capacity building, education, and advocacy to bring member states onto the platform and strengthen disaster risk management; and ARC Ltd, a Class-2 mutual insurance company established in Bermuda in 2014 that serves as the financial affiliate.
• The program has provided payouts to seven countries, with specific applications in the agriculture sector including the replenishment of strategic grain reserves and cash transfers in Malawi (2017), and responses to severe drought in Mauritania (2018) and Madagascar (2020).
• Successful participation in the ARC pool depends on three primary factors: the availability of robust climate data (specifically historical loss and damage and subnational weather data) for the Africa RiskView software, technical expertise within governments regarding sovereign and weather index insurance, and high levels of awareness among political decision-makers and stakeholders.
• ARC has received interest-free capital with a maximum fixed term of 20 years from the UK FCDO (GBP 30 million) and KfW on behalf of BMZ (USD 48 million).

APA

Climate Policy Initiative (2021). African Risk Capacity. https://www.climatepolicyinitiative.org/gca-africa-adaptation-finance/case_studies/african-risk-capacity-2/

Chicago

Climate Policy Initiative. African Risk Capacity. 2021. https://www.climatepolicyinitiative.org/gca-africa-adaptation-finance/case_studies/african-risk-capacity-2/.

Wikipedia

{{cite report |author=Climate Policy Initiative |title=African Risk Capacity |date=16 September 2021 |url=https://www.climatepolicyinitiative.org/gca-africa-adaptation-finance/case_studies/african-risk-capacity-2/ |access-date=17 August 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{climatepolicyinitiative2021african, author = {{Climate Policy Initiative}}, title = {{African Risk Capacity}}, institution = {Climate Policy Initiative}, year = {2021}, month = sep, url = {https://www.climatepolicyinitiative.org/gca-africa-adaptation-finance/case_studies/african-risk-capacity-2/}, urldate = {2026-08-17}, note = {Indexed by Climate Insights Directory} }