First African Natural Disaster Insurance Pool

‘Overcoming challenges’,
interview with Valerian
Micheni, Kenya’s ARC
Coordinator page 2
ARC featured at World
Economic Forum in Davos
page 3
ARC Bridges Information
Silos with Strategic Partnerships page 5
(Photo by World Economic Forum/
swiss-image.ch/Photo Remy Steinegger,
cropped from original)
“The ARC is a
demonstration
that pan-African
solidarity
approaching climate risk makes
financial sense.”
Tosi Mpanu-Mpanu
ARC Governing
Board Member
may 2014
Note from the Editors
We are very pleased to release this first edition of
the African Risk Capacity (ARC) newsletter. The
newsletter, which will be published quarterly, will
provide all of the ARC’s stakeholders with an update of
the Agency’s recent activities and plans for the future.
This first edition comes at a very exciting time for the
ARC, which brought the first-ever pan-African risk
pool to the international reinsurance and weather risk
markets on 1 May 2014. This was a key milestone in
the continent’s transition from managing crises to
managing risks.
Delegates at the ARC Insurance Company Limited Founders’ Meeting
First African Natural Disaster
Insurance Pool Launched
The first ever African catastrophe insurance
pool has been launched by ARC, an Agency
of the African Union designed to help member states become more resilient to extreme
weather events and to protect food insecure
populations in light of climate change.
The ARC Agency has created a specialist hybrid mutual insurance company, ARC Insurance Company Limited (ARC Ltd), to issue
policies to a group of African governments,
initially comprising Kenya, Mauritania, Mozambique, Niger and Senegal. Germany and
the United Kingdom contributed the initial
capital and are also founding members of the
mutual.
“The creation of the first ever African ca-
tastrophe insurance pool is a transformative
moment in our efforts to take ownership and
use aid more effectively. It is an unprecedented way of organising ourselves with our partners, with Africa taking the lead – taking our
collective destiny into our own hands, rather
than relying on the international community for bailouts,” said Ngozi Okonjo-Iweala,
Chair of the ARC Agency Board and Nigeria’s Minister of Finance.
The aim of the ARC catastrophe insurance
pool is to reduce African governments’ reliance on external emergency aid. Currently
international assistance is secured through
an appeals system and then allocated on a
largely ad hoc basis once a disaster strikes.
Consequently, African governments affected
The Agency’s membership has continued to grow,
with Gabon and Madagascar signing the ARC Treaty
earlier this year, bringing the number of signatories to
24. Likewise, several ARC Members have recently
signed MoUs with the Secretariat, and are currently
undertaking an intensive capacity building programme
with a view to taking out drought insurance 2015.
ARC is continuing to move forward as an international
technical leader in disaster risk management, as it
leverages Africa RiskView software for further uses,
including climate change stress tests, an Extreme
Climate Facility (see page 5) and for the development
of a parametric flood insurance model.
The Agency is playing an active role in global fora
relating to natural disaster management and climate
change, engaging with the Fifth Africa Regional
Platform for Disaster Risk Reduction, the UN Secretary
General’s Climate Summit in September 2014 and the
UNFCCC climate negotiations, among others.
Additional information and updates are available
on
our
website
(www.africanriskcapacity.org)
and on Twitter (@ARCapacity). For all questions
and concerns, the Secretariat can be contacted at
info@africanriskcapacity.org.
Continued on page 3
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May 2014
“ARC will help us build resilience...and protect our agriculture investments, thereby
increasing productivity and
promoting fiscal stability.”
Heny Rotich, Cabinet Secretary for the
National Treasury of Kenya
– where I am a member – which made it easy
to consolidate most of the data required.
Q. Part of your role as ARC Coordinator
was to communicate a holistic risk management approach to different government
departments. What was the response?
THE INTERVIEW
Building the Capacity of
African Governments for
Data-Driven Decisions
Interview with Valerian Micheni
ARC Coordinator for Kenya
Q. What inspired you to apply for the ARC Coordinator position? Valerian works as
How do you think ARC will benefit Kenya and the continent at a Drought Information Manager in the
large?
National
Drought
A. I was attracted to the challenge of its approach – in terms of Management Authorhaving a national outlook and combining several fields of ex- ity (NDMA) in Kenya.
pertise. I also felt it offered a great learning opportunity. More- He holds a BSc in Natover I wanted to serve my country from a national level. ural Resources Management from Egerton
Q. How were you able to get buy-in from stakeholders to ensure the University, Kenya and
an MA in Project Plantimely completion of Africa RiskView customization tasks?
ning and Management
A. Traditionally, food security-related hazards and especially drought from the University of
is coordinated through the Kenya Food Security Steering Group Nairobi, Kenya.
(KFSSG), which is a multi-sectoral coordination structure comprising Government line ministries, UN agencies and NGOs. We formed
a Technical Working Group within the KFSSG, which enabled the
undertaking of the ARV customisation process. Secondly, under the
KFSSG there is the Data and Information Sector of the KFSSG (DISK)
2
A. The message was well received once it
was understood. However, initially most of
the stakeholders sought to understand how
ARC would offer a different solution compared to what was available locally. Once the
risk pooling and quick response funds concepts were understood, the ideas were generally accepted.
Q. What were some of the major challenges in the rainfall, crop/rangeland performance and vulnerability components of
the customisation process and how did you
overcome these challenges?
A. The major challenge was inconsistency in
the data availability, especially for the crops
and rangelands. To overcome this, it would be
important to think of how a consolidated database can be formed where the stakeholders
upload their data for food security use. This
came about during the Water Requirement
Satisfaction Index (WRSI) customisation.
During the vulnerability component, there
were limited data sources in terms of populations affected by droughts in the past. While
we had reliable data from the World Food
Programme Vulnerability Analysis and Mapping unit, we couldn’t get any other reliable
source of data to triangulate this.
Q. How did the ARC Secretariat help to
overcome some of these challenges?
A. There was a lot of technical support from
the ARC team. On the WRSI data, the team
worked with the country team to undertake
further analysis of the relationship between
the WRSI models that ARV uses with the Normalized Difference Vegetation Index (NDVI)
data that has been in use in the country. When
we saw strong correlation, we selected WRSI,
in harmony with ARC’s other members.
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Check online
May 2014
www. africanriskcapacity.org for the latest updates.
Follow us on Twitter @ARCapacity
ARC Featured at Davos
ARC addresses three of the WEF’s ten Global Risks of Highest Concern in 2014
On 24 January 2014 ARC convened a
high-level side event at the World Economic Forum in Davos. The event, entitled
“Sovereign Disaster Risk Solutions for Climate Change Resilience” featured a panel discussion between Ngozi Okonjo-Iweala, ARC
Agency Governing Board Chair; Ertharin
Cousin, Executive Director of the World Food
Programme; Martyn Parker, Chairman of
Global Partnerships at Swiss Re and Richard
Wilcox, ARC Agency Director General.
Hosted by the World Food Programme, the
event was an opporunity for global leaders
and media to learn about the prospective role
that insurance and risk management products
can play as countries develop their adaptation
plans. “Government capacity building is a
WFP key priority. I am proud to lead our programme support to the African Union,” said
Cousin.
“ARC is a critical instrument for countries
to manage their risks as they face the consequences of climate change,” Wilcox noted.
He added that ARC has created, for the first
time, continental standards for emergency
preparedness by an African, self-governed
organization. “This could become a voluntary
ratings agency whereby the ARC could offer
a transparent and objective measure of a government’s state of emergency preparedness
and risk appetite – information of use to both
government sovereign partners and the private
sector,” he said.
The speakers at the ARC side event in Davos (Photo by WFP/Rein Skullerud)
“Africans must find African solutions to African problems.”
Ngozi Okonjo-Iweala, ARC Agency Governing Board Chair
Addressing the fact that Africa is projected
to suffer disproportionately from the adverse
consequences of a warming climate, Parker
said “I believe the ARC could turn the tables
on this bleak scenario, and become a real
game-changer for Africa. And this is not just
because I work with risk management strategies for a living. Sovereign risk management provides several African nations with a
means to pool their risks and resources, and
so channel funds to where they are needed,
when they are needed.”
Kenya’s Cabinet Secretary for the National
Treasury, Henry Rotich, affirmed, “Droughts
undermine our hard-won development gains,
just as Africa is beginning to realise its vast
potential. ARC will help us build resilience
among vulnerable populations, protect our agriculture investments, thereby increasing productivity, as well as promoting fiscal stability
by preventing budget dislocation in a crisis.”
the financial support of US $200 million by
the UK and German governments through
DFID and KfW respectively,” notes Chair of
the Company Board of Directors and former
head of the International Finance Corporation, Lars Thunell. “ARC Ltd’s insurance
programme goes a step further than previous
sovereign risk pools thanks to its close ties
with ARC Agency. Through the development
of contingency plans linked to rapid payouts
under the parametric insurance policy, the
benefits of ex ante sovereign risk financing
will flow directly to the most affected food
insecure populations.”
~US $135 million in drought insurance coverage tailored to the specific requirements of the
insured countries. In addition to its own capital, ARC Ltd has secured US $55 million of
capacity from the international reinsurance and
weather risk markets in order to cover the risks
it is taking on from participating countries.
“I’m proud to have overseen the establishment
of ARC Ltd, and am pleased to acknowledge
The parametric insurance policies issued this
month by ARC Ltd will provide a total of
POOL LAUNCHED continued from page 1
by disasters can be forced to reallocate funds
from essential development projects to crisis
responses, exacerbating problems in other areas of their economies.
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A key point of emphasis throughout the discussion was the importance of African ownership of this new initiative. “Africans must find
African solutions to African problems,” said
Okonjo-Iweala. She also highlighted that building resilience to climate change and developing
African economies are two sides of the same
coin, and that ARC will be an important tool for
addressing both.
ARC Ltd utilises a software application called
Africa RiskView developed by the UN World
Food Programme to estimate crop losses and
drought response costs before a season begins
and as it progresses, triggering insurance payouts at or before harvest. ARC’s cost-benefit
analysis estimates that spending US $1 on early
intervention through ARC could reduce ultimate economic impact by as much as US $4.50.
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50
%
of all emergency multilateral food assistance to
Africa is due to natural
disasters*
May 2014
Contingency Planning:
Linking Early Warning
to Early Response
At the request of the Agency Governing Board, ARC
has initiated a review of its contingency planning
standards and process.
ARC views early response as a necessary means to saving lives and livelihoods in times of disaster. When disasters hit, it often takes weeks to assess the damage and
appeal for the funds required to respond. Once resources
are available, it still takes between 3-6 months to scale
up an operation, buy what is needed and import what is
not available locally. During this time vulnerable populations often resort to negative coping mechanisms that
erode development gains, intensifying the vulnerability
of these populations.
Preparing ARC operations plans for potential insurance
payouts is a key part of the pre-participation process, as
it ensures that funds reach vulnerable populations in an
efficient and timely manner. It allows countries to make
evidence-based decisions, with a clear understanding of
the financial resources available to them in times of disaster and the types of activities required to save lives as
well as livelihoods.
To assist countries in developing effective plan, ARC
led a year-long consultative process to develop standards and guidelines for the continent. These standards
are currently being implemented by the Board’s Peer Review Mechanism (PRM) to determine whether countries’
plans are sufficiently robust to effectively use a payout.
A recent Chatham House Report entitled, “Managing
Famine Risk: Linking Early Warning to Early Action”,
explores the benefits of early response and recognizes
ARC as an innovative risk financing arrangement. The
ARC Cost Benefit Analysis (CBA) reached a similar
conclusion, citing effective contingency planning as
central to the ARC’s value proposition. The CBA found
that ARC offers excellent value for money, with the benefits potentially outweighing the costs by a factor of 4.5,
due in large part to the efficacy of contingency plans.
At the request of the PRM, Kimetrica, a Nairobi-based
consultancy, is conducting an independent review of the
contingency planning process from start to finish. It will
also evaluate the Agency’s standards and guidelines to
see if they can be improved in subsequent years. The
results should be available by July 2014.
Check online
Find the Chatham House Report, CBA and
Contingency Planning Standards and Guidelines at www.africanriskcapacity.org
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Technical Training on Africa RiskView
Secretariat Engages Next
Round of Countries
Demand for ARC capacity building grows steadily
Five new member states have signed MoUs with the Agency; four
others are involved in the process
Following on the success of the first round “Given the strong interest
of the ARC capacity building programme, among its member states, the
the Secretariat has engaged nine additional Secretariat expects to engage
countries in 2014. These countries, includ- with up to 10 additional couning Burkina Faso, Chad, Ethiopia, The Gam- tries in 2014.”
bia, Lesotho, Mali, Namibia, Rwanda and
Lucy Nyirenda, ARC Agency COO
Zimbabwe are currently beginning the Africa RiskView customisation process, the first with the standards adopted by the ARC Conphase of the programme.
ference of the Parties for early intervention to
drought-affected populations and finally asPrior to taking out insurance, countries enter sist the country in selecting the optimal covinto MoUs for capacity building services from erage and structure of its insurance contract.
the ARC Agency Secretariat. This is a fee-forservice structure whereby the ARC facilitates As part of the Africa RiskView customisathe salary of a dedicated ARC Coordinator, a tion process, the Secretariat will convene
government employee, and the dedicated time two regional technical workshops – one Anof selected government experts in meteorol- glophone and one Francophone – for these
ogy, agriculture, contingency planning and member countries. The workshops will be
finance in return for certain deliverables in the convened in May and June, and will provide
capacity building programme.
a platform for peer learning and an opportunity for the ARC Coordinators and government
Throughout the 12-18 month programme, technicians to develop a working relationship
the ARC Secretariat guides the government with the ARC Technical Team.
team in customising ARC’s proprietary
weather risk quantification software, Africa
@ARCapacity
RiskView, build a contingency plan aligned
Follow us on Twitter
*Analysis excludes extraordinary events leading to system
wide Level-3 emergency response
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“ARC comes at a time when countries are already
prioritising long-term agricultural growth strategies,
and they want to protect their investments.”
May 2014
Richard Wilcox, Agency ARC Agency Director General
Development of a Flood Model
In response to high demand from its member countries
ARC is exploring the viability of expanding its services
to include a flood insurance product. To that end ARC
has secured US $300,000 from the Swiss Agency for
Development and Cooperation (SDC) to cover the development of a flood model. Using these funds, the ARC
Secretariat will partner with a research and risk modelling firm to develop a feasibility and prototype study
for a flood model for insurance purposes. This product
should be available to ARC Member States by 2015/16.
Africa RiskView software
ARC Complements Initiatives
to Bridge Information Silos
ARC’s partnerships:World Bank, CILSS, SDC & ENEA
As an initiative that seeks to bridge information siloes, ARC has formed strategic partnerships across the continent. These partnerships will ensure that ARC is complementing
existing programmes and studies, while taking advantage of existing expertise and institutions rather than creating redundancies.
A few of these partnerships are highlighted
below.
World Bank DRM in Africa
ARC is currently engaged with the World
Bank to explore areas for cooperation as
the Bank aims to develop new disaster risk
management and financing tools and provide
technical assistance to governments over the
coming months.
Areas for collaboration are likely to include
the Bank’s Sahel Adaptation Programme to
develop a methodology for prioritising activities based on real-time information received
from early warning tools. Similarly, the ARC
Technical Team will likely contribute toward
the African Drylands Report, which will provide insight into how to reduce vulnerability
and improve resilience among populations
habitating dryland regions across the continent.
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“Robust early warning systems, when
coupled with reliable financing, can
save lives and livelihoods throughout
Africa.”
Joanna Syroka, ARC Agency Programme
Director
Early Warning Collaboration in the Sahel
ARC has had preliminary discussions with
the Institute du Sahel (INSAH), a specialized
agency of the Permanent Interstate Committee for Drought Control in the Sahel (CILSS),
about technical collaboration. The agencies
will explore to what extent they can complement one another’s activities, and they aim
to achieve similar goals in the region. INSAH and AGRHYMET, a second specialized
agency of CILSS, will attend ARC’s Africa
RiskView (ARV) technical workshop, being
held in Bamako, Mali in May 2014.
Climate Change Simulations and XCF
By using climate change scenarios as an input to ARV
it is possible, in principle, to evaluate the future impact
of climate variability and changes on critical issues such
as food security and the overall performance of an envisaged risk management system, such as ARC. To this
end, in 2010 the ARC started working closely with the
Italian National Agency for New Technologies, Energy
and Sustainable Economic Development (ENEA), under
the umbrella of the EU’s IMPACT2C project.
ARC will conduct climate change stress test activities in
ARV to contribute to a more systematic understanding
of the range of uncertainty in estimating needs and costs
for food security in Africa. In late 2012, new regionally downscaled datasets over the African domain were
made available to the IMPACT2C consortium for the
first time. These were processed by ENEA through ARV
in 2013 with the aim of improving the systematic biases produced during the first tests conducted on global
climate models. Preliminary results suggest that ARC’s
diversification and stability benefits would be robust under certain future scenarios.
ARC was also recently mandated by African Ministers of Finance to explore the possibility of developing
a data-driven financial vehicle to track changes in the
frequency and magnitude of extreme climate shocks in
Africa over current climatology. This Extreme Climate
Facility (XCF) would function as additional financing
for countries already managing their current weather
risks through ARC by providing payments for adaptation investments over a 30-year period based on extreme
event frequency and magnitude above a given threshold.
Central to the concept is developing standards against
which these investments would be approved.
Such partnerships can pave the way for improved early warning and response systems
across the continent, potentially becoming a
powerful tool to combat food crises. Robust
early warning systems, when coupled with
reliable financing, can save lives and livelihoods throughout Africa.
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