Pan-African mutual offering states sovereign parametric insurance against drought and other disasters.
African Risk Capacity is a pan-African institution, attached to the African Union, that offers member states sovereign parametric insurance against natural disasters, first drought, and increasingly cyclones and epidemics. Participating countries pay a premium and receive rapid indemnification when a modelled severity index exceeds a predefined threshold, allowing an early response to be financed before the humanitarian crisis worsens. The scheme pools risk at continental scale and uses international reinsurance to absorb peak losses. It embodies the application of catastrophe finance to the sovereign protection of vulnerable countries, in line with other regional facilities such as those of the Caribbean or the Pacific. ARC illustrates how parametric techniques can transform reactive emergency aid into planned, triggerable financial protection. For reinsurers, it constitutes a channel for accessing African sovereign risk and an instrument for reducing the climate protection gap.
An ARC member state hit by a severe drought receives rapid parametric indemnification to finance food aid, before the crisis worsens.
ARC, African Risk Capacity, mutuelle panafricaine de risque