By Collins Mtika
An ambitious project of the African Union conceived in 2013 to cushion the 54-member block from the effect of calamties faces liquidity problems and may need cash injections in millions of dollars to gain course.
Christened the ARC Insurance Company Limited (ARC Ltd), the firm faces a lack of buy-in from some member states, inadeaqaute premiums, non payment of membership dues but increasing payouts to states when clalmities occur.
The firm is also exploring new investments startegies to increase the yield in the investment portifolio as means for financial sustainibality by venturing into USD African securities and introducing equities.
“Overall, investiments perforafmnce has remained below target average. Momentum and the direction of the market will likely be dictated by the (unpredictable0 political developments around Brexit and the vulnerable US market,” notes the 2018 report of the Africa Risk Capacity Ltd (ARC Ltd) report presented during the seventh session session of the conference of arties of the Africa Risk Capacity Agency (ARC Agency) held from March 31st to April 1st 2019 in Addis Ababa, Eithopia.
During its five year operations, ARC Insurance Company Limited (ARC Ltd) it has seen a decline of participation by member states and related premium revenue also nose dived, according to the report.
The risk pool also shrunk from seven countries in 2015 to three in 2018 despite an increase in the number of countries with certificates of good standing to 11 from 5.
“As a result, financial performance has been poor with a steep decline in net income from USD22,423,000 in 2014 to a negative USD6,240,799 as at December 2018,” the report noted.
In Malawi President Peter Mutharika declared half the southern region part of the country a disaster zone after torrential rains killed at least 48 people and left around 70 000 homeless.
The heavy rains also damaged crops and thousands of livestock in the country.
Malawi’s department of climate Change and Meteorological Services also warned of heavy rainfall and flash floods in the country for the next two to three weeks.
ARC Insurance Company Limited (ARC Ltd) is the financial affiliate of ARC Agency. It was established in 2013 to provide insurance to participating sovereigns. It is a mutual insurance company owned by its members (participating African governments and capital contributors) and incorporated for an interim period in Bermuda. The UK and German governments committed $200 million in risk capital.
The UN estimates that Africa will see the adaptation costs of climate change rise to $50 billion per year by 2050.
“This partnership marks a bold new phase of heightened collaboration on combatting the effects of climate change in Africa,” said Mohamed Beavogui, Director-General of ARC Agency in January, 2018.
“The future of disaster risk management is an increasingly urgent economic issue, and ECA’s unique expertise will complement ARC’s work serving its member states and building preparedness and resilience on the continent,” he said.
In the four years that ARC has offered insurance coverage to its member states, paying out more than USD $34 million to those affected by drought events. These resources have assisted over two million people affected.
ARC Insurance Company Limited (ARC Ltd), is a baby of the The African Union’s African Risk Capacity (ARC), a speacilaised agency of the AU and offers a comprehensive, integrated solution to tackling the impact of natural disasters on vulnerable people. ARC transfers the burden of weather risk away from governments, enabling them to build resilience and better plan, prepare and respond to extreme weather events.
The supposed reluntance by member states showed itself during the recent seventh session of the Conference of the parties of the ARC held in the Eithopian Capital Addis Ababa where 21 countriy represenstaive turned up out of the 33 members.
Talking on deep background some deleagtes criticized the business model ARC took at inception arguing that it heavily relied on premiums from member countries for payouts and other operational issues.
“All over the world, Insurance companies use premiums for investments and then use returns on those investments for core business functions,” one delegate said.
Since 2014 and over four risk pools, the African Risk Capacity Insurance Company Limited (ARC Ltd) has paid out over US $36 million to countries affected by drought.
In 2017, Malawi received a US $8.1 million payout from ARC Ltd and had paid a premium of US $4.7 million for drought coverage. The Government of Malawi used the funds to support over 800,000 Malawians by filling gaps in the scale-up on cash transfers and replenishing its strategic grain reserves.
At the conference, Director-General of ARC Agency Mohamed Beavogui said the agency flagged the problem three years ago and “Nobody is suggesting a solution. No premiums in the scheme it will not be worthy it”