African Risk Capacity (ARC) July 2016

1. African Risk Capacity (ARC) July 2016

2. A.What is ARC?

3. Disaster Management Response ARC aims to provide cost-effective contingency funding to protect livelihoods and development gains

4. Value for Member States A Specialised Agency of the African Union, established in 2012, is governed by a board of African ministers and experts The ARC Agency’s first financial affiliate, ARC Insurance Company Limited, was established in early 2014 Through its unique structure, ARC bring together three critical elements to create a powerful value proposition for it participants and their partners: • Early Warning: Africa RiskView • Response: Contingency Planning • Insurance: Index-based insurance and risk pooling As a result a dollar spent on drought response through ARC saves $4.40 in traditional humanitarian assistance costs

5. Household and National Level Impacts Assistance needs to reach the affected population before month four to prevent the impact of reduced food intake or at least by month six to prevent asset sales

6. Pan-African Solidarity Makes Financial Sense

7. Africa RiskView: technical engine of ARC • Analyze and monitor drought-related food security risk • Define participation in ARC using transparent criteria • Monitor potential ARC payouts B.History, Structure and Governance of the ARC All model settings in Africa RiskView can be customized for each country and to reflect national risk transfer decisions

8. ARC InstitutionalProcess

9. Cost Benefit Analysis: Value Multiplier • Financial benefit of improved risk management: • Low operating costs for the ARC, thus lower premiums for countries • Better conditions on insurance markets • Focusing on more extreme coverage > 1-in-5 year events better value • Development benefit of planning and early response: • Protect lives and livelihoods • Protect development gains • Maintain economic growth • Scaling up social safety nets and contingent transfers most effective Enables Estimated benefit for every US$ 1 spent on ARC compared to giving budget support and current responses: Approximately US$ 4.401 plus additional direct cost savings2 1 Clarke/Hill, Cost-Benefit Analysis of the African Risk Capacity Facility, 2012. Assumptions made: 1-in-5 year return period, country “risk aversion” of 2, ARC premium multiple of 1.2, payout-to-need correlation of 75%, scaling up social safety nets and contingent transfers the selected response mechanisms 2 Direct cost savings include lower food cost, lower administrative cost, transport savings, etc.

10. ARC’s Institutional Structure Governed by Member States

11. 32 Current ARC Member States Original Signatories (23 November 2012) Burkina Faso Burundi Central African Republic Chad Republic of Congo Djibouti Gambia Guinea Liberia Libya Malawi Mozambique Niger Rwanda Sahrawi Arab Democratic Republic Senegal Togo Zimbabwe

12. ARC Agency Board Members

13. ARC Ltd Member States Class A Members: Member States that have active insurance policies 2014 – 2015 Class A Members: Kenya, Senegal, Niger and Mauritania. 2015 – 2016 policy Class A Members Kenya, Senegal, Niger and Mauritania, The Gambia, Mali and Malawi Class B Members: Capital contributors who do not expect their capital returned Currently no Class B members Both Class C Members have contributed the first tranches of their respective EUR 50 million and GBP 90 million commitments.

14. ARC Ltd Board Members

15. Pool 1 & 2 experience

16. C. ARC Capacity Building Programme

17. Member State’s Participation Process in ARC

18. ARC Capacity Building Programme TWG

19. Work Stream 1: Index Africa RiskView (ARV) is the software application developed to underpin ARC Ltd’s index-based drought insurance contracts • It allows countries to: • Analyse and monitor their drought-related food security risk • Define their participation in the ARC Ltd using transparent criteria • Monitor potential ARC Ltd payouts (online portal in development) • Developed in-house by WFP/ARC since 2009 • Customising ARV is a prerequisite for a Certificate of Good Standing • Work to add flood and tropical cyclone component to start in 2015

20. Work Stream 1: Index Vulnerability ProfilingWho are the people vulnerable to the type of drought in each area? Rainfall Drought Index BenchmarkWhich type of drought occurred? Modelled Impact Response Costs • Risk Transferred to ARC

21. Work Stream 2: Contingency Planning OBJECTIVE: ACTIVITY: STRUCTURE: ARC Operations Plan will be key to protecting the value of early action and therefore the value of ARC

22. Contingency Planning • Submitted Operations Plans are: • Valid for 2 years • Amendments are possible • See http://www.africanriskcapacity.org/countries/risk-pool-1

23. Work Stream 3: Risk Transfer Parameters Estimated Response Costs = Risk Profile Historical Response Cost Ranked by Magnitude Risk Transfer Parameters Risk Transferred to ARC AAL PREMIUM and CAPITAL RECONSTITUTION

24. ARC Capacity Building Programme

25. D. ARC Payouts

26. Pool 1: Payout Implementation Payouts triggered at end 2014 due to West Africa drought Funds in national accounts before UN Sahel appeal launched

27. Pool 1: Payout Implementation Monitoring &Evaluation on payout implementation ongoing

28. E. Growth Projections

29. Enhancing other AU Initiatives; CAADP Pillar III • ARC contributes to CAADP pillar III • Risk Management • Improve risk management at the household, community, national and regional levels to inform decisions that ultimately impact the building and protection of assets and investments • Emergency Prediction, Preparedness and Response • Emergency prediction, preparedness and response management are crucial for mobilizing assistance to meet immediate and dire needs, often in remote and difficult circumstances • Livelihoods Protection • Protect and promote the resilience of the livelihoods of the vulnerable • Source: CAADP Framework for African Food Security (www.caadp.net)

30. Pool Expansion: Flood, Cyclone, Drought ARC aims to insure nearly 30 countries with USD 1.5b in coverage against droughts, floods and cyclones by 2020*: • In addition ARC plans to pilot outbreak and epidemic insurance in select countries in 2017 • Extreme Climate Facility (XCF) • Replica Coverage

31. Lessons Learned • ARC is a good and existing and operational example of: • Play a critical role in leveraging discussions on investment in resilience in broader policy and budgetary planning processes of governments • There is a demand from countries for: • Contextually appropriate products and tools for managing risk • Risk Information for ACTION and DECISION MAKING • Risk financing tools • Premium financing • Capacity building (technical assistance)

32. Lessons Learned • Climate Change significant challenge/risk • COP 21 Loss and Damage/G7 Insuresilience initiative • insurance identified as part of a strategy • ARC cited as one of the way to get to scale on the continent and catalyse progress • Africa Innovative • Long term issue – not short term • Budgetary constraints • ARC Payouts between 10 – 30 percent of response funds after a disaster. Still a significant role for humanitarian community • Working through government systems • Scale up mechanisms on CP – social safety nets – need for continued investment • Insurance not a solution to everything

33. Long-term impact Risk management and investment increase resilience and growth

34. Website: www.africanriskcapacity.org Twitter: @ARCapacity