African Risk Capacity (ARC) Ltd. celebrates a decade of innovation with record growth and ambitious plans for future expansion.
ARC Ltd. celebrates several milestones in its newly released 2023 integrated annual report. The company commemorates its 10th anniversary and outlines a decade of impact, which saw it paying out over $170 million in claims and underwriting a record $25 million in premiums for Pool 10A – the highest since its inception.
“From covering 12.9 million people in 2014, we protected 26.4 million in 2023. We have also expanded our footprint to 39 member states,” says ARC Ltd. CEO Lesley Ndlovu. “We are pleased that behind the figures are communities that have benefited. We are also encouraged to see an increase in the number of countries utilising insurance as part of their disaster risk financing matrix.”
The company returned to profitability in 2023, achieving a net profit of $13 million from a $29 million loss over the last two years. This was largely due to expansion and diversification efforts across Africa.
ARC Ltd.’s gross written premiums amounted to $56.1 million; gross earned premiums were $46.8 million, and it achieved a net income of $14.2 million. A notable growth driver was the expansion of ARC Ltd.’s non-sovereign business segment, which saw gross written premiums amounting to $14.78 million. This growth can be attributed to the addition of policies such as:
- The World Bank Malawi social protection policy with a gross premium of $10.25 million for a two-year policy.
- The World Bank Republic of Djibouti’s protection policy with a gross premium of $2 million for a five-year policy.
- Drive Pool 9 endorsement policies, with a gross premium of $1.45 million.
ARC Ltd. strengthened strategic partnerships throughout 2023, increasing its capacity to support African nations in managing climate and health risks. A key aspect of this expansion has been securing, renewing and enhancing critical insurance policies including:
- The World Food Programme-Madagascar policy, renewed for two seasons. ARC Ltd. retained a 95% share.
- The renewal of the One Acre Fund Kenya policy. ARC Ltd.’s share increased from 4% to 10%.
These policies ensure that vital resources remain available to support Africa’s agricultural sector and food security, particularly in times of climate-induced crises. At the same time, donor partners play a pivotal role in ARC Ltd.’s business model, enabling the company to cover more vulnerable communities, and in 2023, it welcomed the US Government in an ambitious partnership to expand parametric insurance in Africa and protect smallholder famers.
Customisation and diversification
ARC Ltd.’s initial focus was drought insurance, one of the most prevalent hazards in Africa. Over the past decade, it has expanded its coverage to include both crops and livestock, and additional perils like floods, outbreaks and epidemics, and tropical cyclones.
“Pioneering innovative products and risk transfer solutions tailored to individual countries’ changing needs are central to our activities,” explains ARC Ltd.’s COO Ange Chitate. “With the increasing severity and frequency of natural disasters, this phenomenon highlights the importance of having multiple financial instruments to complement the insurance we provide.”
In 2023, the company introduced several pioneering products, including Africa’s first flood risk insurance. This product, developed in collaboration with JBA Risk Management, offers customised flood risk policies for six countries – Madagascar, Mozambique, Malawi, Côte d’Ivoire, Ghana, and Togo – enabling these nations to better manage and respond to flood risks.
A multi-year, multi-peril insurance product was also launched in Djibouti, covering the country’s primary risks of drought and excess rainfall. This groundbreaking five-year agreement is the first of its kind on the continent, providing ongoing capacity building and disaster risk insurance.
ARC Ltd.’s focus on innovative insurance solutions extended to social protection, with the development of a novel insurance mechanism for Malawi. This shock-responsive policy is triggered when rainfall levels predict drought, releasing funds for cash transfers to assist additional beneficiaries.
In terms of corporate social responsibility, ARC Ltd. pioneered the first-ever postgraduate Africa Scholarship Programme in partnership with Milliman Inc. The programme will broaden the talent pool in Africa, particularly in studies relating to mitigating the impact of climate change. It is also assisting students who need help to afford postgraduate studies. Four scholarships were offered covering up to three years of full-time postgraduate study at select universities on the continent. Another cohort will be introduced in 2024.
International recognition
ARC Ltd. continues to be recognised as a leader in ESG, having been awarded the global insurance industry’s best scores for the third consecutive year by the international ESG research and evaluation authority, Sustainalytics. The company improved from low-risk last year at 10.2 to negligible risk this year at 5.7. ARC Ltd. also retained its top position in the diversified insurance sector, with the lowest exposure score among its peers at 24 and the strongest management score at 80.3.
US credit rating agency Fitch also upgraded ARC Ltd.’s outlook to stable due to the progress on its development goals, product diversification and strong donor support. The company received an IFS Rating of “A-” and a Long-Term Issuer Default Rating (IDR) of “BBB+”. Fitch noted its excellent claims payout track record and “extremely strong” capital position.
Building on the momentum
ARC Ltd. has identified priority areas for 2024 with growth, innovation and increased impact top of the list. The company plans to expand its climate and health insurance solutions across all 55 African Union member states by 2034, providing each nation with customised products that address their unique risks.
According to Ndlovu, reaching this level of scale and diversification will enable ARC Ltd. to become financially self-sufficient, fully deliver on its mandate from the African Union, and optimise its balance sheet.
Next is capital funding and reinsurance. “As the global reinsurance market hardens, costs rise while capacity shrinks. Keeping reinsurance expenses in check will be crucial for maintaining affordable premiums for member states,” Ndlovu says.
Third is strengthening ARC Ltd.’s people, processes and overall performance, he explains. The intention is to continue expanding teams to bring in more skills and talent to meet changing climate risks and client needs. “At the same time, we will automate and streamline processes to improve efficiency as our business volumes increase.”
Lastly, the company plans to increase its focus on communication, engagement and advocacy. There are still many opportunities to tell the ARC Ltd. story on a global stage and draw greater awareness to its mission.
ARC Ltd. is geared toward continued success by building on its 2023 achievements. “With concerted effort across these priority areas, we can take our vision to the next level and create an even more substantial impact for African citizens. We have built strong momentum, and now is the time to accelerate,” Ndlovu concludes.
Read and download the full report here.