A unique Bermuda-based insurance pool is set to pay out $25 million to three drought-hit countries in Africa.

The cash will come from the Africa Risk Capacity Insurance Company (ARC), set up last year to issue insurance polices against drought in five African nations.

The policies were triggered after drought hit growing seasons in three Saharan countries, Niger, Mauritania and Senegal.

Economic Development Minister Grant Gibbons said: “We should all be proud that Bermuda and our on-Island expertise have played such a key role in this important international initiative.”

The fund was capitalised by the UK’s Department for International Development and the German Ministry for Economic Cooperation and Development and based in Bermuda over competitors Switzerland.

The fund was set up after intensive talks with Dr Gibbons, the Bermuda Monetary Authority and experts from the private sector.

Global insurance and reinsurance broker Willis, which has a Bermuda office, was last December awarded an insurance industry transaction of the year award for its work in setting up ARC on the Island and earlier won a reinsurance transaction of the year plaudit for the same fund.

Dr Gibbons said the catastrophe fund could pave the way for more business from the fast-growing economies of African countries.

“In addition to the reputational benefit for Bermuda as the host jurisdiction, we believe there may be future opportunities for commercial business and jobs,” he said.

“Africa represents one of the fastest-growing economies and there is clearly a potential for other insurance business being located in Bermuda.”

The insurance pool, the first of its kind, was designed to allow drought-affected African countries to respond quickly, rather than waiting on uncertain overseas aid to arrive.

Dr Gibbons said: “Bermuda’s participation in this co-operative approach to assisting African countries is a strong vote of confidence for our country.

“Not only will ARC Insurance be domiciled here, but out involvement in the development of mutual insurance to assist African countries will provide targeted responses in a more timely, cost-effective and transparent manner.

“We are at the forefront in the formation of a fund that facilitates financial stability in instances where other insurance options are not available.”

The insurance policies issued by ARC provide around $135 million in drought insurance to the three claimants, as well as Kenya and Mozambique.

The catastrophe pool will speed up assistance to struggling areas and reduce the need for foreign intervention.

International aid is secured through an appeals system once a disaster strikes and African governments affected by catastrophes can be made to reallocate funds from essential development programmes as a condition of international support.

Nigerian Finance Minister Ngozi Okonjo-Iweala, chairman of the ARC agency board, said: “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 handouts.”

Dr Okonjo-Iweala added: “The creation of the first ever African catastrophe insurance pool is a transformative moment in our efforts to take ownership and use aid more effectively.”