A catastrophe insurance pool to insure a group of African countries against drought has been set up in Bermuda.

Willis Group Holdings plc, a global broker and risk adviser, said today it had secured $55 million of index-based reinsurance capacity to set up the pool, which takes the form of a new Bermuda mutual insurance company, Africa Risk Capacity Insurance Company Ltd (ARC Ltd).

The capital was raised from the international weather risk markets and the pool — the first of its kind — will issue insurance policies against drought to an initial group of five African countries: Kenya, Mauritania, Mozambique, Niger and Senegal.

“It will allow member countries to respond quickly to a developing crisis, and rely less on uncertain international aid in times of drought,” Willis stated.

Teams from both Willis Re and Willis’s Global Weather Risks Practice were involved in shaping the structure of ARC Ltd’s reinsurance programme.

David Simmons, managing director of analytics at Willis Re, said: “The underlying insurance policies issued by ARC Ltd are cutting-edge index-based coverages, with parametric triggers tailored to reflect each country’s specific rainfall requirements for growing staple crops.

“The calculation of claims to the programme is based upon satellite rainfall data which is used to objectively determine whether a drought has occurred. This then allows claims to be calculated quickly, and as a result, funds can be deployed in a timely and efficient manner.

“This is one of the first times in Africa that the reinsurance process has become such a key instrument in achieving humanitarian and development goals.”

Julian Roberts, executive director of Willis’s Global Weather Risks Practice, said: “A mechanism such as ARC Ltd demonstrates the very best of what can be achieved when governments and the re/insurance sector work together, and has the potential to increase the resilience of African countries to the climatic challenges which they face.”

Claire Wilkinson, partner of Willis’s Global Weather Risks Practice, added: “We noted significant appetite for this risk from both the reinsurance and index-based weather market, which were very keen to support something so innovative and ground-breaking. Despite keen pricing, the core layers of the programmes were around three times over-subscribed.

“It is heartening to see so much support from the re/insurance industry for a project that has the potential to do so much good.”