Bermuda beat out competition from Switzerland to become the domicile of the first-ever African catastrophe insurance pool, Economic Development Minister Grant Gibbons told MPs.

And it is anticipated that the risk pool, which initially has five signed-up member countries, could add many more African nations over the next few years and could be a template for other programmes enabling badly needed insurance coverage in other parts of the developing world.

The ARC Insurance Company Ltd is a mutual insurance company established on the Island to provide drought coverage for Kenya, Mauritania, Mozambique, Niger and Senegal.

The company was set up by African Risk Capacity (ARC), a specialised agency set up by the African Union to help member states become more financially resilient to extreme weather events and to protect insecure food supplies. The capital — around $200 million according to an ARC statement — was provided by the governments of the UK and Germany.

“I am pleased to say that Bermuda was selected over Switzerland as the best jurisdiction to locate this mutual insurance company after careful due diligence by a number of international agencies,” Dr Gibbons said in the House of Assembly. “It is possible that at some point in the future, the company may consider re-domiciling to Africa, depending on the wishes of the members and directors.”

Dr Gibbons revealed in the House of Assembly on Friday that ARC officials had visited Bermuda several times during the past 18 months, for talks with himself and financial regulator the Bermuda Monetary Authority. Marsh IAS, the insurance manager in Bermuda, Willis Group as reinsurance broker, and Appleby Bermuda, who assisted with ARC Ltd’s incorporation, are among others involved with the new company.

“Bermuda’s participation in this co-operative approach to assisting African countries is a strong vote of confidence for our country,” Dr Gibbons said. “Not only will ARC Insurance Company be domiciled here, but our involvement in the development of mutual insurance to assist African countries will provide targeted responses to disasters 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.”

He added: “In addition to the reputational benefit for Bermuda as the host jurisdiction, we believe there may be future opportunities for commercial business and jobs. Africa represents one of the fastest-growing economies and there is clearly a potential for other insurance business being located in Bermuda.”

The insurance policies issued this month by ARC Ltd will provide a total of approximately $135 million in drought insurance coverage tailored to the specific requirements of the insured countries. In addition to its own capital, ARC Ltd has secured US $55 million of capacity from the international reinsurance and weather risk markets in order to cover the risks it is taking on from the participating countries.

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.

David Simmons, managing director of analytics at Willis Re, who has worked with the ARC Ltd project, told The Royal Gazette it had the potential to be replicated for other developing countries.

“The ARC could be seen as a template to be used outside Africa,” he said. “The programme is very, very smart. It has involved engaging the countries to better understand their own cash crop and how it responds to different levels of rainfall. So the insurance is not the only benefit — there’s also greater understanding of risk.

“It’s not just what coverage it provides, it’s making sure that governments understand what could happen and the risks they could face.”

Mr Simmons added that it was his understanding that the ARC hoped to get another 20 African countries signed up to the programme over the next three to four years.

The ARC Agency said the new insurance pool would make disaster-stricken African countries less reliant on international aid and also avoid the scenario of having to divert funds from important development projects to deal with an immediate crisis.

Henry Rotich, Kenya’s Cabinet Secretary for the National Treasury, said: “Droughts undermine our hard-won development gains, just as Africa is beginning to realise its vast potential.

“ARC will help us build resilience among vulnerable populations, protect our agriculture investments, thereby increasing productivity, as well as promoting fiscal stability by preventing budget dislocation in a crisis.”

Nigeria’s Finance Minister Okojo Iweala, chairman of the ARC Agency Board, described the formation of the Bermuda-based catastrophe insurance pool as “a transformative moment in our efforts to take ownership and use aid more effectively.

“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 bailouts.”

Dr Gibbons told MPs: “I believe all Honourable Members can be proud that Bermuda and our on-island expertise have played such a key role in this important international initiative.”

Mr Simmons said it was not the amount of money the programme could dispatch to a country in need that was most important, rather the speed with which claims were paid.

He explained: “Say you are a farmer in Niger and an event happens. Over time your crop will fail. Then you’ll sell your seed crop because you need the money. Then you sell your animals and then your tools. So the next year, you’re in a worse position and recovery from the event takes much longer.

“The ARC did some work that showed that if you get the money to those farmers as quickly as you can, so they have the wherewithal not to have to sell their seeds, animals and tools, then every dollar the ARC supplies is effectively worth $4.50 when compared to international aid money arriving after the farmer has taken those actions.”