Gallagher Re & ARC design parametric drought reinsurance for UN World Food Programme

Broker Gallagher Re and parametric specialist insurer African Risk Capacity Ltd (ARC Ltd) have together structured and placed a new parametric reinsurance solution to provide responsive financial protection to the UN World Food Programme’s (WFP) operations in the Sahel region.

The goal of the parametric reinsurance arrangement is to provide a timely financial response to populations affected by drought and food insecurity in the Sahel region of Africa.

Dubbed the Sahel Climate Catastrophe Layer (CAT Layer), the parametric reinsurance product utilises satellite data and advanced risk modelling technology, to support WFP’s early response and preparedness efforts on the ground

Under the terms of the parametric structure, payouts of up to $30 million dollars can be triggered rapidly when drought conditions occur, with the finances disbursed to WFP country offices in Niger, Mali and Burkina Faso to aid in their work to help in the response and recovery efforts.

The parametric product has underwritten by ARC Ltd with backing from major reinsurance companies and it leverages publicly available datasets packaged into a simple index.

It is designed to trigger for the most severe drought conditions, where WFP’s resources might be stretched in the region.

The parametric trigger is said to have a 4% annual probability of payout for each of the 3 countries, by the broker.

Gallagher Re explained that, “It provides quick access to capital for time-sensitive emergency response needs and ensures every dollar gets distributed to the most vulnerable populations through WFP’s efficient and transparent humanitarian response systems.”

The parametric solution was designed and placed by Gallagher Re’s Public Sector, Parametric & Climate Resilience Solutions practice.

The UN’s World Food Programme has a range of disaster risk financing instruments designed to protect vulnerable populations. This new addition is seen as a scalable and replicable approach to parametric risk transfer, with potential applicability to other regions.