Representatives of the African Risk Capacity (ARC) Group and the African Development Bank (www.AfDB.org) presented two cheques worth $1.5 million in insurance payouts to the Government of Madagascar and the World Food Programme (WFP) to support the country’s recovery from Tropical Cyclone (TC) Freddy.

The funds, comprising $1.2 million to the government of Madagascar and $300,000 to the World Food Programme, were paid under the ARC Replica initiative, an innovative risk-financing solution extended to humanitarian organizations.

Winds and rain associated with TC Freddy, which hit Madagascar’s east coast on February 21, 2023, resulted in a loss of lives and livelihoods estimated at $481 million.

Rindra Hasimbelo Rabarinirinarison, Madagascar’s Minister of Economy and Finance, said:

“We are aware that Madagascar is prone to climate disasters, the frequency and intensity of which have continued to increase in recent years. The damage caused is more violent, and the related costs are increasing. As such, the Malagasy Government is ready to take the necessary measures to continue its commitment to ensuring the sustainability of this insurance mechanism as an instrument that is adapted to the context of the country’s vulnerability to climate hazards.”

As part of building resilience against future tropical cyclones, the government and the World Food Programme took out two separate insurance policies during the 2022/2023 cyclone season with ARC Limited, the insurance affiliate of the ARC Group, a global financial and advisory firm.

The country’s participation in the ARC risk pool was enabled by the Africa Disaster Risk Financing program (ADRiFi), which paid its insurance premium. Through ADRiFI, a collaboration between the African Development Bank and ARC Group, a number of qualifying African governments are able to participate in ARC risk pools. Contributions from the United Kingdom and Switzerland governments, through the ADRiFi Multi-Donor Trust Fund managed by the bank, subsidized the insurance premium payments on behalf of Madagascar.

“We are delighted to be making this payout to the Government of the Republic of Madagascar to reach the most vulnerable communities and help the country rebuild,” said Lesley Ndlovu, CEO of ARC Limited. “Our work with Madagascar over the years continues to prove the value of sovereign insurance as a valuable tool to strengthen a country’s resilience to weather-induced threats,” he added. 

The insurance payout comes as Madagascar rebuilds from several costly climate-induced disaster events. These have eroded some of the country’s development gains.

As of 10 March 2023, Madagascar’s National Bureau of Risk and Disaster Management reported ten deaths related to TC Freddy. More than 120,000 people were affected, with at least 45,000 displaced and more than 10,300 houses and schools destroyed.

“The bank, through the ADRiFi program, supported the government to pay insurance premiums of $3.5 million. These subscriptions generated a total disbursement of $15 million from the ARC Group in the form of pay-outs,” said Adam Amoumoun, African Development Bank Country Manager for Madagascar.

“It is gratifying to know that the amount mobilized is more than four times greater than the premiums paid, and even better, it has benefitted 385,589 vulnerable households,” Amoumoun added.

The funds will assist cyclone-affected communities in avoiding resorting to consuming agricultural seeds as food, selling farm tools, or migrating in search of work and food.

Pasqualina Di Sirio, WFP’s Representative in Madagascar, said, “More frequent and more intense climate shocks exacerbate the vulnerability of people, especially in the south and eastern regions of Madagascar. While WFP is providing timely assistance to affected people, we are also eager to use our experience and expertise to shape longer-term solutions in Madagascar to strengthen people’s resilience.”

“WFP supports insurance schemes and subsidies to affected people to bolster people’s ability to face the climate crisis,” she told ceremony attendees.

Madagascar was the first country to enrol in the ARC Tropical Cyclone insurance program since its launch in November 2020. During an active cyclone, ARC provides daily, real-time monitoring information on the storm's strength and potential impact zones to help participating countries evacuate people in harm’s way. This warning system helped Madagascar to evacuate 7,000 people ahead of TC Freddy’s landfall.

In 2022, ARC Group issued a $10.7 million payout to Madagascar following Tropical Cyclone Batsirai, another deadly cyclone that hit the country in February of that year.