42 OUR MATERIAL MATTERS AND RISKS ARC LTD. MAIN RISKS MATERIAL MATTERS ARC Ltd. is the only comprehensive risk management and risk transfer initiative on the African continent designed to help build resilience against natural disasters, outbreaks, and epidemics. However, several matters this past year were identified as material to ARC Ltd.’s ability to operate sustainably while delivering on our mandate. RISK MANAGEMENT While advancing our strategic objectives requires assuming risk, diligent oversight is needed to manage these risks to maintain vital resources and stakeholder trust. The Board, through the audit and risk committee, is responsible for risk governance and regularly reviews More frequent, severe climatechange-induced weather events underscore the pressing risk climate change poses. RESPONSE Our Inclusive Growth Strategy includes detailed plans for market and product diversification. We also examine climate impacts on underwriting and pricing, while the underwriting criteria used to consider these risks are reviewed. Systems supporting rainfall reporting, accumulation, monitoring, and control could potentially fail, resulting in a failure to capture accurate, complete, and up-to-date data elements. RESPONSE After every season, we refine and improve season-monitoring procedures that govern our underwriting process. ARC Ltd.’s risk management practices to optimise the risk-return trade-off. This year, we continued focusing on our inclusive Growth Strategy and our risk appetite statements, which reflect this strategy. Among these statements are quantitative measures, including tolerance limits on metrics that measure capital adequacy, profitability, liquidity, underwriting risk, market risk, and credit, and qualitative statements addressing operational, reputational, and regulatory risks. OUR TOP RISKS We determined several priority risks as highly material for fulfilling our Inclusive Growth Strategy and long-term value creation. They are listed below. Basis risk refers to the difference between insured losses and expected payouts from a parametric policy. Potential risks could be a model error or incorrect parameterisation. Basis risk has the potential to cause reputational damage. RESPONSE We compare model-generated payouts to the conditions on the ground at the end of season. We enhance season monitoring at the end of each season to improve our basis risk detection times. The following outlines the inputs across our various capitals: CLIMATE CHANGE BASIS RISK EVENTS MODEL ERROR UNDERWRITING RISK OUR MATER I AL MATTERS AND R I SKS
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