Pool Re, Britain’s state-backed terrorism reinsurer, has today completed placement of its £2.3 billion retrocession programme with more than 50 international reinsurers, led by Munich Re. The programme, provided on a three-year basis, is one of the largest reinsurance deals in the world, and the largest terrorism risk placement ever.
The retrocession is structured as an aggregate excess of loss treaty which will attach if Pool Re’s losses, individually or in aggregate, exceed £500 million in any year, after member insurers’ combined retention of £250 million per event or £410 million in aggregate. The £2.3 billion total reflects a further annual increase, up from £2.1 billion in 2018, as Pool Re continues to return UK terrorism risk to commercial markets. All of the capacity is written on a 3-year contractual basis.
The £2.3 billion includes £75 million provided under Pool Re’s recent terrorism catastrophe bond, the first of its kind. The retrocession wraps around the bond to form a notional layer of £200 million in excess of £500 million.
The risk was modelled using Pool Re’s own model, developed in collaboration with Cranfield University and Guy Carpenter. For the first time, it fully deployed Computational Fluid Dynamics to assess blast risk which considers how blasts move over, around and between buildings. Reflecting the underlying insurance provided by Pool Re through its member insurers, the retrocession covers property damage arising from nuclear, biological, chemical, and radiological attacks; those arising from cyber-triggered terrorist losses; as well as conventional terrorist acts.
“We are delighted with the ongoing support we have received from our continuing reinsurers, and pleased to welcome new carriers to the risk,” said Julian Enoizi, Pool Re chief executive, “and I thank Guy Carpenter for their efforts in completing this record-breaking placement. It provides resilience for UK businesses, while moving the taxpayer even further away from their implicit coverage of extreme commercial losses from terrorism.”
Steve Coates, Pool Re’s chief underwriting officer, said: “As our modelling technology has improved, we have been able to increase appetite for a share of Pool Re’s assumed risk. We will continue to look for increased retrocession and capital markets capacity to shift even more of that risk to the private sector, provided of course the capacity is of acceptable security and can be written on a long-term basis.”
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Nick Ravenscroft, Haggie Partners
Tel: 020 7562 4444/07759 535277
Peter Rigby, Haggie Partners
Tel: 020 7562 4444
About Pool Re
Pool Re was formed in 1993 by the insurance industry in the wake of the IRA bombing campaign on the UK mainland. It is a mutual whose member insurers comprise insurers and Lloyd’s Syndicates which offer commercial property insurance in Great Britain. Ceding their terrorism risk to Pool Re affords member customers a guarantee ensuring that they can provide cover for losses resulting from acts of terrorism, regardless of the scale of the claims.
Pool Re is recognised as a leading example of public/private partnership. It is owned by its Members but is underpinned by an HM Treasury commitment to support the company if ever it has insufficient funds to pay a legitimate claim. In return for that commitment, Pool Re pays a premium to Government and in addition, were it ever to use this support, it would repay the money over time from future premium receipts.
However, in the event of a loss resulting from an act of terrorism, each member cedant must first pay losses up to a threshold which is determined individually for that insurer. When losses exceed that threshold, the insurer can claim upon Pool Re’s reserves, which now stand at approximately £6.4 billion. These reserves have been accumulated by Pool Re since its inception. It is only in the event that these reserves and the company’s commercial reinsurance are exhausted, that Pool Re would require Government support.
Pool Re has evolved during the course of its history into a comprehensive ecosystem for reinsuring terrorism risk. Since April 2018, Pool Re has extended its cover to include material damage and direct business interruption caused by acts of terrorism using a cyber trigger. In addition on 12 February 2019 Royal Assent was announced to an amendment of the 1993 Reinsurance (Acts of Terrorism) Act to enable Pool Re to extend its cover to include non-damage business interruption losses resulting from acts of terrorism, thereby closing a protection gap that had emerged. In both cases, Pool Re is the first of the global terrorism pools to overtly extend its cover to include these threats, demonstrating the strength of public/private partnership in disaster risk financing.
No longer a simple mechanism for providing compensation, today Pool Re partners with various academic institutions in order to better understand the threat of terrorism. In conjunction with its sponsoring of a Professor of Terrorism Risk Mitigation at Cranfield University, Pool Re’s research and analytics department, Pool Re Solutions, provides threat analysis and modelling to insurers so as to stimulate the commercial insurance market by enabling it to understand, assess and ultimately price terrorism risk with a view to assuming more of that risk over time. One success of this approach was the repatriation of Contingency risk to the commercial market in January 2019.
Pool Re also works to increase economic resilience by, for example, providing incentives in the form of premium reductions for end customers who implement protective security measures accredited by the government. Moreover, and in line with the Governments counter terrorism strategy CONTEST, Pool Re has an ambition for a more integrated relationship with the public sector, both to better protect our economic infrastructure and to scale our ability to tackle terrorism. The Home Office is therefore working with the UK insurance sector via Pool Re in order to develop mutually beneficial risk mitigation projects that will reduce the risk of terrorist attacks.
Pool Re is a founding member of the International Forum of Terrorism Risk (Re)Insurance Pools (IFTRIP). Established in 2016, IFTRIP is aimed at fostering closer ties and allowing for greater collaboration between the world’s terrorism disaster risk financing mechanisms. IFTRIP is comprised of national terrorism risk entities from thirteen countries.
Over its 25-year history, Pool Re has dealt with 16 separate certified terrorism claims totalling £635m (equivalent to £1.35bn when adjusted for inflation). Since March 2015, Pool Re’s financial resilience has been augmented by a commercial reinsurance placement, now the largest in the world at £2.3bn. This re-engages the global market in aggregated UK terrorism risk for the first time since 1993, and additionally provides protection to Pool Re’s assets whilst distancing the UK taxpayer further from loss. In Q1 2019, contingency cover from terrorist attacks was returned to the commercial market consistent with Pool Re’s strategy of ending market failure. Consistent with this strategy, in March 2019 Pool Re issued the first cat bond where the risk transferred was standalone terrorism risk using the UK’s recently passed ILS legislation. It was also the first cat bond to use a Computational Fluid Dynamics model as the basis for its risk analysis, illustrating the value of Pool Re Solutions.