Pool Re today announced that as a result of sufficient capacity now existing within the commercial insurance and reinsurance markets to cover contingency losses arising from acts of terrorism, it will cease to reinsure Members for the contingency cover they provide to their insureds.
The state-backed terrorism reinsurer began writing the class soon after London was awarded the 2012 Olympic Games when the commercial market determined that it could not provide cover due to lack of sufficient capacity. More recently, however, the contingency market has requested that it is allowed once more to retain such risks for its own account, and not reinsure them to Pool Re.
Julian Enoizi, chief executive, Pool Re, said: “The purpose of Pool Re is to provide reinsurance cover against terrorism losses where the commercial market is unable to do so in sufficient quantity to meet demand. As the commercial markets develop greater appetite and capacity, and there is therefore no longer a market failure, it is appropriate for us to withdraw and we are pleased that contingency cover is now available to insureds commercially. Pool Re will, consistent with its strategy, continue to work with the commercial market to ensure that wherever possible, cover can be returned to the market.”
After Q1 2019, therefore, it will not be possible for Member insurers to cede this class of business to Pool Re. Most of the risks formerly ceded to Pool Re consisted of sporting events, concerts and tours.
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About Pool Re
Pool Re was formed in 1993 by the insurance industry in cooperation with the UK Government in the wake of the IRA bombing campaign on the UK mainland. Structured as a commercial reinsurer, Pool Re is a mutual whose member insurers comprise the vast majority of 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 fee 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 22 March, 2018, the Government announced its commitment to amend 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. The amendment to the originating legislation, contained within the Counter Terrorism and Border Security Bill, will if passed ensure a comprehensive response from Pool Re to acts of terrorism in the UK. 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 provides threat analysis and modelling to insurers so as to stimulate the commercial insurance market by enabling it to understand, asses and ultimately price terrorism risk with a view to assuming more of that risk over time.
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.
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. This re-engages the global market in aggregated UK terrorism for the first time since 1993, and additionally provides protection to Pool Re’s assets whilst distancing the UK taxpayer further from loss. Pool Re continues to explore the goal of market normalisation by, for example, exploring the possibility of a ground-breaking ILS placement to complement its commercial retrocession and enhance its capital structure. Moreover in Q1 2019, contingency cover from terrorist attacks was returned to the commercial market consistent with its strategy of ending market failure.