Pool Re publishes fourth Terrorism Frequency Report to strengthen industry understanding of the peril
Pool Re, Britain’s leading terrorism reinsurer, has announced the publication of its fourth Terrorism Frequency Report, a quarterly view of the contemporary threat which is produced by the Terrorism Risk and Analysis Centre (TRAC) – the in-house expert analysis team at Pool Re.
As well as a survey of recent terrorist attacks in the UK and globally, the report includes analysis and views from the TRAC team and external experts including Sir Mark Rowley QPM, who was until 2018 the former national head of counter terrorism policing. Sir Mark reflects on the scale and intensity of the current threat and discusses what this means for the insurance and risk management sectors. “Terrorism is increasing, it moves faster,” he writes, “and is harder to detect.”
There is further in-depth analysis of how the changing terrorist threat, including the proliferation of low complexity attacks, could impact the (re)insurance industry. Many more businesses, in particular SMEs, may be exposed than previously, and the relative anonymity or remoteness from symbolic targets are now less likely to shelter companies from the effects – direct or indirect – of a terrorist attack. The Pool Re report examines how the recent introduction of non-damage business interruption coverage for denial of access to premises or loss of attraction will help Members strengthen their insureds’ resilience.
Commenting on the report, Ed Butler, Pool Re chief resilience officer, said: “Pool Re remains committed to improving the industry’s understanding of the threat posed by all forms of terrorism, and this report is an important part of our development of an ecosystem of expertise and knowledge. We continue to look at ways of designing, promoting and sharing protective security best practice among our Members and their insureds. Our aim remains to encourage the market to take on more of their share of terrorism risk and they will only do so if they have a comprehensive understanding of it. Improved knowledge of the threat, coupled with incentives such as Loss Mitigation Credits, will lead to greater take up by businesses which, in turn, will deliver sustainable resilience to terrorist attacks.”
The report also includes a synopsis of a larger study into the impact of the Manchester Arena attack on the small business community.
The Terrorism Frequency Report is available here.
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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.