Pool Reinsurance, the UK terrorism reinsurer, have confidence in members’ support for operational changes and new reinsurance coverage.
The modifications aim to transition from the existing facultative reinsurance model to a treaty-style reinsurance coverage, aligning with Pool Re’s goal to shift more risk back to the private insurance market.
The decision regarding these changes will be determined through a vote by Pool Re members, who are insurers covering UK property (see Terrorism & Political Violence Insurance Review).
Achieving the proposed changes requires at least 75% of the voting members to be in favor. With approval, a one-year transition period will commence, leading to the implementation of the changes by April 2025.
This shift is a prerequisite for maintaining the unlimited guarantee provided by the UK government.
Should Pool Re fail to implement these changes, it could jeopardize its capacity to transfer risk to the private sector and, consequently, its governmental support.
Pool Re’s CEO, Tom Clementi, emphasized the importance of government backing as a foundational element of the organization, a sentiment he believes members understand and appreciate (see about Global Reinsurance Market Renewals).
Pool Re has decided to keep its conventional retrocession program in place for its third and final year instead of canceling and renewing. The purchase in 2022 was made at a “very opportune moment,” and has protected the group from sharp price rises in the reinsurance and retrocession markets.
When renewal comes around, Pool Re will maintain its strategy of trying to buy as much reinsurance as possible within the bounds of value for money. Pool Re is confident of attracting a lot of interest from retrocessionaires.
The Jan. 1 reinsurance renewal season was more orderly than the previous year, Clementi said, but the geopolitical environment had taken a turn for the worse in recent months, with the outbreak of the Israel-Hamas war and attacks on commercial shipping in the Red Sea. However, there is “no material change” to the terrorism threat landscape in the UK.
Pool Re’s function includes reinsuring the terrorism risk of property insurance in the UK, with the government covering any claims that surpass the pool’s accumulated premiums.
The proposed shift to a treaty model means pricing would be based on the collective risk ceded to the pool rather than individual risk assessment.
Since its inception in 1993, following the retreat of the private insurance market from terrorism risk due to attacks in the UK, Pool Re has undergone various expansions in its coverage scope.
Under the new scheme, initial pricing adjustments are capped at a 10% increase or a 4% decrease, introducing a “corridor of stability” that will gradually allow for greater reflection of risk in pricing (see Global Reinsurance Rate for Property Catastrophe Forecasts).
The transition will prioritize stability, with provisions to maintain current risk retentions and plans to gradually increase them. The changes facilitate distinct retention levels for conventional versus chemical, biological, radiological, and nuclear attacks, reflecting Pool Re’s adaptive strategy to evolving terrorism threats and insurance demands.
by Yana Keller
