As a direct result of sufficient capacity now existing within the commercial insurance and reinsurance markets to cover contingency losses arising from acts of terrorism, Pool Re has announced that it will cease to reinsure members for the contingency cover they provide to their insureds.
The state-backed terrorism re-insurer 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 be allowed once more to retain such risks for its own account and not reinsure them to Pool Re.
Julian Enoizi, CEO at Pool Re, explained: “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’s therefore no longer a market failure, it’s appropriate for us to withdraw. We’re pleased that contingency cover is now available to insureds commercially. Consistent with its strategy, Pool Re will continue to work with the commercial market to ensure that, wherever possible, cover can be returned to the market.”
After Q1 2019, 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.
Co-operation with Government
The Pool Reinsurance Company Limited was set up in 1993 by the insurance industry in co-operation with the Government in the wake of the 1992 bombing of London’s Baltic Exchange by the IRA.
Pool Re is a mutual reinsurer whose members comprise the majority of insurers and Lloyd’s Syndicates which offer commercial property insurance in the UK, with membership of the scheme affording them a guarantee which ensures that they can provide cover for losses resulting from acts of terrorism regardless of the scale of the claims.
The scheme, which was the first public-private partnership to cover insured losses caused by acts of terrorism, is owned by its members but underpinned by Her Majesty’s Treasury’s commitment to support Pool Re if ever it has insufficient funds to pay a legitimate claim. Pool Re pays a premium to the Government for this guarantee and would repay the money over time if it ever used this facility.
In the event of a loss resulting from an act of terrorism, each member must first pay losses up to a threshold that’s determined individually for each insurer. If losses exceed that threshold, the insurer can then claim upon Pool Re’s reserves. These reserves have been accumulated by the members of Pool Re since its inception. It’s only in the event these reserves are exhausted that Pool Re would then draw upon Government support.