Pool Re: No ILS or collateralised terror retro yet, but open to it

by Artemis on March 7, 2016

Pool Re, the UK’s government backed mutual terrorism reinsurer, has not yet included any ILS fund capacity or collateralised reinsurance within its retrocession program, which grew to £1.95 billion this year, but told Artemis that it remains open to including capital markets coverage in future.

Terror risks are slowly entering the ILS market, with a number of ILS fund managers writing some terrorism reinsurance business on a collateralised basis and terror risks sometimes featured in retro deals. Terror risk has been a feature of ILS for a while though, with some cat bonds exposed to terror attack related mortality events.

However the big government supported terrorism reinsurance pools have yet to embrace the ILS market, despite the size of their retrocession programs growing resulting in demand for more capacity.

Pool Re’s latest retrocession placement saw the terror mutual increasing its protection to £1.95 billion, compared to £1.8 billion at the last renewal, adding another layer to the coverage in the process. But the protection was sourced from major global reinsurance firms, with no ILS players involved.

Artemis spoke with Steve Coates, Chief Underwriting Officer at Pool Re, who explained; “Pool Re’s current reinsurance programme does not include collateralised or ILS capacity although we are looking at the possibility of using non traditional capacity in the future if it makes sense to do so.”

Coates explained that Pool Re’s goal has been to ensure the UK has a functioning terrorism insurance market first and foremost.

“Pool Re has been successful in working with those traditional reinsurers willing to participate in a programme that provides cover for CBRN (Chemical, Biological, Radioactive and Nuclear). This has been our focus and is consistent with our objective of creating a normally functioning free market in terrorism insurance in the UK and which, as a result, has seen many Pool Re Members support our programme,” Coates continued.

But that’s not to say the mutual isn’t open to ILS coverage and hasn’t been looking at the capital markets as a potential future source of reinsurance and risk transfer.

While relying on the traditional reinsurance market to ensure continuity and availability of its products, in order to help its members stay in business, Pool Re has been actively assessing the development of the ILS market and capital market solutions, aware that in the future they are likely to play a role.

Coates commented; “In tandem, and mindful of the significantly longer lead in times for this capacity, we have been assessing the viability of ILS particularly in light of HMTs (Her Majesty’s Treasury) desire to make the UK a more attractive place for these types of structures to be deployed, something we would of course be keen to support.”

And unlike the Australian Reinsurance Pool Corporation (ARPC), which rejected including any retrocessional reinsurance capital from ILS or collateralised markets in its recent $2.9 billion program renewal as the pricing was higher than in the traditional reinsurance market, Pool Re has yet to approach ILS markets.

“Whilst pricing is one of a number of key factors we will take into account to determine if it is capacity we want to utilise, Pool Re has not yet arrived at a point where it has approached the ILS market and therefore cannot comment on the pricing that is available,” Coates explained.

Pricing will be a factor in any decision to include ILS capacity, of course, however for Pool Re the ability to secure retrocession including the all-important Chemical, Biological, Radioactive and Nuclear remains key.

In years to come Pool Re may find that it can obtain that protection from the traditional retro reinsurance markets, while the ILS markets provides cover more suited to its risk appetite and product range.

For now though the ILS market is not involved in Pool Re’s program. But with the growing appetite and expertise to assume specialty risks, such as terrorism, as well as the growing pool of efficient capital markets capacity, it is surely only a matter of time.

Also read:

Australian terror pool rejects ILS & collateralised retro on price.

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