Pool Re completes £2.3 billion retrocession, which includes terror cat bond

Pool Re, the UK government backed mutual terrorism reinsurer, has announced the completion of its £2.3 billion retrocession programme, led by reinsurance giant Munich Re.

The programme is the largest terrorism risk placement ever, and was completed with more than 50 global reinsurance companies, led by Munich Re.

Providing cover on a three-year basis, the retrocession programme is structured as an aggregate excess of loss treaty which will attach if the firm experiences losses above £500 million in any year, after member insurers’ combined retention of £250 million per event, or £400 million in aggregate.

The 2019 programme is £200 million larger than Pool Re’s 2018 placement, and includes the firm’s recently launched £75 million Baltic PCC Limited (Series 2019) catastrophe bond transaction, the first terror cat bond in the market’s history.

Pool Re explains that the retro coverage wraps around the cat bond to form a notional layer of £200 million in excess of £500 million.

Interestingly, Pool Re provides some details about its 2019 retro reinsurance programme, revealing that the risk was modelled leveraging its own model, developed in partnership with Cranfield University and reinsurance broker Guy Carpenter.

For the first time, it fully deployed Computational Fluid Dynamics in order to assess blast risk, which considers how blast move over, around and also between buildings. The 2019 retrocession cover in place, offers protection for property damage arising from nuclear, biological, chemical, and radiological attacks; those arising from cyber-triggered terrorist losses; as well as conventional terrorist acts, says Pool Re.

Pool Re Chief Executive Officer (CEO) Julian Enoizi, said: “We are delighted with the ongoing support we have received from our continuing reinsurers, and pleased to welcome new carriers to the risk, and I thank Guy Carpenter for their efforts in completing this record-breaking placement. It provides resilience for UK businesses, while moving the taxpayer even further away from their implicit coverage of extreme commercial losses from terrorism.”

Steve Coates, Pool Re’s Chief Underwriting Officer (CUO), added: “As our modelling technology has improved, we have been able to increase appetite for a share of Pool Re’s assumed risk. We will continue to look for increased retrocession and capital markets capacity to shift even more of that risk to the private sector, provided of course the capacity is of acceptable security and can be written on a long-term basis.”