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Pool Re upsizes retro to $3.5bn, but no new ILS capital included


UK government backed mutual terrorism reinsurance firm Pool Re has secured another increase in size to its retrocession program, lifting it to almost US $3.5 billion at the latest renewal, but still insurance-linked securities (ILS) capacity remains limited to its previous catastrophe bond.

pool-re-retrocession-tower-2021Pool Re placed its UK £2.475 billion (US $3.5bn) retrocession programme for 2021 with 56 international reinsurers.

The renewal was led by Munich Re, with Hannover Re and Fidelis among markets also providing significant capacity, Pool Re said.

Pool Re’s new retro program covers property damage caused by nuclear, biological, chemical, and radiological attacks (CBRN); as well as property damage from cyber-triggered terrorist losses; and from conventional terrorist acts.

The retrocession program is structured as an aggregate excess of loss treaty.

It will respond should Pool Re’s losses, individually or in aggregate, exceed £400 million in any year, after member insurers’ combined retention of £250 million per event or £420 million in aggregate is accounted for.

The £2.475 billion is up from Pool Re’s £2.4 billion of retro renewed in 2020 and the program its existing £75 million Baltic PCC terrorism catastrophe bond.

Steve Coates, Pool Re’s chief underwriting officer, commented on the renewal, “Despite a difficult market we were delighted to achieve flat pricing for this important placement. Through our Solutions offering, Pool Re has invested significantly in data and analytics over recent years with a focus on modelling of CBRN risks, which is particularly relevant in light of the pandemic. Reinsurers know that we have a strong focus on risk management through our research, and combined with their view of the terrorism market as a sensible diversification away from pure natural catastrophe risk, this means that we were able to engage with a number of new markets and achieve a very positive result.”

Kevin Fisher, chairman of UK, specialties and North America at Guy Carpenter who brokered the placement added, “Pool Re has achieved wide support in sourcing capacity for its retrocession programme, with coverage being provided by existing and new markets. Their technical expertise and emphasis on data analysis contributes to strong relationships across the market and Guy Carpenter is pleased to have worked with Pool Re to achieve this excellent result.”

Julian Enoizi, Pool Re chief executive, also said, “A core part of our strategy is to further distance the taxpayer from potential loss and we continue to look for creative and innovative ways to achieve that. Pool Re’s extended retrocession placement is one of the largest reinsurance deals in the world and we have sought to increase the amount we place every year since 2015 as part of our intention to return UK terrorism risk to commercial markets. We are delighted with the outcome for this new three year placement.”

Interestingly, no additional capacity from alternative reinsurance markets, such as insurance-linked securities (ILS) funds or collateralized retrocessionaires, has participated in the Pool Re retro renewal, meaning the only alternative capacity remains the sliver of cover provided by the Baltic catastrophe bond.

Pool Re told us, “The £2.4bn retrocession we have just renewed contains no fronted ILS or similar. Our only involvement with such capacity is via our ILS issuance (Baltic Re), which provides a further £75m in addition to the above.”

It’s interesting as there is definitely an appetite in certain quarters of the ILS market for this risk.

A number of ILS funds and collateralized writers do underwrite some terrorism risks, particularly at the retro end of the market.

But it seems these ILS players currently don’t have the appetite for Pool Re’s retro program, or the pricing is not compatible with their return expectations.

Pool Re’s cat bond, the Baltic PCC deal, has a three-year term, so comes up for renewal in early 2022.

It will be interesting to see if that deal can be upsized on and whether the capital markets can take a bigger slice of the retrocession program in catastrophe bond form.

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