Pool Re secures £40m of retro for non-damage business interruption

UK government backed mutual terrorism reinsurance firm Pool Re has successfully secured a £40 million (US $50m) layer of additional retrocession to cover it against non-damage business interruption resulting from terror attacks.

Guy Carpenter was the reinsurance broker responsible for the placement, while insurer Liberty Specialty Markets took the lead market role on the placement.

Pool Re said that other key participants in its property damage retrocession programme including Munich Re and AXA XL also participated in the non-damage business interruption (NDBI) placement.

The new NDBI retro cover protects Pool Re with a limit of £40 million and sits excess of both a £15 million placement attachment and separately, the Member insurer retentions.

Pool Re expanded its terrorism reinsurance remit for the UK insurance industry in March this year, as it added an offer for cover against non-damage business interruption (NDBI) impacts, to protect businesses from interruption costs in the event of a terror attack even if their premises were not damaged.

Given this addition, the existing Pool Re retrocessional reinsurance program was seen as providing insufficient coverage, hence this specific NDBI retro placement was devised.

Pool Re had previously said it was targeting up to £50 million of NDBI retro with this placement, with £40 million seen as the lower end of its appetite for the new coverage.

The market’s responded and Pool Re’s NDBI retro needs have been satisfied it seems.

The reinsurer had previously secured a £2.3 billion retrocession programme this year, led by reinsurance giant Munich Re and including its first ever catastrophe bond, the UK issued £75 million Baltic PCC Limited (Series 2019) terror cat bond.

The new £40 million NDBI retro reinsurance program incepted on July 5th, Pool Re said today calling the cover “pioneering”.

Pool Re said that the NDBI retro placement was only made possible due to the development of in-house NDBI risk modelling capability.

The retro “returns the majority of NDBI risk to the private market,” Pool Re explained, saying that this supports its “long-term strategy to normalise the market to the maximum, sustainable extent possible.”

As a result, the NDBI retro works back to back with the reinsurance provided by Pool Re to its members and is focused primarily on non-damage denial of access caused by a terrorist attack.

Steve Coates, chief underwriting officer at Pool Re, commented, “This is the culmination of our longstanding efforts to both enable Pool Re to cover non-damage business interruption and to return as much of the risk to the private market as possible. Our actuarial team, in collaboration with Guy Carpenter and counter-terrorism specialists, developed an in-house model for NDBI, which allows both us and our reinsurers, to quantify and evaluate the risk.”

James Nash, CEO International Guy Carpenter, added, “We are honoured to have been asked to represent Pool Re in bringing this important extension of coverage to the UK market. It was also an opportunity for us to showcase our expanded offering combining the established Terrorism team at JLT Re with the Pool Re team at Guy Carpenter.”

Could the insurance-linked securities (ILS) market provide support for Pool Re’s growing NDBI coverage demands in year’s to come?

It’s possible. The ILS market has provided NDBI covers in parametric form before, as well as terrorism retrocession as evidenced by Pool Re’s own cat bond.

Whether ILS investors could come to terms with an indemnity coverage for NDBI risk is uncertain. But if bundled with the broader retro cat bond, with specific triggers and layers for each type of coverage, if the modelling is sufficiently well-understood, anything is possible.