Terrorism pools showing increasing interest in cat bonds: Pool Re

Following its successful sponsorship of the first terrorism risk catastrophe bond earlier this year, Pool Re has been sharing its experience with other aggregators of terrorism insurance risk to help them understand the option to tap into capital markets appetite.

Terrorism risk and its potential as an insurance-linked securities (ILS) diversifier was discussed at the recent International Forum of Terrorism Risk (Re)Insurance Pools (IFTRIP) annual conference held in Brussels.

At that event, it was said that terrorism insurance and reinsurance risks are seen as a useful but complex diversification opportunity by investors, but that they will not be for everyone’s ILS funds.

Discussing this with us, Ian Coulman, Chief Investment Officer at UK government-backed mutual terrorism reinsurance facility Pool Re, explained that ILS and catastrophe bonds are now firmly on the agenda as an option for those seeking terrorism reinsurance.

“The successful launch of Baltic PCC demonstrated that the capital markets are open and welcoming of new perils. We believe that the experience of launching the first standalone terrorism ILS is worth sharing with other terrorism pools, recognising that terrorism risk can be diversified and shared across a broader range of potential investors,” Coulman explained.

“Following the launch of Baltic PCC we received interest from several other terrorism pools who are members of IFTRIP. They were keen to gain a better understanding of the process and our experience of launching the first stand alone terrorism ILS,” he continued.

Pool Re is trying to help expand the availability of terrorism reinsurance and retrocession. Not just through its own reinsuring of UK firms, but by engaging with and educating other bearers of terrorism insurance risks and helping them to understand the opportunities the ILS market presents.

Coulman explained, “Sharing our experience with other terrorism pools can help other governments to de-risk their balance-sheets and move the tax-payer further away from the potential risk.”

As the only sponsor of a pure terrorism risk catastrophe bond, other terror pools can gain a lot from Pool Re’s experience and learnings, which in time should help to encourage more of these government backed entities to look at sharing their risks with the capital markets.

As we also explained recently, efforts continue to establish ways to leverage the capital markets to take on more terrorism insurance exposure in the United States, with Treasury still considering routes to transfer risk to private markets including catastrophe bonds.