Pool Re members, UK Treasury give backing to modernised treaty model

Pool Re, the UK government-backed terrorism reinsurer, has announced its members and the Treasury have backed formal proposals from the Pool Re board to transform the current Pool Re scheme.

These approvals pave the way for a modernised aggregate catastrophe excess of loss treaty, which Pool Re said will ensure it “remains relevant and is fit for purpose in the digital age”.

There will be no changes to the fundamental rules of the scheme and the coverage provided, Pool Re emphasised.

However, according to Pool Re, the proposal will allow members more flexibility to underwrite terrorism commercial property damage and business interruption risks in line with their strategic priorities and risk appetite.

This will create the conditions necessary to support members in driving greater take-up of terrorism cover, Pool Re said, returning risk to the private market, “further distancing the taxpayer from the financial consequences of acts of terrorism, and bolstering the resilience of the UK economy”.

Pool Re’s proposals to convert its reinsurance arrangements from the current facultative obligatory treaty to an annual aggregate catastrophe excess of loss treaty will take effect in April 2025.

“Members and HM Treasury have given Pool Re a very clear and exciting mandate to continue Pool Re’s modernising journey. When Pool Re was founded some 30 years ago, it was never intended to be a permanent, static, and definitive solution,” said Pool Re’s CEO, Tom Clementi (pictured).

“Our job was always to correct a market failure, and to provide opportunities for the industry to take more terrorism risk onto its own balance sheet and normalise the market. The change to an aggregate catastrophe excess of loss treaty is the best possible outcome for both members and the taxpayer,” Clementi added.

The modernisation effort is a core element of the ‘Scope of Works’ programme agreed by members and HM Treasury following the last review of Pool Re by the government which concluded in March 2022.

The shape and structure of the updated scheme is the result of more than two years’ engagement and consultation with members and the Treasury.

Transformation from a facultative treaty to aggregate treaty basis will involve the following, Pool Re said:

• More risk-reflective pricing: the updated scheme will provide members with reinsurance cover that is priced in a more sophisticated and risk-reflective way.
• Members’ reporting obligations will simplify, with members only required to provide an annual exposure return, reducing their administrative burden.
• Choice and flexibility built into the new treaty arrangements will allow members to choose their own preferred retention level, subject to a minimum retention specified by Pool Re, and so take on more terrorism risk.

Economic secretary to the Treasury Bim Afolami concluded: “Pool Re has worked hard on its plan to modernise its reinsurance offering, and I am pleased that Pool Re’s proposals are supported by its members as well as the Government. I look forward to seeing the impact of the change for members, customers and the terrorism insurance market”.