Pool Re seeks more reinsurers to back its retro programme

Pool Re, the UK’s state-backed terrorism reinsurer, wants to increase the number of reinsurers willing to participate on its retrocessional placements and the number of investors willing to support its ILS programme as it cannot buy as much capacity as it would like.

Julian Enoizi, chief executive of Pool Re, told Monte Carlo Today that since launching its first retrocessional reinsurance programme four years ago, Pool Re has been on a process of educating the market about the risk. It now works with around 50 reinsurers, but would like to buy more protection than is available.

“We have increased the capacity on the programme every year since we launched it four years ago, but it remains a continual education process where we must explain to people what the perils involve and how the risk models have evolved over time,” he said.

“It is still viewed as a difficult peril. We are buying 100 percent of the capacity available every year and we would like to buy more.”

Pool Re bought £2.3 billion of capacity in its last renewal, in March, an increase of £500 million from the £1.8 billion it bought when the programme was launched in 2015.

He would like to increase it by another £100 million and is in Monte Carlo to assess sentiment for the risk and continue to educate reinsurers.

The placement, led by Munich Re, included a £75 million slice placed with ILS investors.

As the number of participating reinsurers has increased on its programme, Pool Re has also benefited from a gradual improvement in rates, Enoizi said, although he added that this was partly a reflection of an increased retention and improvements in the quality of the underlying data and risk modelling.

Against a backdrop of hardening rates in the market, he is hoping to avoid increases.

“I would like to think we will be shielded from increases that are nothing to do with the peril we write, but I am aware of the wider market dynamics.

“If there were a big terrorism event that would be different, but we hope not to be swept up in a broader wave of rate hikes,” he said.

Pool Re placed a second retrocession programme earlier this year covering non-damage business interruption (NDBI) losses. The programme, which incepted on July 5, allows Pool Re to cover losses incurred if a business cannot trade or is prevented from accessing its premises in the wake of a terrorist attack that does not involve physical damage.

The cover, led by Liberty Specialty Markets, protects Pool Re with a limit of £40 million and sits excess of a £15 million placement attachment and, separately, the member retentions. The placement was made possible by the development of in-house NDBI modelling capability.

Enoizi said that he was delighted that 15 reinsurers participated on this placement despite its being a first of its kind.

“Business interruption risk is very different from property and there was a completely different set of scenarios to discuss with reinsurers,” he explained.

“We were supported by some strong lead reinsurers who are comfortable with how we model the risk, and we were delighted with the end result.”

This too is a placement Enoizi would like to grow in the future.

“We need to grow the market at both ends in terms of penetration so that more small businesses are buying this form of coverage, and in terms of the number of reinsurers comfortable taking it on,” he said.

Pool Re completed another first this year when it issued a £75 million cat bond the first ILS covering terrorism risk exclusively.

Baltic PCC was just the second ILS to be issued under the UK’s new regulatory system for ILS. The bond provides £75 million of retrocession protection in excess of Pool Re members’ net loss of £500 million. The deal sits as part of its wider £2.3 billion retro programme.

Enoizi said the bond was three years in gestation and he was delighted that the deal has succeeded in bringing a new source of capital to the UK terrorism market in the form of ILS investors from the capital markets—as opposed to the ILS arms of re/insurers.