Pool Re places first catastrophe bond for terrorism risk

UK government-backed terrorism reinsurer Pool Re has placed its first catastrophe bond covering physical damage caused by chemical, biological, radiological and nuclear attacks, and losses caused by a cyber trigger.

The company said the three-year, £75 million bond, issued by special-purpose vehicle Baltic PCC Ltd, was also the first insurance-linked securities (ILS) contract to cover terrorism risk exclusively. It is also only the second to be issued under the UK’s new regulatory system for ILS, Pool Re added.

The bonds secures £75 million in retrocession protection in excess of Pool Re members’ net loss of £500 million and represents an “evolving class of business” that bring new sources of capital to the terrorism risk market. To evaluate the risk the reinsurer used its own model, which was calibrated by Cranfield University using Computational Fluid Dynamics.

GC Securities placed the bond, which provides cover on an annual aggregate basis and carries an initial interest spread of 5.9 percent a year.

Julian Enoizi, Pool Re chief executive, said: “We have been working towards this placement for several years and are excited to bring an entirely new source of capital to the terrorism risk market for the first time.

“It diversifies the funding of our retrocession programme, complementing the capital of traditional reinsurers to spread terrorism risk even more broadly. In addition, it further protects HM Treasury, and helps us towards our ultimate goal of returning as much risk as possible to private markets.”

GC Securities president Shiv Kumar added: “Executing this successful placement while the ILS market is processing losses from 2017 and 2018, demonstrates the strength and quality of Pool Re’s proposition and their market-leading risk analysis.  This type of innovation is a great example of the major role the UK market can play in broadening the ILS asset class.”

Earlier this month,  Pool Re gained Parliamentary approval to cover non-damage business interruption losses in the wake of a terrorist attack.