Read it in full below:
“As all of you I am sure are aware, 2014 was dominated by our lengthy negotiations with Her Majesty’s Treasury. By contrast, 2015 marked a significant transformation period for Pool Re, during which we witnessed the beginning of the successful implementation of the operational improvements that resulted from that negotiation process. I am pleased to report that these reforms have greatly enhanced the scheme for our Members, created greater access for insureds, reduced the cost of terrorism insurance on business, increased resilience and provided an even more effective level of protection to the UK taxpayer.
I firmly believe that the new structure of our relationship with Her Majesty’s Treasury has not only allowed Pool Re to place itself at the centre of the nation’s capability to resist the terrorism threat, but also enables the insurance market to innovate and explore new fields without taking on an unmanageable systemic risk. The inclusion of CBRN, and our on-going research into cyber terrorism, are examples of our ability to innovate and adapt.
The evolving threat of terrorism made itself tragically apparent during 2015. The attacks in Paris in November but also those across Europe and the world, gives clarity to the fact that the threat spectrum has broadened to an unprecedented level. In order for our model to remain an effective defence of the UK economy, we must adapt our practices and enhance our expertise.
Reinsurance pools globally provide a wealth of expertise and international collaboration must, therefore, be a central strategy moving forward. But we, as a significant force within the domestic reinsurance industry, must also develop our own expertise. A greater understanding of the threat will only further serve to strengthen our position with government and enable the insurance market to price and model the risk effectively.
The revised terms of the agreement between Her Majesty’s Treasury and Pool Re were approved by Members at the EGM held on 21 November 2014 and came into effect from 1 January 2015. They entail that 50% of gross premiums are payable to HMT in the form of outward reinsurance premiums, as opposed to the previous 10% in 2014.
In light of these changes, the surplus for this financial year of £100.5m differed significantly from £326m in 2014, in spite of a minimal change to gross premiums.
The increase in our outward reinsurance cost has come at a time where a decrease in gross investment return has resulted in a steady reduction in retained profit. In spite of a prudent investment strategy, widespread low interest rates and the volatility in the commodity and equity markets have caused a decrease in gross investment return from a profit of £63.4m in 2014 to a loss of £44.1m in 2015.
Nonetheless, the company continued to build its investment fund during 2015 with the total value of the fund increasing from £5.57bn to £5.73bn over the 12 months to the end of December 2015.
Provision was also made to pay an annual distribution to Members, with a corresponding amount of further premium payable to HMT. I am very pleased to announce that, as a result of this, for the first time in its history, Pool Re will pay a dividend to its Members and an additional premium to HMT, both of whom are at the core of the success of the Company as a public/private partnership. The dividend is part of the package of measures agreed during Pool Re’s renegotiation of its Retrocession Agreement with Her Majesty’s Treasury in 2014, and is to be paid if Pool Re accrues a surplus in any year of business. The amount of the dividend is £33,511,000 and this will be shared by the Members in proportion to the amount of premium ceded to Pool Re in 2015. A Circular is being sent to all Members today detailing the payments.
In line with what we envisage to be one of our core functions – to protect the tax payer by increasing the resilience of the fund – our Members will now take a greater retention in the event of terrorism loss. From the beginning of this year, retention for any one event increased from £100million from to £135million and to an annual aggregate of £270million. This measure will also assist the steady normalisation of the UK terrorism insurance market with an increase in the risk being returned to it.
Moreover, our new agreement with HMT also enabled us to purchase £1.8bn of external retrocession to further protect the fund and our Members as well as mitigating the financial risk to the UK taxpayer. This marks the first time that the global reinsurance market has been involved in UK terrorism in 23 years and was recognised with a prestigious award for Reinsurance Transaction of the Year.
Throughout this transition period, we have sought to strengthen our ties with our Members by increasing our communication with them in a variety of ways, ensuring high levels of compliance with Scheme rules and maintaining a robust crisis management capability. Clarity of the Scheme and our ability to react to crises form an essential component of our credibility and function.
During the course of the year we have also maintained regular and productive contact with industry bodies. We returned for a second year to the annual British Insurance Brokers’ Association (BIBA) to announce the changes to our proposition, that took effect from 1 October 2015. These included:
• Revised rates that are more reflective of the underlying risk which are based on modern modelling techniques;
• Discounts that reflect the requirements of certain buyer groups and their willingness to retain risk; and,
• A bespoke SME discount that recognises the changes in SME products over the past decade.
In May, we formed a partnership with the National Counter-Terrorism Security Office to implement a Loss Mitigation Credit for companies and organisations within the Crowded Places Programme. I am particularly pleased with this new initiative, which provides a clear example of the potential benefits effective collaboration with government can have to the Scheme. I firmly believe that incentivising businesses to adopt proven risk management procedures can only strengthen the UK’s business community in the event of an attack.
As a result, I can announce that Pool Re is investigating with its Members an initiative to allocate additional resources from future surplus to its risk analysis and research capabilities. This will coordinate the efforts of the industry in the three key areas of terrorism risk management, namely: threat analysis to ensure an increased understanding of a rapidly evolving terrorism threat; risk reduction; and loss mitigation, all of which are designed to increase the resilience of the U.K. economy. The aim is that this should benefit the membership as a whole, directly from the output of the initiative and indirectly from the benefit which will be delivered to policy holders.
As I mentioned earlier, the need for cooperation between international reinsurance pools has become ever more apparent. To this end, in October, Pool Re hosted the inaugural National Terrorism Reinsurance Pools Congress, which brought together CEOs and senior executives from catastrophe insurance pools of 14 different nations. The event provided an opportunity to compare and discuss a broad range of issues, from new threats such as cyber terrorism, to innovations in protective security measures, as well as operational issues and challenges to future growth and structure.
It gives me great pride to see the prominent position Pool Re has taken in fostering international collaboration and I believe this to be a watershed moment, providing the catalyst for the sharing of ideas and best practice and enhancing our collective understanding of the threat.
Throughout 2015 we have also developed our corporate social responsibility policy. I am pleased to be able to announce that we are active supporters of Age UK in Lewisham and Southwark, with members of the team volunteering with local community projects and helping to raise funds to support the work of this fantastic organisation.
I would like to take this opportunity, on behalf of the Pool Re team and our Board to express our thanks to Tony Latham. That Pool Re has not only stood the test of time, consistently fulfilling its founding function without recourse to the public purse, but has also become a more robust and modern scheme, is due in no small part to his tireless efforts over the past two decades. His strategic counsel has been invaluable to me personally and his services to Pool Re have been sans pareil.
I am also very pleased to welcome Geoff Riddell as our new Chairman. His experience and track record speak for themselves and his input will be vital to ensuring that Pool Re continues to build on its successes.
In closing, I would like to thank all the staff of Pool Re without who’s hard work and dedication, none of this would have been achieved. They know that it is essential that Pool Re continues to adapt to the evolving threat environment that we now find ourselves working in so that we not only remain relevant, but are also able to fulfil our core functions. 2015 represented a year of accomplishments which transformed the scheme. I am certain that the coming year will require similar change so as to ensure that we continue to fulfil our obligations.
Finally, I would like to express my gratitude to all of you for making time to attend today.”
Find out more about Julian and the rest of our team here.