Placed world’s first terrorism insurance-linked security (ILS) of £75m
Pool Re, Britain’s state-backed terrorism reinsurer, has broken new ground with its placement of a GBP £75 million catastrophe bond...
Pool Re, Britain’s state-backed terrorism reinsurer, has broken new ground with its placement of a GBP £75 million catastrophe bond. Issued through a special-purpose vehicle, Baltic PCC Ltd., the bond is the first-ever insurance-linked securities (ILS) contract to cover terrorism risk exclusively, and only the second 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. In so doing, it brings new sources of capital to the terrorism risk market, returns additional premium to the private sector, and moves UK taxpayers even further from the risks Pool Re mutualises on their behalf. GC Securities placed the three-year bond, which provides cover on an annual aggregate basis and carries an initial interest spread of 5.9% per annum.

Pool Re Chief Executive Julian Enoizi 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.”

The bond once again demonstrates Pool Re’s innovation and global leadership in this unique and evolving class of business. It covers physical damage arising from terrorist attacks on an indemnity basis, including chemical, biological, radiological, and nuclear attacks, as well as losses emanating from cyber trigger. The risk was modelled using Pool Re’s own model calibrated by Cranfield University using Computational Fluid Dynamics.

Shiv Kumar, President, GC Securities, commented: “Executing this successful placement whilst 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.

Katherine Coates, corporate partner at Clifford Chance and head of the firm’s Global Insurance Group, added: “We were delighted to advise Pool Re on this ground-breaking transaction, leveraging our extensive ILS expertise to date and strong working relationship with UK regulators, to ensure a positive outcome for all parties. The deal is another strong endorsement of the UK’s new ILS regime and closing it would not have been possible without the effective support of the PRA.”

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.

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