This is my fifth year at Pool Re, and my fifth AGM. As I reflect on that, I am struck that it gets more difficult every year, as I try to fit into 10 minutes everything I want to tell you about how our organisation has continued its rapid development over the previous twelve months. In addition, this year we decided to ask Steve Johnson from Cranfield University to give a presentation, so that you can see first hand the work we have been undertaking on threat modelling.
Anyone remotely close to Pool Re will know that our progress continues apace. A 25th anniversary in and of itself confers no particular merit; but we have matched this milestone with a truly watershed twelve months that have seen this company enhance its position in numerous ways.
Since its inception, Pool Re has played a vital role, and, I would argue, has become part of the UK’s critical national infrastructure; we were established in 1993 to bridge the gap between demand for cover, and what the commercial market had the capacity to offer – a role we still play today. Indeed, while its reputation may not always reflect this truth, fostering economic resilience is at the heart of the insurance industry’s raison d’etre. Pool Re illustrates that supporting a public policy objective is not incompatible with Members’ requirement to make a profit for their shareholders.
I will start with the headline news: our financial results. I am pleased to announce another positive year, with our investment fund at 31 December 2017 standing at £6.494 billion, an increase of £236 million. Since this buffer represents the extent to which Pool Re can meet reinsurance claims without recourse to the Government, its steady growth is a central indicator of our success in meeting a founding objective. This year’s increase results from premium income from member insurers, 4.4% higher than 2016, as well as the fund’s own strong investment performance.
I am pleased also to announce that our renewed international retrocession programme, the largest terrorism retro placement in the world, increased in March this year by £100m to £2.1bn. It now includes coverage for damage from acts of cyber terror, following our removal of the cyber exclusion from our policy which I will discuss shortly.
2017 was the third year under the revised terms of the retrocession agreement between Pool Re and Her Majesty’s Treasury. In addition to an increase to 50% of the value of gross premiums being payable as outward reinsurance premium to the Treasury, the revised terms include a provision for Pool Re to pay an annual dividend to Members. This is subject to a surplus having accrued over the year, which I’m glad to say it has. As such, the dividend due to Member companies for the financial year stands at £51.6 million, with a matching amount payable to the Treasury as further premium. As Gross Written Premium for the year was £313.8 million, the dividend will equate to a return of 16.5p for each £1.00 of premium ceded by Members to Pool Re in 2017. A Circular is being sent to all Members today detailing the payments.
The last 12 months have seen two very significant enhancements to the cover Pool Re provides. Our removal of the cyber exclusion, along with incoming legislation to allow us to cover non-damage business interruption, both represent a new global standard of terrorism cover. I think it is fair to say that new insurance products are usually invented following a first, catastrophic manifestation of an emerging peril. With our cyber extension, we are ahead of the game: the UK has yet to suffer a terrorist cyber-attack. However, in an age of rapidly developing AI, smart technology, and the growing Internet of Things, no one can doubt the scale of the threat this inter-connectivity poses, especially in light of the high-profile nature of likely state-sponsored cyber attacks against systemic services such as the NHS.
The interest in our cyber amendment was clear from the launch last November, when over 250 people from the market, Government and media attended our cyber terrorism event, with keynote speakers including the Security Minister Ben Wallace, and the ex Director General of GCHQ, Robert Hanigan.
From 1 April of this year, the improved cover has been offered as standard, and includes material damage and direct business interruption caused by acts of terrorism using remote digital interference. It has been well received, and as the first of its kind in the world, a source of interest internationally as other countries seek to protect themselves from one of the most urgent emerging perils to societies and national economies.
The other major breakthrough in respect of coverage is the progress of the legislation through Parliament which will enable Pool Re to reinsure non-damage business interruption costs in the aftermath of an attack.
I am particularly pleased to be sharing this update with you in light of the recent anniversary of the London Bridge attack. As a small aside to the appalling casualties and fatalities, the attack emphasized a gap in our cover as businesses in the Borough Market vicinity were unable to be compensated for being closed for 11 days whilst a police cordon was in place, a consequence particularly damaging for SMEs who cannot, in general, fall back on the economies of scale of larger companies in such instances ad may irreparably damage the livelihoods of those affected.
The gap in cover was due to Pool Re being restricted by its 1993 founding legislation – which excludes businesses interruption losses that do not emanate from property damage. We have been working collaboratively with the Government to close the gap, which they have now committed to do.
The Counter Terrorism and Border Security Bill was announced in Parliament last week, and was given a second reading in the Commons earlier this week. We remain confident of being able to introduce the cover towards the end of the year, and will be engaging with our Members not only on the extent and price but the penetration and distribution of this timely extension across the country.
Both our cyber extension and forthcoming NDBI amendment, successes in themselves, also represent further promising evidence of our close and mutually beneficial working relationship with Government. Referring to the preparatory work for the NDBI announcement, Economic Secretary to the Treasury John Glen cited the “open and constructive relationship” as central to “ensuring Pool Re remains a world leading terrorism reinsurance pool”.
This follows on from other good news last week, when Home Secretary Sajid Javid launched a refresh of CONTEST, the Government’s 2018 strategy for countering terrorism. Encompassed within CONTEST is PROTECT, which focusses on reducing vulnerability, and emphasizes partnerships with businesses such as those represented by our Members here today to keep the country safe. I was very pleased to find Pool Re featured in the report as a “Case Study” of an “excellent example of a public-private partnership”, in light of our work on developing the Loss Mitigation Credit. Otherwise known as the PSIA, this constitutes part of our aforementioned efforts to encourage a healthy and informed attitude to risk culture amongst policyholders and UK businesses.
Building on the success of the Loss Mitigation Credit, and announced in our New Underwriting Manual active from April of this year, Pool Re launched the Vulnerability Self-Assessment Tool which allows medium and large businesses to benchmark their existing terrorism risk management standards, and align with accredited best practice in return for a 5% premium discount from our Member insurers, deducted from your reinsurance premium to Pool Re.
The Manual also announced our amended pricing structure to better reflect how modern SME products are priced and sold. This involves charging reinsurance premium only on material damage, which will make cover more affordable for the end customer – especially in zones C & D – and ought to increase regional penetration. These changes are particularly important given the low take-up of terrorism cover nationally amongst SMEs, which account for an estimated 99% of all private sector business in the UK.
Key to this will be closing a clear information gap on the altered threat profile, and the interdependency of risk policyholders are exposed to. Pool Re believes that more SMEs would purchase cover if they had a better understanding of the threat, and the ready accessibility of affordable and appropriate cover. We will continue to work with our Members, and representative bodies such as the Federation of Small Businesses, especially in light of our incoming NDBI proposition. This work will largely be handled by our newly created Customer Engagement and Distribution teams, who will be seeking to streamline their operations and use new channels of communication to collaborate more closely with Members.
As part of, but by no means limited to these efforts, we have increased the quality and quantity of the risk information we provide to Members and their policyholders from TRAC, our threat analysis centre. In 2018, we have launched our quarterly Terrorism Frequency Report. To build resilience against a threat, that threat must be understood, and these Quarterly publications, combined with the annual Threat and Mitigation Report (due this Autumn), aim to enable you as an industry to make informed decisions and ultimately, assume and capitalise upon a risk that is no longer the comlete unknown quantity of 25 years ago, as Steve will be demonstrating to us shortly.
I will now take a brief look at the rest of 2018 and beyond. As highlighted by the CONTEST report, Pool Re is now a stronger bridge than ever between the public and private spheres. Above all, we remain committed to the challenge of providing an exemplar model for disaster risk financing solutions to existing and emerging perils for the benefit of the market, the Government, and the UK’s citizens.
We are exploring, for example, the possibility of issuing ground-breaking insurance linked securities for terrorism retrocession, following a change in the UK’s legislative environment conducive to a greater harnessing of this international capacity. We will also continue to share expertise and knowledge through IFTRIP, the international community of terrorism reinsurance pools around the world committed to boosting global resilience to terrorism.
On a similarly unifying note, we hope by April next year to have reached our £1 million fundraising goal through the ‘London Market Line Slip’, which some of you may have seen. We have pledged an initial sum to this slip, which with the support of the insurance industry will secure the long-term future of St. Ethelburga’s Centre for Reconciliation and Peace, as part of the commemoration of the 25th anniversary of the IRA Bishopsgate Bombing. St Ethelburga’s and Pool Re were borne out of the same act of violence, and I am heartened today by the incredible reconciliatory work the centre undertakes.
From Government, to the work of intelligence and security agencies, to the insurance and indeed reinsurance industry, to projects such as St. Ethelburga’s – this united front to a divisive threat will continue to allow us all to enhance the resilience, diversity, and global reputation of the UK’s response to terrorism.
The threat has evolved, but so have we, and the last 12 months are a good indication that we will continue to do so. With rapid progress and expanding horizons comes, of course, attending challenges and responsibilities. But I feel very privileged to be overseeing this exciting time in this organisation’s history, and proud to know that it will not rest until the job it was established to do has been done.
I would like to thank all the Pool Re staff here today, without whose hard work, professionalism and dedication, none of this would have been achieved. I would also like to thank our Member insurers, and particularly those who serve on our Advisory Board, for their invaluable contribution to the developments of the last 12 months. Finally I would like to thank our Board for their steadfast support and guidance.
Lastly, can I express my gratitude to all of you for making time to attend today, and I look forward to meeting those of you who are able to stay for drinks after the meeting.
In the meantime, I will hand you back to the Chairman.