I joined the board of Pool Re in 1996 when the company was still seen as a temporary solution to the issue of terrorism damage. This followed the St. Mary Axe and Bishopsgate bombs, as well as the global reinsurance market’s understandable decision to stop reinsuring terrorism damage within the UK in 1992. The combination of terrorists targeting damage to property as a way to cause maximum economic damage, coupled with an inability to predict either the frequency or severity, created a “perfect storm” for a UK economy seeking foreign investment.
Pool Re was formed as a public/private partnership between government and the insurance industry. The initiative reflected the government’s economic concerns, their responsibility for security and their financial strength in partnership with an insurance industry’s expertise and desire to contribute as much as possible to a solution.
This solution has stood the test of time and meets the objectives set for it at its formation. Since 1992, we have paid claims totalling more than £600million without recourse to government. During that period, we have paid Her Majesty’s Government over £1billion in retrocessional premium and tax while continuing to grow our asset base in order to help pay for future claims. In 2002, post 9/11 and in response to future change in the reinsurance market and the scale of that incident, cover was extended to an “All Risks” basis, which includes: Nuclear, Biological, Radioactive and Chemical risks. Members increased their retentions significantly, with the industry now retaining an annual aggregate of £200million.
While our prime objectives remain the same, external circumstances change: terrorists have widened their focus to the destruction of human life as well as property. Our task is to evolve to meet these changing circumstances. The extent of terrorism insurance purchased from our members outside our major cities remains stubbornly low; penetration of the SME sector is also limited. Our task is to facilitate strong take-up wherever possible. One approach we have adopted is to ensure our reinsurance pricing accurately reflects the relative risk in each part of the country; another is to create a product focused on the SME sector.
As a reinsurer, it is more difficult for us to encourage good risk management. Nevertheless, we have been working with the National Counter Terrorism Security Office to do exactly that where key buildings are involved.
The nature of today’s terrorism requires international collaboration. Over the last few years, in an informal way, we have worked with terrorism pools in other countries to learn from each other. Each country, of whom at least 20 have arrangements, has their own approach. Nevertheless, we can benefit from each other’s experiences. Last year, for the first time, 28 representatives from 14 organisations attended a conference in London which created a more formal forum for this.
Inevitably, our relationship with Her Majesty’s Treasury is not straight forward. While there is a strong mutual interest in balancing the interests of the taxpayer, and other insurers; as well as protecting inwards investment and the health of the UK economy; HMT’s other responsibility for the Government’s finances, and their duty to the taxpayer, can influence their view of what they should be paid for the retrocession cover they provide. Our recent negotiation was an example of this. It was not easy but I believe we ended up in the right place, for our Members and their insureds retaining and improving all that is good about Pool Re, its ownership and its efficient business model based in the industry. In return, the retrocessional premium increased significantly to the benefit of the taxpayer.
The Board and management at Pool Re have a number of interesting challenges ahead. The insurance market for SMEs has changed remarkably over the last few years. Our job is to support our Members in seeking to improve the availability of affordable terrorism cover.
Reinsurers have shown a greater appetite to provide terrorism cover in the last few years, albeit with limited capacity. We took advantage of this in 2015 by purchasing a layer of retrocession. This has a number of advantages. It takes HMT further away from the action, it protects the Members’ assets within Pool Re and starts to instil more confidence in the reinsurance market.
Additionally, we are all aware of the challenges individuals, businesses, large corporations and governments face with cyber risks. We exclude cyber terrorism. Nevertheless as this threat grows and evolves, this may not be the right place for us to be. We have engaged a leading academic institution to undertake a comprehensive study of this threat. This will enable us to maintain our support for our Members as they seek to respond in their market.
Pool Re is a real example of public/private partnership at its best. It plays a vital role in protecting the UK economy from the threat of terrorism. Unlike Flood Re, which is a tactical response to a politically-sensitive issue, Pool Re is a strategically important enabler for the economy, facilitating financial security and protection for all businesses who want it.
I have seen many changes in the insurance market over the last twenty years. One constant is that Pool Re continues to ensure that any business in Great Britain that wants to buy insurance for terrorism damage may do so.