Pool Re was established in 1993 as a response to the market failure that was triggered by the bombing of the Baltic Exchange. The costs of the Provisional IRA’s mainland bombing campaign in the 1990s led to reinsurers withdrawing cover for terrorism-related damage, with insurers compelled to follow suit. Pool Re was founded by the insurance industry in cooperation with, and backed by funding from Her Majesty’s Treasury, to form a private sector solution to a public policy objective.

Since its foundation, Pool Re has provided effective protection for the UK economy and currently underwrites over £2 trillion of exposure in commercial property to terrorism risk across the UK mainland. To date, Pool Re has paid out claims of more than £600 million at no cost to the UK taxpayer. The largest claim resulted from the 1993 Bishopsgate bombing in the City of London – then £262 million. The exposures in the same area today would be significantly in excess of that figure.

Pool Reinsurance Company Limited was formed in 1993 following a series of terrorism incidents in the early 1990’s in London and elsewhere in England related to the situation in Northern Ireland at that time. The cost of these losses caused insurers and reinsurers to focus on the difficulties of providing terrorism cover for commercial properties, in particular the high potential cost of losses and the lack of any reliable method of estimating what the future loss experience might be. Insurers depended on reinsurers for financial protection should very large claims occur and, accordingly, both insurers and reinsurers decided they could no longer provide terrorism cover using traditional methods.

Yet, any withdrawal of terrorism insurance that left areas of business unprotected would potentially have had serious consequences for the UK economy. It became necessary, therefore, to devise a new mechanism for providing this type of cover, without leaving insurers or reinsurers open to substantial losses for which there was no reliable method of calculating accurate premiums.

During the latter part of 1992 it became clear that any new scheme would require the joint involvement of the insurance industry and government. Following extensive dialogue, a suitable structure emerged and the details of the Pool Re scheme were developed.

The Pool Re scheme began operations in 1993 and has subsequently been involved in claims arising from thirteen separate terrorism incidents covering losses of over £600m.

Since March 2015, Scheme resilience has been augmented by an external reinsurance placement. This re-engages the global market in aggregated UK terrorism for the first time since 1993, and additionally provides protection to both Scheme assets and the UK taxpayer.

Since its start, the scheme has adapted to changing circumstances in the insurance market. The most significant changes occurred after the attacks in America on September 11th 2001, which caused insurers and reinsurers to reconsider the way terrorism insurance should be offered.

Until that date the conventional insurance and reinsurance market had been willing to dovetail the cover they provided with that available from the Pool Re scheme. Pool Re’s cover to insurers was restricted to damage caused by acts involving fire or explosion, and the international reinsurance market covered other types of terrorism. After 9/11, however, reinsurers were no longer in a position to do so.

Had Pool Re continued with these restrictions, insurers would have been unable to provide their customers with cover for terrorist events not involving fire or explosion. In an attempt to avoid this situation, there were discussions between representatives of the insurance industry, buyers of insurance, the UK government, Pool Re and others.

In July 2002 an agreement was reached to widen cover and amend certain other features of the scheme in a way that responded to these changing needs. In particular, Pool Re’s cover was extended to an “all risks” basis, and no longer restricted to fire or explosion. In addition, exclusions relating to chemical, biological, radiological or nuclear attack were removed.

Pool Re’s primary role is to enable the commercial market to underwrite the risk of damage to commercial property caused by an act of terrorism at relatively risk-reflective rates by mitigating their exposure to the catastrophic losses associated with major attacks, and thereby acts as an enabler to the economy. Pool Re’s Members comprise the vast majority of the major property insurers in the London market. The Scheme provides comprehensive cover for damage to commercial property and the associated business interruption costs. Central to the proposition is the integration of Pool Re’s cover with the underlying property policy.

In the event of a loss resulting from an act of terrorism, each Member must first pay losses up to a threshold, which is determined individually for that insurer. When losses exceed that threshold, the insurer can claim upon Pool Re’s reserves, which now stand at almost £6billion. These reserves have been accumulated by the members of Pool Re since its inception. It is only in the event that these reserves are exhausted that Pool Re would require Government support.

Since 2003, in recognition of the evolving threat landscape, Pool Re has extended its cover to include attacks involving chemical, biological, radiological and nuclear (CBRN) devices to the full insured value. The Executive Team has recently commissioned a research project with Cranfield University, in association with Guy Carpenter, to produce a new UK terrorism risk model for potential attacks involving CBRN devices. Additionally, Pool Re is currently conducting research into the developing threat of cyber terrorism, in partnership with the Cambridge Judge Business School, to quantify this risk and assess whether it can provide cover.

Fig. 1 outlines the current structure of Pool Re’s financial model. The company is able to draw
on over £8 billion before calling on the funding provided by HM

Since March 2015, Scheme resilience has been augmented by an external reinsurance placement. This re-engages the global market in aggregated UK terrorism for the first time since 1993, and additionally provides protection to both Scheme assets and the UK taxpayer.

In line with one of Pool Re’s principal functions – to protect the taxpayer by increasing the resilience of the Scheme –  Members now take a greater retention in the event of a terrorism loss, which has increased from £100 million to £150 million and to an annual aggregate of £300 million. Combined with its purchase of commercial retrocession, these measures will assist the steady normalisation of the UK terrorism insurance market by returning as much cover as possible to the commercial market.

Pool Re has evolved beyond being merely a mechanism for passing money between the Government and businesses affected by terrorist activity, thereby allowing the continued provision of terrorism insurance. Instead, the capacity of the Scheme has enabled Pool Re to evolve into a provider of an effective level of protection to the taxpayer against the cost of a terrorist event.

The company’s dedicated research and analysis team continues to assess the threat environment and work closely with the Government and the insurance market, as well as with other international terrorism reinsurance pools. Given the global nature of contemporary terrorism, international collaboration and knowledge sharing are likely to form an essential part of the company’s future strategy. In line with this, Pool Re hosted the inaugural National Terrorism Reinsurance Pools Congress in October 2015, which brought together CEOs and senior executives from catastrophe insurance pools of 14 different nations. Pool Re’s continued active participation provides an opportunity to 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.

Pool Re has recently formed a partnership with the National Counter-Terrorism Security Office (NaCTSO) to inform and develop the risk mitigation measures within the Government’s Crowded Places Programme. Pool Re is committed to expanding its collaboration with the Government and acting as a facilitator of dialogue between industry and Government on counter terrorism matters. An example of this is Pool Re hosting a joint event with the Office for Security and Counter Terrorism (OSCT), to facilitate private sector engagement with the Government’s Counter Terrorism strategy review.

The evolving nature of the terrorist threat is creating greater exposure to UK businesses. As the principal reinsurer of this peril, Pool Re is working to improving the take-up of this cover by recognising that small and medium size enterprises (SMEs) have distinct requirements. The underwriting team are working in cooperation with the wider insurance market to develop an improved SME proposition that recognises changes to the way in which SME insurance products have been structured and sold over the past decade.

Today, Pool Re is dedicated to evolving so as to respond effectively to the terrorism threat, continually looking to enhance its capability and provide value and resilience to the UK economy. At the same time, Pool Re aims to enable the insurance market to develop new risk mitigation products and limit the taxpayer’s exposure to the cost of future attacks.