Pool Re

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Template:Context Insurers of commercial property & earnings in the UK can reinsure their terrorist liabilities with Pool Re, a mutual reinsurance company set up by the insurance industry in 1993. Pool Re has substantial reserves, and in addition HM Treasury acts as reinsurer of last resort.

Members of the Pool have to be properly authorised insurers. They insure the risk, and can then recover from the Pool if their payments for a particular terrorist incident are more than a certain amount. The level depends on the amount of cover they transact with the pool.

POOL REINSURANCE COMPANY LIMITED

Information summary Pool Re is a mutual reinsurance company authorised to transact reinsurance business for commercial property and business interruption and related classes, including residential property in commercial ownership. Pool Re was established by the UK insurance market with Government support in 1993. This was as a consequence of restrictions in the scope of terrorism cover, imposed by the international reinsurance market, following a spate of IRA terrorist incidents in London and elsewhere in England. Since that time Pool Re has funded losses totalling £612M on claims arising under its Members’ policies.

The most significant incidents are:

Date	Location	Loss
April 1993	Bishopsgate, City of London	£262M
February 1996	London Docklands	£107M
June 1996	Manchester City Centre	£234M
August 2001	Ealing, West London	£7M
1993 - 2001	Other Events	£2M
Total		£612M

Editors Note : A further incident on 7 July 2005 in London may well result in a claim but no information is available publicly at the time of writing

The Scheme covers losses resulting from an Act of Terrorism, as defined in the Reinsurance (Acts of Terrorism) Act 1993: “acts of persons acting on behalf of, or in connection with, any organisation which carries out activities directed towards the overthrowing or influencing, by force or violence, of Her Majesty’s government in the United Kingdom or any other government de jure or de facto’.

Pool Re Members Members are insurance companies and Lloyd’s syndicates, authorised in the UK, or by an overseas regulatory authority, to transact property insurance in the UK.

Cover The territorial scope of the reinsurance cover is limited to the UK mainland, i.e. England, Wales and Scotland. The arrangement permits Members’ policyholders to secure Terrorism cover, to the full extent of their policy limits. Types of property eligible for reinsurance under the scheme are buildings and contents, engineering, contractors and computer risks; also, business interruption, loss of rent and book debts.

Policyholders who decide to effect terrorism cover must include all of their premises without exception but it is permissible to have cover for material damage only, without business interruption. Following the attacks on the World Trade Centre and other locations in the USA on 11th September 2001, substantial changes took place in the reinsurance market with regard to coverage for terrorism. Reinsurance cover hitherto available in the UK from the international reinsurance market had been designed to dovetail with the cover provided by Pool Re since 1993, i.e. acts of terrorism resulting in fire and/or explosion. Insurers therefore did not face a gap between the reinsurance cover available from Pool Re. and that available from the commercial market. Post September 11, reinsurers decided they would no longer provide the balance of terrorism cover. They applied exclusions in respect of damage caused by perils other than fire and explosion and also applied to their exclusions a wider definition of what would constitute an Act of Terrorism. Changes were made to the scheme following market and HM Treasury discussions. Cover provided by Pool Re and offered to its Members is now no longer restricted to Acts of Terrorism resulting in fire and/or explosion only. The former nuclear exclusion has been deleted and the only excluded losses are now those in respect of war and related perils and computer hacking, virus and denial of service attack. There being no exclusion relating to chemical, biological, radiological or nuclear attack, the scheme is designed to respond to claims arising from incidents of this nature. The reinsurance cover provided to Members is subject to a maximum loss Retention per event per Member, combined with an aggregate limit for each Member’s annual retention. The amount of the Retentions are based on the degree of Members’ participation in the Pool Re scheme. The Retention for each insurer is set annually, as a proportion of an industry wide figure. It has been determined that the industry wide Retentions will escalate as follows:

Applying In	Per Event	Per Annum
2003	£30M	£60M
2004	£50M	£100M
2005	£75M	£150M
2006	£100M	£200M

Application of the Current Scheme Reinsurance is provided to Members for material damage and business interruption cover, at rates set by Pool Re. Rates are applied to the full value at risk. Members are free to set their own terrorism premiums for their underlying policies,according to normal commercial arrangements. No reinsurance commission is paid to Members by Pool Re. However, Members may decide to pay whatever intermediary commission they may determine. Detailed information is necessary on the exposure carried by Members, and by the scheme overall, to allow rates to be set which will achieve an appropriate level of fairness in application between Members. Each year Members submit up to date details of portfolio exposure data. Pool Re regularly reviews Members’ underwriting and accounting practices, to ensure compliance with the scheme. Similarly, a pro-active approach is taken regarding claims management, with a review process that considers Members’ claims and contingency procedures.

Retrocession Agreement Pool Re’s Retrocession Agreement with HM Treasury provides funding for Pool Re in the event that claim payments exhausts all its financial resources. HM Treasury issues a certificate whenever a particular event is deemed to be an Act of Terrorism; the issue of this certificate binds all parties to the scheme to treat such events as Acts of Terrorism. The relationship with HM Treasury is reinforced by their entitlement to appoint a director to the board of directors of Pool Re.

Conclusion For over a decade the scheme has consistently embodied a pragmatic and practical approach to the difficulties the insurance market encountered by way of general escalation in the incidence and nature of terrorist activity since 1993. The positive nature of the scheme permits the UK insurance market to continue to offer their commercial clients a comprehensive terrorism insurance facility.

From a Pool Re information sheet dated MARCH 2004

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