Pool Re secures approval for retro cover

Pool Re, the mutual reinsurer that provides terrorism cover for commercial property in the UK, has been granted permission by the UK Treasury to purchase external retrocession cover.

This is according to a letter from the Treasury to Pool Re’s chief executive officer, Julian Enoizi, which included a number of other final adjustments.

“As you know, it is standard government policy to not purchase re/insurance. This has been an important consideration when assessing your proposal to purchase external retrocession cover as HMT effectively pays some of the costs of reinsurance (due to the impact on Pool Re’s annual surplus),” said the letter.

“Nonetheless, given the strong case you have presented, in this specific case we are prepared to make an exception to this general policy in the context of our overall agreement with Pool Re. We understand the dividend policy we have jointly agreed to put to Members was, in your proposal to HMT, underpinned by the purchase of external reinsurance in several ways.”

It added that the purchase of retro capacity from the private market is the best mechanism “for the re-engagement of the global market in UK terrorism and thus, the possibility of a return to a normal market in time.”

Members of Pool Re will meet on November 21, 2014, to vote on proposals delivered by the Treasury.  Without members’ approval of these proposals, the Treasury has warned that it will cancel its agreement with Pool Re with effect from January 1, 2016.

The Treasury has accepted that any additional premium it receives will continue to be offset against the loan amount payable by Pool Re in the event that the Treasury is called upon to pay a claim, so that all additional premiums ceded inure to the benefit of the members of the scheme.

Enoizi said: “Whilst the negotiations of the past nine months have been lengthy and complex, the outcome being proposed to members will improve the position of all of the stakeholders of Pool Re once implemented. Moreover, a public-private partnership as currently exists continues, in the view of the board, to be a better solution than a state run fund and our dealings with other pools around the world confirm that view.

“Indeed, it is worth highlighting the strength of the Scheme. Pool Re is the model other nations often refer to and by collaborating with Government in this way, the UK insurance industry can be seen to be leading the world in public-private partnership.”