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UK terror reinsurer's government payment not up for discussion in 2020, says CEO

The amount U.K. terrorism reinsurer Pool Reinsurance Co. Ltd. pays to the U.K. government "isn't open again for discussion" at its pending review, according to CEO Julian Enoizi.

The U.K. Treasury acts as Pool Re's ultimate retrocessionaire and would therefore pay claims that breach the reinsurer's defenses, which include roughly £6.5 billion in claims-paying reserves and £2.3 billion of private market retrocession.

Following negotiations with the U.K. government in 2014, Pool Re agreed, with the backing of its insurer members, to increase the amount it pays to the Treasury to 50% of its premiums from 10% from Jan. 1, 2015. With the increase came a series of modernization initiatives, which included Pool Re starting to seek retrocession in the private market, aimed at having private insurers and reinsurers take an ever-greater share of the risk Pool Re was set up to assume.

The Treasury reviews the rationale of the Pool Re arrangement every five years, with the next review due in mid-2020. Enoizi indicated in an interview that, from Pool Re's perspective at least, the payment is not on the agenda for the review.

"I would like to think that we arrived at a commercially negotiated settlement in 2015 based on our respective actuarial positions, and as far as I'm concerned that is a settlement that was reached and isn't open again for discussion," he said, adding: "It is not the focus of what we're trying to achieve."

Although Pool Re's agenda for the review is yet to be finalized, Enoizi said the areas it wanted to address include how it can adapt to the changes in the terrorism threat; pushing more into coverage of small businesses and the U.K. regions; and adapting how the reinsurer works.

Among the changes Pool Re is considering is a shift toward offering its coverage on a treaty reinsurance basis — across an insurers' portfolio of risks, instead of its existing approach of pricing each risk individually. Enoizi said this change "would put a lot more power back into the hand of the insurer" because it would allow them greater freedom to set the price for the underlying coverage. In turn Enoizi hopes this will make it easier for insurer members to offer terrorism cover to all their customers.

To help insurers make their pricing decisions, the reinsurer set up Pool Re Solutions, which offers risk modeling, analysis and data, and risk mitigation tools.

Pool Re has also implemented a range of new initiatives in 2019, including placing £75 million of its private market retrocession into the capital markets and commencing coverage of non-damage business interruption. This cover, introduced following demand in the wake of the 2017 attacks on London Bridge and in Manchester, pays out when businesses have had to close because of a terrorist event, but have not suffered damage to their premises. Pool Re previously only paid business interruption claims where there had been physical damage to property from terrorism.

Enoizi said claims from the most recent U.K. attack on Nov. 29, where two people were killed by a man wielding a knife on London Bridge, "were unlikely to get anywhere close" to affecting Pool Re and would be contained in the amount of risk Pool Re's member insurers retain. He also noted that Pool Re now has £40 million of private retrocession for non-damage business interruption.

But he said the fact businesses could now get cover for losses from that type of attack, with no damage to physical property, was "a real vindication" of the company's effort to introduce non-damage business interruption cover.