When the private insurance market buckled under the threat of terrorism in the 1990s, the UK government stepped in with the creation of a reinsurer focused on terror risks.

Located in the heart of the City, this company, Pool Re is backed by HM Treasury and was established when the insurance sector reduced its terrorism exposure following the IRA bombings in the UK during The Troubles.

“It was the Baltic Exchange bomb in April 1992, which was a day after John Major’s Election victory, which was the straw that broke the camel’s back,” explained Pool Re CEO Tom Clementi.

The private market withdrew its capacity for terrorism because losses were coming thick and fast.

“John Major’s government determined that it couldn’t afford to leave the UK economy unprotected against this peril that it was seeing on the streets of London and Manchester and elsewhere,” Clementi explained.

He added: “So the government and the insurance industry came together and joined forces to address a risk which neither could really address unilaterally satisfactorily.”

Pool Re’s birth

Pool Reinsurance Company Limited (Pool Re) was established in 1993 as the first public-private partnership to cover insured losses caused by acts of terrorism. The scheme is backed by an unlimited guarantee from HM Treasury, which allows it to provide unlimited terrorism cover to the UK insurance industry.

The reinsurer comprises 100 members, primarily commercial insurers and Lloyd’s syndicates, including AIG and AXA, all of which provide property insurance in the UK. Each member retains a portion of the risk before transferring it to the pool, which collectively covers approximately £450m in risk.

Pool Re provides unlimited cover, including CBRN (chemical, biological, radiological, and nuclear) events, and has evolved its cover to include non-damage business interruption and digital interference.

The reinsurer collects premiums from its members on an annual basis. “Over the course of the last 32 years, it has enabled us to build up a pool, and that fund is now £7.3bn,” Clementi explained.

“We supplement that £7.3bn fund by buying reinsurance ourselves and by issuing a [£100m] terrorism catastrophe bond into the capital market. When you add on the [£2.75bn] reinsurance programme that we buy and the cap bond we issue into the capital markets, we actually have a private capital stack of close to £13bn,” he added.

Pool Re pays the UK government 50 per cent of its annual premiums and 25 per cent of any profit it makes, including earnings from its investment portfolios.

Clementi added: “Over the last 10 years, we have paid north of £2bn to the Treasury for the backstop that they provide to the scheme.”

Following a review, Pool Re was reclassified as an arm’s-length body of the Treasury, which as a result, determines when the scheme will pay out.

The reinsurer has paid out over £1.25bn in claims related to 17 terrorist events since its creation.

The last time the reinsurance paid out was for the Manchester Arena attack in May 2017, which killed 22 people and injured over 1,000 as a result of a terrorist attack at an Ariana Grande concert.

“The legacy of Pool Re, since we were created because of that market failure back in the 90s, is that we’ve built this private sector buffer which distances the government and the taxpayer from the financial implications of terrorism,” Clementi explained.