State-backed UK terrorism reinsurer Pool Reinsurance Co. Ltd. is "very confident" that its members will vote in favor of fundamental changes to how it is run. The changes, which include shifting to catastrophe treaty-style reinsurance coverage from the current facultative model, are part of Pool Re's remit to return more risk to the private insurance market, which is a condition of its unlimited guarantee from the UK government. Pool Re is classified as an arms-length body of the UK Treasury department.
"The government support for the scheme ... sits as a cornerstone for the group," CEO Tom Clementi said in an interview. "I think the members appreciate that."
Pool Re reinsures the terrorism portion of property coverage in the UK. If claims exceed the pool's resources, built up from member premiums, the UK government foots the rest of the bill. The pool prices each risk individually; changing to a treaty model would have the group set prices based on the overall risk an insurer cedes to the pool.
Members' biggest concerns about the planned changes have been their effect on how much they would have to pay for cover and the risk they retain. Initially, prices will only be able to rise as much as 10% or fall as much as 4%. This "corridor of stability" would widen in subsequent years as pricing shifts to be more reflective of the risk, Clementi said.
"The planned changes also allow members to set different retention levels for conventional attacks and chemical, biological, radiological and nuclear attacks."
Pool Re has also been returning more risk to the private market by buying retrocession, which is reinsurance for reinsurers. It has £1 billion of conventional retrocession cover and a £100 million catastrophe bond.
"The Jan. 1 reinsurance renewal season was more orderly than the previous year," Clementi said, "but there is 'no material change' to the terrorism threat landscape in the UK."
The group also plans to issue a new catastrophe bond after its current one expires and is hoping to increase its size, Clementi said, "but we'll have to see what the investor appetite is at the time."