Guidance

Terms of Reference: Review of Pool Reinsurance Company Limited (“Pool Re”)

Published 3 September 2020

1. Context

In 1993, following a series of terrorist attacks in Great Britain, in particular in the City of London (the Bishopsgate and the Baltic Exchange bombings), reinsurers withdrew from the terrorism insurance market. They found terrorism to be too expensive, and too difficult to model, for them to insure.

Pool Re, a reinsurer for terrorism risk, was established. Pool Re is a mutual company owned by its members, who are primarily commercial insurers, to which Her Majesty’s Government (HMG) extended an unlimited, but repayable, public financial guarantee. This guarantee meant that insurers were able to access adequate and affordable reinsurance cover for terrorism losses, and as such continued to offer affordable terrorism cover to businesses.

The unlimited guarantee was intended as a temporary measure whilst the private market for terrorism reinsurance was developed. This market has developed significantly in the 27 years since Pool Re’s inception, in part due to the significant efforts of Pool Re to support this. Her Majesty’s Treasury (HMT) is committed to undertaking regular reviews of its relationship with Pool Re and whether the unlimited guarantee it provides remains necessary and appropriate. The most recent review was in 2014.

In January 2020, the Office for National Statistics (ONS) classified Pool Re to the central government subsector for the purposes of the National Accounts. HMG has requirement for how such entities should operate, and an assessment is needed to ensure that Pool Re is meeting these whilst continuing to operate effectively. Objectives

This review will set the strategic direction for Pool Re for the coming 5 years and deliver an assessment and implementation plan for any necessary changes that are identified. The overarching objective is to ensure the good functioning of the UK’s terrorism (re)insurance market and the proper protection of public interests. This will involve:

1. Assessing if the risk share between HMG and the private sector remains appropriate for the good functioning of the UK’s terrorism (re)insurance market
2. Considering if the scheme rules that govern Pool Re require updating to enable or formalise operating practices which are of mutual interest.
3. Ensuring that the requirements HMG sets for companies classified by the ONS to the central government sub-sector are met, without compromising Pool Re’s ability to operate effectively.

2. Scope

The review is focused exclusively on Pool Re’s role as a reinsurer of terrorism risk and to ensure that the UK benefits from the best possible public-private risk sharing mechanism.

3. Governance, engagement and timetable

The review will be conducted by HMT, with close engagement with Pool Re, stakeholders across Whitehall and the (re)insurance sector. The review will include a public call for evidence in late 2020 with a view to agreeing Pool Re’s direction of travel in the 5 years until the next Review in 2025. Further details will be agreed with Pool Re and set out in due course.

The review will report to the Economic Secretary to the Treasury. HMT will publish a document in spring 2021 setting out the findings of the review, and the process for any further assessment and implementation of any changes. This process will be agreed by HMT, Pool Re and its Members.