Pool Re has broken new ground with its placement of a £75 million catastrophe bond. Issued through a special-purpose vehicle, Baltic PCC Ltd., the bond is the first-ever insurance-linked securities (ILS) contract to cover terrorism risk exclusively, and only the second to be issued under the UK's new regulatory system for ILS.
Airmic said this is a very welcome development: "Pool Re are to be congratulated on their innovative thinking and use of modelling," Julia Graham, deputy CEO and technical director, commented. "It's great to see this example of risk financing leadership emanating from the UK and dispels any myths which might remain that Pool Re is not a global force in this space."
The bond provides £75 million of retrocession protection in excess of Pool Re Members' net loss of £500 million. Poor Re said that, in so doing, it brings new sources of capital to the terrorism risk market, returns additional premium to the private sector, and moves UK taxpayers even further from the risks Pool Re mutualises on their behalf.
GC Securities placed the three-year bond, which provides cover on an annual aggregate basis and carries an initial interest spread of 5.9% per annum.
Pool Re Chief Executive Julian Enoizi said they have been working towards this placement for several years and are "excited" to bring an "entirely new source of capital to the terrorism risk market for the first time. It diversifies the funding of our retrocession programme, complementing the capital of traditional reinsurers to spread terrorism risk even more broadly.
"In addition, it further protects HM Treasury, and helps us towards our ultimate goal of returning as much risk as possible to private markets."
Read our article on Pool Re's Business Interruption extension for non-physical losses.