Pool Re modernisation to be rolled out in months

Pool Re is to recognise good risk management, offer discounts for deductibles and reward loss limits, its chief underwriting officer has told Airmic members. But he warned that the changes will be “evolutionary not revolutionary”.

Speaking to an Airmic Live audience last month, Steve Coates said the government-backed terrorism reinsurer has barely changed in the past ten years but they recognise the need to bring it into line with today’s risk landscape and modern actuarial science.

Coates laid out the following planned changes, all of which remain subject to Treasury approval:

• Pricing: There will be “minor changes” to rates “to make sure that the amount of money that we generate is fair and transparent and is as risk-reflective as it can be.”
• Deductibles: Pool Re will offer a premium discount for deductibles once the deductible gets to a point “where it has an effect on terrorism loss”.
• Loss limits: Policyholders will get a discount once the loss limit is above a certain size. “We’ll probably start off reasonably high and then drop it down over time once we see the effects. But what we won’t be looking to do is give blanket loss limits across blanket policies.”
• Risk management: Coates did not give too much away about the extent to which they will acknowledge good risk management, but he recognised that terrorism risk management “is a fast moving science” and said that Pool Re plans to reward measures such as the government’s “crowded places” initiative.

Airmic has been calling for reforms for some years, saying the changes will make Pool Re more attractive to its members. There was concern last year that the reforms would be derailed by demands from HM Treasury to increase the amount Pool Re pays to the government for backing the scheme. However, the Treasury subsequently endorsed the changes being requested by Airmic.

It is hoped that these reforms, the details of which have yet to be fleshed out, will be approved by the Treasury before the general election in May, meaning they could take effect from 1 July. Coates said the first raft of changes will be “fairly benign” to allow them to monitor their effect on the market during the first year. They then plan to implement further changes in the following two-to-three years.