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Pool Re
16th December 2014

Pool Re is the scheme that has been set up by the insurance industry in co-operation with the UK government so that insurers can cover losses resulting from damage caused by acts of terrorism to commercial property in Great Britain.

Under the existing arrangements Pool Re pays 10% of its annual premium income to the government in return for an unlimited guarantee backing wide cover that includes hard-to-insure nuclear, chemical, biological and radiological (NCBR) risks.

A new seven-year deal commencing 1 January 2015, however, will see the UK Treasury receive 50% of Pool Re's premiums in return for the guarantee. Moreover, Pool Re will now guarantee a dividend payout of half of any surplus generated in any given year, equally split between members (i.e. insurers) and the Treasury. Dividends will be paid provided that Pool Re has a fund in excess of £1bn. Its reserves currently stand at £5.5bn.

At this stage the alterations in the arrangement between Pool Re and the UK Treasury should have no effect on original pricing (i.e. corporate buyers should not face an increase in the cost of protecting themselves against terrorism). However, it is the intention to model the book using more sophisticated actuarial tools and ascertain whether the rating model needs adjusting. Any rating changes resulting from this exercise will not be known until the second half of next year.

Clearly the new arrangement will shrink the rate at which Pool Re's capital expands. However, standing at £5.5bn after 21 years, industry sources believe it is fit to serve for most standard loss scenarios.

Realty Insurances Limited is an independent intermediary, authorised and regulated by the Financial Conduct Authority (FCA).
You can check these details on the Financial Services Register by visiting the FCA's Website or by
contacting the FCA on 0800 111 6768. Our FCA register number is 307515.

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