By Ryan Hewlett

Feb 11 - (The Insurer) - UK terrorism mutual Pool Re is implementing a major restructure of its 1 March renewing XoL retro program, which could transfer upwards of £2.75bn ($3.4bn) of limit to traditional and collateralised markets, according to multiple sources involved in the placement.

• 1.3 retro treaty seeking new record limit of ~£2.75bn+

• Significantly expanded structure; Retention lifted to £1bn

• 2025 renewal features participation from more than 60 markets

• Placing broker Guy Carp targeting circa 2% RoL

• Mulling annual issuance of Baltic PCC cat bond

The new program will also include a higher retention – partly to reflect changes to the underlying reinsurance arrangements with Pool Re's members – and an increase in participating markets from around 50 to more than 60, according to three people close to the negotiations.

The 2025 program is expected to feature a new ground-up gross retention of £1bn, with a first layer of £1bn xs £1bn. Above this would sit a second layer totalling £1.75bn xs £2bn. This marks the most significant change to the structure since Pool Re first purchased reinsurance in 2015.

In previous years, the program responded if Pool Re’s losses – individually or in aggregate – exceeded £400mn, which was itself excess of the members’ retention of £450mn in the annual aggregate and £275mn per event.

According to two sources, placing broker Guy Carpenter is expected to secure lines from at least 60 markets (up from 52 in 2022) including major participations from European reinsurers and Lloyd’s, and is confident in meeting the £2.75bn threshold with the possibility of securing further limit if pricing and costs allow.

The £2.75bn target is equal to a 14.6 percent uplift from the £2.4bn secured in 2022 under a three-year deal, and would mark a new record size for Pool Re.

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As previously reported, while Pool Re typically opts to cancel and replace the multi-year retro deal every year, the mutual opted to roll the treaty in 2023 and 2024 amid a tightening in available capacity from the retro markets and upwards rating pressures in most classes.

Market sources suggest average final pricing across the layers is likely to land at around a 2 percent rate on line ahead of firm order terms, which are expected later in February.

Since it first began buying XoL reinsurance in the private market in 2015, Pool Re – which benefits from an unlimited state guarantee – has sought to purchase as much limit as possible as part of its strategy of retaining as much risk as possible within the private market.

As a consequence, the Munich Re-led program is the largest terrorism pool reinsurance treaty in the industry, surpassing the £2bn+ limits purchased by France’s GAREAT and the Australian Reinsurance Pool Corporation.

Including other assets such as member retentions, ~£7.3bn of central reserves and the £2.75bn XoL policy, Pool Re has built a ~£12bn buffer to protect the UK taxpayer before the government guarantee is engaged.

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At the same time, the mutual is once again expected to return to the catastrophe bond market to renew its Baltic PCC Limited terror bond, which has historically renewed alongside the retrocession tower on 1 March.

However, two sources said that for 2025 Pool Re is looking to secure its next bond from 1 April and is targeting a size of £100mn.

Pool Re has traditionally issued its cat bond every three years, in line with its retro renewal. However, the sources said that Pool Re is now looking to issue the three-year bond annually from April 2025.

The mutual has previously used cat bonds to source reinsurance protection, having successfully obtained an aggregate of £175mn of ILS capacity from its UK-domiciled special purpose vehicle Baltic PCC Ltd via issuances in 2019 and 2022.

Pool Re – which in 2020 received government classification as a public sector body in a move which afforded HM Treasury greater central oversight of the mutual – currently underpins around 90 percent of the commercial property terrorism cover in the UK, protecting over £2.3trn of assets.

In addition to its roles to further distance the taxpayer from terrorism loss and its on-going work to promote resilience across the economy, Pool Re continues to bolster public finances through the government’s 50 percent share of the pool’s gross premium and 25 percent of its annual surplus.