Pool Re may seek more private market retro after changes to agreement with HM Treasury

As Pool Re, the UK’s government-backed terrorism reinsurer, prepares for its renewal, changes to the company’s retrocession agreement with HM Treasury suggests the reinsurer could require much more private market retrocession coverage when compared with previous years.

Today, HM Treasury, the UK government’s economic and finance ministry, published the retrocession agreement between itself and Pool Re, which was made on January 14th, 2025.

The agreement sets out the contractual terms between the two parties, and comes into force on April 1st, 2025, implementing changes agreed as part of HM Treasury’s 2022 strategic review of the terrorism reinsurance scheme.

According to HM Treasury, the changes to the retro agreement “will provide the opportunity for more of the financial risk arising from terrorism to be returned to the private market, while ensuring businesses are still able to access affordable terrorism insurance.”

The latest agreement between Pool Re, the retrocedant and HM Treasury, the retrocessionaire, details that both are parties to the 2022 retro agreement pursuant to which the HM Treasury provides protection to Pool Re in respect of its liability under Class A Reinsurance Agreements and Class B Reinsurance Agreements.

However, the document also reveals that Pool Re has proposed that both the Class A and B Reinsurance Agreements be “replaced by the Reinsurance Treaties with effect from April 1 2025.”

“The Parties have agreed to enter into this Retrocession Agreement to reflect certain amendments to the terms of the 2022 Retrocession Agreement to make necessary consequential changes to reflect such replacement and certain other changes agreed by the Parties,” reads the document.

This change to the reinsurance agreement with HM Treasury suggests that Pool Re might end up requiring a lot more private market retrocession for the 2025 renewal, so long as the pricing is right. However, if rates in the private market aren’t ideal for Pool Re, we imagine the reinsurer could choose to use more of the HM Treasury backing again.

In August 2022, Pool Re launched a consultation process with its members about moving its reinsurance scheme to a catastrophe treaty reinsurance model, driven by an ambition to modernise and return more of the risk to the private market.

Last year, the reinsurer’s members and HM Treasury backed the formal proposals, meaning that from April 1st, 2025, its facultative obligatory treaty would convert to an annual aggregate catastrophe excess of loss treaty.

Pool Re explained at the time that the proposal would create conditions necessary to support members in driving greater take-up of terrorism cover, ultimately returning risk to the private market and further distancing the taxpayer from the financial consequences of acts of terrorism, while boosting the resilience of the UK economy.

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