Pool Re – the Government-backed reinsurance scheme that sits behind the UK terrorism insurance market – celebrated its 30th birthday in 2023. A lot has changed in the UK insurance market in the last three decades, as has the landscape of global terrorism threats. In response to the changing needs of terrorism insurance, Pool Re’s ‘Transforming Treaty’ was implemented to bring about a revised reinsurance scheme, which went live as of 1 April 2025.

At HF we work closely with insurers, reinsurers, and brokers navigating complex market transitions and developments like those ushered in by the Pool Re’s latest changes and our casualty and property damage specialists work with insurer and corporate clients to assess terrorism exposures and wordings. Imogen Mitchell-Webb (Partner – International Casualty and Head of Sport) has spoken with Jonathan Gray, Pool Re’s Chief Underwriting Officer, to get the inside track on how these changes will affect the terrorism insurance industry – from both a broker and insurer perspective.

What is Pool Re?

The Provisional IRA bombing campaign of the early 1990s caused mass withdrawal of insurers from the terrorism insurance market. As a result, the Government at the time created Pool Re to fill the gaps.

Gray described the aim for the scheme as making “terrorism cover available and affordable for all commercial properties”.

Pool Re operates as a mutual, where insurer members contribute a premium to the ‘pool’ which is then used to indemnify claims. The scheme is open to all UK regulated insurers, subject to their compliance with the relevant scheme terms.

The fund currently sits at around £7.3bn which covers around £2.3tn of property values. If losses were to exceed the scheme’s capital stack, it is backed by an unlimited HM Treasury loan. HM Treasury in return receives 50% of Pool Re’s premium income.

For insurers, the key benefit is that they’re able to offer terrorism insurance with the comfort of reinsurance, and therefore avoid the need to hold capital reserves that would otherwise be required under Solvency II. For the taxpayer, the scheme ensures that there is a functioning commercial property terrorism market and that the scheme assets (paid for by the commercial insurance market) are utilised before taxpayer funds are called on should a significant terrorist event occur.

What risks are covered by Pool Re?

Pool Re originally covered only property damage caused by fire and explosion and over time the cover has expanded to reflect changes in terrorism risks. Cover now includes property damage and first party business interruption caused by chemical, biological, radiological and nuclear (CBRN) means and remote digital interference (RDI).

RDI notably only covers cyber risks which result in physical damage. It does not cover data or purely financial losses, and terrorism with state involvement is also excluded.

When asked about whether the Pool Re scheme would ever cover a wider range of cyber risks, Gray was of the view that this is not the intention of the scheme. Going back to first principles,

Pool Re was created to remedy failure of the commercial market, and cyber cover is widely available, so there is no need for intervention unless there was either a market failure following an event or if significant demand arises for perils that are excluded.

Key aims of Treaty Transformation

The key aims of the scheme changes are:

1. Updating the reinsurance model and pricing, including embracing digitalisation;

2. Improving flexibility for writing terrorism cover, to encourage take-up by policyholders; and

3. Shifting the balance of risk further towards the commercial market.

Ultimately, Gray believes the changes will allow insurers to decide what they write, how they price it and what retention they take with Pool Re.

He explained that a particular concern is tackling the low take-up of terrorism cover by SMEs. Currently, only 4% of SMEs have this cover. As those operating in the insurance industry will be aware, take-up figures as low as this can indicate a lack of understanding of the extent of existing cover, leading to disappointment and challenging commercial consequences when incidents do happen and cover is not in place. To tackle this problem, Pool Re has launched a Market Consultation with a view to reintroducing terrorism cover into standard commercial property insurance wordings for SMEs. Gray’s aim is to “get rid of the market failure from the 1990’s in the SME space”.

Transformation of the scheme

The key changes to the scheme are:

1. The scheme now distinguishes between conventional and non-conventional (ie CBRN and RDI) terrorism risks, allowing insurers to pursue different commercial approaches to the two types of risk by carrying different treaty retentions.

2. The pricing model has moved away from a per-risk tariff system (ie facultative reinsurance) to a portfolio model (ie catastrophe treaty reinsurance).

3. The retention level was previously set based on premium share, but now insurers are able to set a retention above the minimum level in order to increase their ability to retain premium income.

4. Market risk reporting requirements have changed from quarterly premium bordereaux to one annual exposure return, which is closer to the requirements typically seen in the property catastrophe insurance market.

What are the anticipated effects for insurers and brokers?

Insurers in the terrorism market now have greater flexibility to price risks and develop new products. Some existing insurers can be expected to adapt current products, and challenger products may enter the market.

Equally, the reduction in underwriting bureaucracy and embracing of digitalisation should reduce overheads and make writing terrorism cover more attractive for insurers.

Greater choice and competitive pricing in the market should – in theory – facilitate Pool Re’s aim of increasing take-up of terrorism insurance, particularly from smaller businesses. This in turn presents opportunities for placing brokers with insureds who previously have lacked appetite for this cover.

Whether or not this will soften or harden the market is hard to predict. The Pool Re retention charging model may have been expensive for some insurers – meaning they can now price more competitively. On the other hand, some insurers may need to increase premiums if they have opted for a higher retention. Gray commented that Pool Re has worked hard to ensure the changes themselves did not shock the market into either hardening or softening.

It is still early days, and time will tell if the changes facilitate meaningful progress towards a functional terrorism insurance market. What we do know is that the change will bring about opportunities for both insurers and brokers.

HF’s casualty and property damage specialists work with insurer and corporate clients to assess terrorism exposures and wordings, in order to ensure that the scope of cover is properly understood and appropriate indemnity is in place. For specialist advice on terrorism cover, contact imogen.mitchell-webb@h-f.co.uk.