LONDON--(BUSINESS WIRE)--Insurers are likely to continue to participate in Pool Reinsurance Co. (Pool Re) despite a proposed increase in the levy for the U.K.’s terrorism pool, according to a new briefing from A.M. Best.
The Best’s Briefing, titled “A.M. Best Comments on Impact of Changes to Pool Re Scheme,” also notes that terrorism insurance is still available globally in the open market, and that rates have been under pressure, reflecting the relatively low level of loss activity post-Sept. 11 and plentiful capacity in the reinsurance market. Underwriting expertise for terrorist events has improved significantly in recent years, to an extent that terrorist risk can be underwritten in the open market. Furthermore, modelling has improved, with the three major catastrophe modelling companies all offering terrorism models.
“However, A.M. Best expects the U.K. insurance sector to remain reliant on the backstop guarantee provided by the U.K. government for terrorism cover, given the magnitude of losses that could result from such an event,” said Catherine Thomas, director, analytics. “In particular, losses resulting from nuclear, biological, chemical and radiological (NBCR) attacks could be very high and are extremely difficult to estimate. Terrorism risks are particularly technical and complex, and probabilistic modelling has clear limitations due to difficulties associated with identifying targets and estimating the frequency of attacks. Deterministic analysis – whereby specific, hypothesised scenarios are analysed – tends to be favoured.”
“The government currently charges a levy of 10% of Pool Re’s annual premium income in return for the unlimited backstop, and H.M. Treasury is now seeking to lift this fee,” added Yvette Essen, director, industry research - Europe & Emerging Markets. “It has been reported that the levy could be raised to 50% with effect on Jan. 1, 2015.” Pool Re members voted in favour of the changes on Nov. 21, 2014.
All the most significant providers of commercial property insurance in the United Kingdom participate in Pool Re, including many overseas companies and Lloyd’s syndicates. A.M. Best does not anticipate taking any rating actions on U.K. insurers in response to an increase in the levy, as this is unlikely to alter the claims-paying ability of the scheme, with the fund and state guarantee remaining in place. Furthermore, no change to the level of terrorism risk retained by members of the pool is expected.
To access a complimentary copy of this briefing, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=231066.
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