Pool Re: Cat bond distances taxpayers from loss, puts terror risk back in private market

In the latest annual report from Pool Re, the UK government-backed mutual terrorism reinsurance facility, its leadership explained how the third successful sponsorship of a terror catastrophe bond this year helps to distance the taxpayer from potential losses, while placing risk back into the private markets.

Back in March, Pool Re sponsored its third catastrophe bond, with an increased number of global institutional investors participating in the successful placement of the £100 million Baltic PCC Limited (Series 2025-1) terrorism cat bond issuance.

The UK terrorism reinsurance provider had sponsored its first cat bond in 2019, a UK £75 million (approx. US $97m at the time) Baltic PCC Limited (Series 2019) transaction, then returned to renew and upsize that to a UK £100 million Baltic PCC Limited (Series 2022-1).

That Series 2022-1 cat bond matured earlier in March 2025, so was replaced with the new third cat bond of an equivalent size.

The £100 million of retrocessional reinsurance limit provided by the Baltic catastrophe bond sits beneath the Pool Re retrocession tower, which at its latest renewal (also in March) was renewed to provide an upsized £2.75 billion of coverage.

The Baltic PCC 2025-1 cat bond notes would attach their coverage at £700 million of losses to Pool Re and cover a share of a layer of its tower up to exhaustion at £1 billion.

This third terror cat bond for Pool Re sits beneath its commercial retrocession programme.

But, in the new Pool Re annual report it is explained as having been structured “to accommodate potential future ILS bond issuances.”

Being a £100 million cat bond whose coverage spans a £300 million layer, it means that currently the Baltic PCC 2025-1 insurance-linked securities arrangement would cover one-third of losses within that layer.

Pool Re could return to fill out more of that layer in future, should it opt to increase its private market coverage further, something its executives comments suggest may be a priority.

Tom Clementi, CEO of Pool Re, provided the following commentary of relevance in the annual report, “Financially, we’ve strengthened our resilience. To protect our Members’ assets and further distance taxpayers from loss, we have placed a £2.75 billion private-sector terrorism reinsurance programme — the world’s largest — which is bolstered by a catastrophe bond issued on 1 April 2025, which adds a further £100 million in capital market backing.

“We provide a route to normalisation of the wider market for terrorism insurance, bringing in capacity from the insurance industry through our retrocession programme and catastrophe bond, and encouraging higher Member retentions through risk-based pricing.

“Pool Re’s strength lies in adaptability and financial fortitude. Our £2.85 billion buffer of retrocession and catastrophe bond position us as a bulwark against unpredictable threats. We are
empowering insurers by offering greater flexibility, encouraging coverage in the SME sector, and reducing taxpayer exposure — demonstrating not just resilience but leadership too.

“Pool Re’s investment fund, our retrocession programme and issuance of Insurance-Linked Securities (ILS) reduce reliance on the HM Treasury guarantee to Pool Re, thereby distancing the taxpayer from potential loss.”

Jonathan Gray, CUO at Pool Re also stated in the report, “Our retrocession programme and the issuance of our third terrorism catastrophe bond on 1 April 2025 place risk back into private markets, further diversifying our risk profile and reinforcing financial stability.

“These efforts, rooted in decades of industry knowledge, will ensure Pool Re remains a vital safety net, protecting taxpayers and policyholders alike.”

All of which suggests there is likely to be a desire to expand the cat bond coverage, if market conditions are conducive to do so.

Jonathan Gray, Pool Re Chief Underwriting Officer, will join a panel at our upcoming Artemis London 2025 conference. Register to attend this event and hear from him.

One of Pool Re’s stated strategic goals is to widen the re/insurance and capital markets participation in terrorism risk, by acting as a conduit that can cede exposures to them in a structured manner.

Pool Re sees itself as “a route to normalisation of the market for terrorism cover,” creating confidence through its cessions of risk via its retro programme.

In addition, accessing investors from the insurance-linked securities (ILS) market supports “the objective of returning risk to the private market,” Pool Re’s criteria for success state.

The interaction with the ILS market through its now three catastrophe bonds helps to further develop Pool Re’s reinsurance objectives.

The cat bonds have provided additional cover from a diversified risk capital source that is back-to-back with Pool Re’s cover it provides to its members and being fully-collateralised comes with minimal credit risk.

Terrorism risk has proven an attractive diversifier for some ILS investors and asset managers as well, albeit not a peril that every cat bond fund manager can or wants to invest in.

But there is plenty of capital out there that does have an appetite to support future Pool Re cat bond deals and given how the cat bond market has been executing, market conditions may be conducive to adding additional Baltic PCC series of notes to fill out more protection within that £300 million layer of the funding tower, beneath Pool Re’s retro coverage.

Investment firm Man Group said this year that the inclusion of non-natural catastrophe risks like terrorism could become increasingly appealing to insurance-linked securities (ILS) investors seeking to optimise their portfolios.

With the catastrophe bond market growing fast in 2025, additional diversification opportunities are becoming increasingly valuable for investors and fund managers, allowing them to manage their exposure across different categories of risk.

As a reminder, you can read all about this Baltic PCC Limited (Series 2025-1) issuance, and every other catastrophe bond transaction since the market began in the Artemis Deal Directory.