Pool Re: UK unlikely to see another uncapped Gov guarantee

An uncapped guarantee in a state-backed public-private partnership – similar to that currently possessed by Pool Re – is unlikely to be replicated in the UK in the future, Julian Enoizi has told The Insurer.

In the second part of an interview with The Insurer TV, Enoizi – who has been chief executive of the UK terrorism mutual Pool Re since 2013 – acknowledged it would be ‘negligent’ of the UK government not to review Pool Re’s unlimited guarantee in light of the economic impacts from Covid-19, which has resulted in the government choosing to pump £300bn into the economy. 

“If you consider the world today versus 12 months ago, the concept of an unlimited guarantee then was something you never really thought would come to pass. 

“But 12 months later we are seeing what the size of an unlimited guarantee can look like.

“I do understand it would be negligent for the government to not look at the fact Pool Re has an unlimited guarantee and whether that is necessary.”

“If you consider the world today versus 12 months ago, the concept of an unlimited guarantee then was something you never really thought would come to pass”

Enoizi was speaking amidst a Government review into Pool Re which has already hinted at a cap by asking for feedback from the industry on different amounts, such as £30bn or £100bn. 

Last month, this publication also revealed that experienced insurance headhunter Ian Lazarus was leading a search for the head of an elite new Treasury department, the Contingent Liabilities Group (CLG), whose mission would be to extract compensation from all sectors that benefit from central Government guarantees. Pool Re is of course an example of how government can monetise guarantees given against contingent liabilities.

“Neither party is ignorant of the others views. Insurers will understand why the government wants to do this and equally the government will understand the constraints on Pool Re and our member insurers”, Enoizi explains today.

“We are in constant discussion, but we would obviously want to retain an unlimited guarantee as that’s in our members best interests. Those discussions are ongoing and we will see where it leads.”

Discussing the development of public-private solutions in the UK and globally, Enoizi said pandemics highlighted “the enormous protection gap emerging”, however, noted that pandemics are only one systemic risk that governments face.

Enoizi highlighted the UK government must be mindful of the potential financial impact of the risks it is facing in the future, such as climate change, catastrophic cyber attack or biological and nuclear terrorism attacks.

“If one of those events came to pass the British economy would be in a very difficult state,” he said.

Enoizi encouraged debate over the core issues at the heart of any public-private response, with no one-size-fits-all solution working for all risks or territories. He also cautioned against nations rushing through solutions while in the middle of a crisis. However, he noted that governments globally were now “slowing down” their responses to pandemic solutions and with most now consulting academia and “waiting to see how this plays out”.

“I doubt very much we will ever see an unlimited guarantee again in this country and certainly not in the insurance industry”

“It may be that a public-private partnership isn’t right for pandemic,” he suggested. 

“I doubt very much we will ever see [an unlimited guarantee] again in this country and certainly not in the insurance industry,” Enoizi added. 

For the UK’s response to pandemics, Enoizi said he hopes the industry will be able to reach an agreement with the government where the public and private sector “share risk equitably” and “the insurance industry plays its part in that,” Enoizi concluded. 

The Insurer Comment:

Fascinating interview with Enoizi which is well-worth watching. 

What is also clear is that the mood music within Government is to limit its Pool Re guarantee - which has consequences for its members who are currently able to take 100 percent capital relief for their reinsurance into the pool. That may not be the case in the future.

In addition, HMT’s stance might suggest why the industry’s Pandemic Re proposal (which – like Pool Re – was based on an uncapped Gov indemnity) was given a tepid response by the Whitehall mandarins last Summer. Click the link below to watch.

Julian Enoizi, Pool Re - Part II

 

Part One can be viewed here and focuses on the government’s review and the pressures on the £6bn+ public-private carrier…