terrorism, is unique in the UK insurance market because it has only one retrocessionaire, her Majesty's government, the mutual's chief executive Leslie Lucas said ion Friday at the final day of the Reinsurance Congress at the Hamilton Princess.

Pool Re was established two years ago and currently reinsures 253 members, four of whom are Bermuda captives with interests in the UK, he said.

The British government, as the reinsurer of last resort, guarantees Pool Re's solvency and agrees to indemnify Pool Re if its funds become exhausted.

Premiums rates, there are four categories, are tied to property location.

The arrangement, which has the UK government as the reinsurer's reinsurer, or retrocessionaire, was not one that government wanted, rather, it was one thrust upon them, Mr. Lucas said.

The mutual was formed against a backdrop of lack of capacity in the traditional market with the provisional IRA emphasising economic damage through devastating terrorist bombings.

"Reinsurers were becoming more reluctant to consider terrorism as a peril that should legitimately fall to the insurance reinsurance market. Terrorism related losses are outside the normal statistical risk evaluation and claims prediction,'' he said.

Reinsurers felt the motivation of the claims were politically related and therefore government's responsibility, he said.

He cited the St. Mary Axe bombing within the City of London, the day after the Conservative election victory in 1992, which resulted in deaths and total insured losses around $555 million, and the 1993 Bishopsgate bombing which resulted in an insurance loss for material damage and business interruption of nearly $1 billion, as examples of the scope of the problem. Poole Re's share of the latter loss was about $445 million as previous reinsurance agreements covering terrorism were still in force.

Mr. Lucas also said that the Marks & Spencer bombing in Manchester in June of this year showed that attacks were not restricted to the City of London.

That bomb resulted in over $600 million in insured losses. As an aside to the destruction of the business, Mr. Lucas said officials went into the building the next day to recover the day's receipts. Of the $2 million in receipts, all that was not, yes not, recovered was $90 or about 57.

Many of the businesses destroyed in the Manchester bombing lacked terrorism cover. Most likely thought they would never need it because they were not located in London, Mr. Lucas added.

"Following the St. Mary Axe loss, the reinsurance market gave notice that acts of terrorism would be a standard exclusion on property treaties from January 1, 1993.'' The insurance market, after unprecedented underwriting losses, was in no position to assume the terrorism cover.

"Pool Re became the market and government solution,'' Mr. Lucas said.

Government has yet to pay a cent nor has Pool Re had to pay a premium to government, he said.

When it comes to acts of terrorism, "we are still dealing with a risk that is unquantifiable (and) government will be needed for a long time if Pool Re is to provide unlimited cover for risks of this nature.'' Member's responsibilities include: Providing terrorism cover to an original insured in excess of the retention, about $160,000 per head of cover per loss occurrence, flats $4 million per policy per head of cover per loss occurrence at premium rates specified by Pool Re.

Members must reinsure only with Pool Re the terrorism cover excess of the retention.

An underwriting year is closed after three years and should Pool Re incur an underwriting loss, each member must pay an additional premium equal to ten percent of the underwriting loss subject to a maximum of ten percent of the premium income it paid to Pool Re for the underwriting year in question. If Pool Re makes an underwriting profit, each member is entitled to a ten percent return.

Policies are one year and, from a territorial standpoint, apply to England, Wales and Scotland excluding the territorial seas. Only half the Chunnel can be covered. Policies do not apply to Isle of Man, Channel Islands or Northern Ireland.

The retrocessional agreement provides that when Pool Re's funds are at about $1.6 billion, a retrocessional premium becomes payable. Under the agreement, government becomes liable to make payments to Pool Re when Pool Re's own financial resources, including a loan facility, are exhausted. As of yesterday, neither had occurred.