Man Group: Terrorism as a Catastrophe Risk Through UK and French Models

Man Group PLC's experts have released an analysis encouraging investors to consider terrorism as a category within catastrophe insurance, offering diversification benefits and potentially more attractive risk-reward ratios compared to traditional natural disasters like U.S. windstorms and earthquakes.

The analysis points out that the global catastrophe bond market, valued at approximately $50 billion, is dominated by U.S. natural disasters. Man Group suggests that man-made risks, such as cyber threats and terrorism, differ from natural catastrophes and present opportunities for investors to enhance their portfolio diversification.

In the United Kingdom, Pool Re was established in 1993 to address the market seizure of terrorism insurance following IRA attacks. As the country's largest terrorism reinsurer, Pool Re operates through cooperation between the insurance industry and the government. The UK government offers an unlimited, albeit repayable, treasury guarantee. Pool Re has accessed the catastrophe bond market via Baltic PCC Limited, providing cover against terrorist attacks in England, Scotland, and Wales.

In France, GAREAT (Gestion de l’Assurance et de la Réassurance des Risques Attentats et actes de Terrorisme) was formed in 2002 after the September 11th attacks and the AZF factory explosion in Toulouse. GAREAT functions as a co-reinsurance pool for its members, with the French state, through CCR, providing the ultimate layer of protection. In 2024, GAREAT introduced the Athéna I Reinsurance catastrophe bond, covering terrorism risks in France and its overseas territories.

Man Group emphasizes that while the novelty and inherent uncertainties of terrorism risk might cause hesitation among investors, these very factors could lead to more attractive risk-reward ratios compared to more established natural perils.