History of the Nuclear Pools

History of founding and development of international nuclear pooling system

Both insurers and reinsurers worldwide, not only in Slovakia usually exclude any damages arisen in relation to nuclear energy, nuclear radiation and material from insurance policies. This exclusion has deep historical roots due to the fear of insurers from an unknown risk with possibly catastrophic results.

The first nuclear pools were founded in the mid 1950’s. The process was tightly connected with the development of nuclear industry, or strictly speaking – with the beginning of commercial use of nuclear fission reaction to produce electrical energy.

In insurance business, a pool is commonly used to describe a voluntary association of insurers providing insurance capacity necessary for insurance / reinsurance of a certain (usually non-standard) risk.

Insurers can positively control their financial liabilities via the pools as the pooling system prevents from uncontrolled risk accumulation to individual insurers.

National pools have their own experts so that the individual insurers need not to build up any technical departments. Moreover, the system enables to reduce costs of insurance, what is beneficial for the insured as well. Without the existence of a pool, individual insurers would not be ready to insure nuclear risks.

Reasons for establishment of nuclear pools:

• Formation of an unknown and potentially catastrophic risk and, therefore, would have discouraged most individual insurers from insuring it on their own;
• Subjects insured are few in number (less than 500 industrial nuclear reactors in the world today) – insurance portfolio is neither sufficient nor balanced;
• Sums insured in case of third party liability and material damage losses are of such an extent that a maximum support of the whole national insurance market is needed;
• The catastrophic nature of the business would have rendered individual insurers vulnerable to unknown accumulations had the business been placed in a conventional manner using normal reinsurance and retrocession treaties;
• The possibility of mutually advantageous exchange of reinsurance business among national nuclear pools provides access to insurance capacity to all participating national markets;
• It enables participation of all insurers active on a national insurance market, which would be otherwise not able or willing to participate in this area of business for financial, technical or personnel reasons.

Basic Principles of Nuclear Pools` Activities

• All risks accepted are covered by net retention of individual pool members (pool insurance capacity). The risks should not be further individually reinsured;
• Reinsurance is arranged among pools only and it is therefore transparent and maximally protected against unknown accumulation of risks;
• Reinsurance among pools is direct (without using any intermediaries); therefore the costs of reinsurance are minimal.