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LONDON -- Increased competition and relatively light losses -- not a recent meeting between Britain's prime minister and the leader of Northern Ireland's Sinn Fein party -- are responsible for softer pricing in the U.K. terrorism insurance market, underwriters say.

The leading market for U.K. terrorism coverage, Pool Reinsurance Co. Ltd., last month announced rate discounts of 20% for city locations and 40% for other locations.

Pool Re was created by the British government and insurance industry in 1993, following a massive contraction in reinsurance capacity for U.K. terrorism risks after 1992 IRA bombings in the City of London.

Under the facility, U.K. insurers provide up to 100,000 pounds ($165,900) of property coverage for terrorism risks. Pool Re, which is backed by the government, provides additional coverage excess of that amount, funded by rates determined by geographic area. Policyholders are required to insure all of their property with Pool Re, or none at all, to achieve a better spread of risk.

A claims-free year has led to the rate discounts, according to Pool Re Chief Executive Leslie Lucas, who noted the discounts do not reflect the status of any recent peace talks.

"By and large rates reflect our claims experience. We cannot second-guess the terrorism threat," said Mr. Lucas.

Underwriters agree, noting that the softening market is a result of a lack of recent losses and increased competition. Falling rates do not reflect a renewed confidence by underwriters in the Irish peace process as a result of a controversial Dec. 11 meeting between Sinn Fein leader Gerry Adams and Britain's Tony Blair.

Meanwhile, an "alternative market" for terrorist coverage at Lloyd's of London continues to thrive, with underwriters vowing to match Pool Re's rate reductions.

Syndicate 33, managed by Hiscox Syndicates Ltd., is boosting its terrorism capacity for 1998 to 100 million pounds ($165.9 million) from 45 million pounds ($74.7 million) for individual properties. In addition, Hiscox last month launched a new U.K. Terrorism Policy to be managed outside of Lloyd's at the company's Kent, England, offices.

According to Philip Perry, the syndicate's terrorism underwriter, the policy offers coverage at rates 20% lower than Pool Re's new rates; allows policyholders to choose the locations they insure, as opposed to Pool Re's all-or-nothing approach; and provides broker commissions of 20% rather than Pool Re's 2.5%.

Because a special terrorist service unit outside Lloyd's is managing the policy, regional brokers can obtain quotes and bind coverage directly without having to go through a Lloyd's broker, Mr. Perry pointed out.

Policyholders will continue to benefit from cheaper terrorism insurance rates as more players, particularly Lloyd's underwriters, write terrorism coverage in 1998 outside of the Pool Re facility, he noted.

Mr. Perry acknowledged that he is reducing rates in response to Pool Re, but added that he thinks Pool Re "is premature in reducing rates."

"The general feeling is very much that the whole Irish peace negotiations are up in the air at the moment," he added.

Fellow Lloyd's underwriter Bernie De Haldevang also expressed concern about the uncertainty of the Irish situation.

"The risk could be considered worse as the situation is a lot more unpredictable," he said, adding that Pool Re's "lowering of rates is untimely."

However, Mr. De Haldevang, underwriter for syndicate 1028, also plans to continue to "attract business" despite the continuing uncertainty.

Syndicate 1028, managed by Wellington Underwriting Agencies Ltd., has formed an internal consortium with fellow syndicate 672 to provide up to 50 million pounds ($83 million) of terrorism cover per risk, which can be increased by additional lines.