TERRORISM INSURANCE ACT 2003

Risk Retention Direction

2017

I, Kelly O’Dwyer, Minister for Revenue and Financial Services, give this written direction to the Australian Reinsurance Pool Corporation under paragraph 38(2)(e) of the Terrorism Insurance Act 2003.

Dated  23 March 2017

KELLY O’DWYER

Minister for Revenue and Financial Services

1 Name of Direction

This Direction is the Terrorism Insurance Act 2003 – Risk Retention Direction 2017.

2 Commencement

This Direction commences on 1 July 2017.

3 Repeal

The Treasurer to Australian Reinsurance Pool Corporation (Risk Retention) Direction 2003 and the Treasurer to Australian Reinsurance Pool Corporation (Risk Retention) Direction 2007 are repealed once this Direction takes effect.

4 Definitions

In this Direction:

APRA means the Australian Prudential Regulation Authority.

Corporation means the Australian Reinsurance Pool Corporation.

Date of Expiry means the date and time at which the Reinsurance Agreement expires, according to the terms of the Agreement.

Reinsurance Agreement means a contract of reinsurance between the Corporation and another person (the Reinsured) relating to terrorism risks.

Reinsurance Period means the period from commencement of a Reinsurance Agreement between the Corporation and the Reinsured until termination of that Reinsurance Agreement, according to the terms of that Reinsurance Agreement.

Reinsured’s Retention means the risk to be retained by the Reinsured under a Reinsurance Agreement.

Retention Period means:

(a) initially, the period from the commencement date of the Reinsurance Agreement between the Corporation and the Reinsured to the next 30 June;

(b) thereafter, each period of 12 consecutive calendar months during the Reinsurance Period commencing on 1 July each year;

(c) thereafter, each period of 12 consecutive calendar months commencing on the day following the Date of Expiry.

For the avoidance of doubt, each such period constitutes a separate Retention Period for the purpose of applying the Reinsured's Retention.

Note: Some terms in this Direction, for example, declared terrorist incident, have the same meaning as in the Act.

5 Reinsured’s Retention

(a) A Reinsured’s Retention, calculated in accordance with clause 5(b), shall apply               in respect of all declared terrorist incidents which happen during the same               Retention Period. 

(b) The Reinsured's Retention shall be fixed for each Retention Period and shall be               an amount equal to the lesser of:

 (i) the Default Figure specified in the table set out below in paragraph (e)                              (the Retention Table); or

 (ii) either of the following which is appropriate to the circumstances of the                              Reinsured:

  A 5% of the amount calculated as follows:

   The Reinsured's Gross Fire and ISR premium LESS the amount of                                           the Fire Service Levy component of that premium which the                                                                       insured has remitted.  (The figures used for this calculation must be                                           the figures disclosed in the Reinsured's returns to APRA for the 12                                           months ending 30 June prior to each Retention Period).

  OR

  B If the Reinsured does not submit returns to APRA for Fire and ISR                                           premium, or, being a newly formed entity has not submitted a                                                         return to APRA for the 12 months ending 30 June prior to the                                                         relevant Retention Period, the figures used for this calculation will                                           be an appropriate equivalent to that described in clause 5(b)(ii)A                                                         as determined by the Corporation in its discretion.

  OR

  C If the amount calculated in accordance with clauses 5(b)(ii)A or                                            5(b)(ii)B is less than the Minimum specified in the Retention                                                                       Table then the Reinsured’s Retention shall be an amount equivalent                                           to the Minimum.

(c) The Reinsured’s Retention may be borne by the Reinsured or wholly or partly               reinsured elsewhere at the Reinsured’s discretion.

(d) If, however, the sum of the Reinsured's Retention and the retentions of all the  Corporation's other reinsureds together total more than the Maximum Industry               Retention set out in the Retention Table in respect of all eligible terrorism               losses caused by a single declared terrorist incident then the amount of the               Reinsured's Retention in respect of that declared terrorist incident shall be               adjusted on the following basis:

 (i)  the Corporation will determine the Reinsured's Retention as a percentage                             of the total retention of all of the Corporation's reinsureds that incur                                           claims caused by that declared terrorist incident (the Reinsured's                                                         Proportion);

 (ii) the Reinsured's Retention shall be an amount equal to the Reinsured's                              Proportion of the Maximum Industry Retention.

(e) Retention Table

6 Corporation to ensure consistency

The Corporation must ensure that a contract of reinsurance between the Corporation and another person is consistent with this Direction.