The Assistant Treasurer, Chris Bowen MP, today announced that the Australian Reinsurance Pool Corporation (ARPC) has successfully arranged $2.3 billion of retrocession cover for the Government's terrorism insurance scheme. The retrocession was placed in excess of $300 million.
The purchase of the retrocession will lead to a substantial reduction in the Commonwealth's level of risk to meet any excess liability under the scheme.
ARPC administers the Government's terrorism insurance scheme. The scheme provides reinsurance cover for terrorism risk relating to commercial property and infrastructure. The scheme was established on 1 July 2003 following the withdrawal of insurance cover for terrorism risks after the terrorist attacks in the United States of America on 11 September 2001.
After extensive negotiations, retrocession contracts were entered into with reinsurers from the Australian, European, Lloyd's and Bermudan markets and cover commenced on 31 December 2008.
"The decision to arrange retrocession for the scheme was made after a thorough investigation by ARPC's Board of the availability of terrorism cover in the global reinsurance market," Mr Bowen said.
The Government's intention is that the scheme will operate only while terrorism insurance cover is unavailable commercially on reasonable terms. The investigation by ARPC's Board showed that global capacity is returning for national pooled arrangements, but there is still little capacity at reasonable prices for individual insurance portfolios.
"The purchase of retrocession reduces the Commonwealth's exposure to losses from a terrorist incident and is a step towards achieving the Government's objective of encouraging the return of the commercial market to offer terrorism reinsurance," Mr Bowen said.
ARPC will continue to seek ways to involve commercial reinsurers in the Australian terrorism insurance market.