ARPC’s purpose is to provide the Australian community, through reinsurance, accessible and affordable insurance for terrorism and cyclone risk.

Australian Reinsurance Pool Corporation (ARPC) is a public financial corporation established under the Terrorism and Cyclone Insurance Act 2003 (TCI Act). ARPC is also subject to the Public Governance, Performance and Accountability Act 2013 (PGPA Act).

ARPC operates a Terrorism Reinsurance Pool (terrorism pool) that provides reinsurance cover for eligible terrorism losses. ARPC also operates a Cyclone Reinsurance Pool (cyclone pool) that provides reinsurance cover for cyclone and cyclone-related flood damage to houses, small businesses and strata.

The terrorism pool commenced operations on 1 July 2003, and the cyclone pool commenced operations on 1 July 2022.

The administration of both pools reflects the statutory functions as described in ARPC’s enabling legislation. ARPC’s purpose is to, through reinsurance, improve the accessibility and affordability of insurance for the Australian community for terrorism and cyclone risk. In addition, ARPC works closely with the reinsurance and insurance industries, as well as Government agencies and other stakeholders, to deliver statutory functions.

Background and Legislative Functions

The TCI Act established ARPC to provide reinsurance cover for cyclone pool insurance contracts and eligible terrorism contracts of insurance in Australia and to perform any other function prescribed in the regulations.

The introduction of the cyclone pool

ARPC was originally established in 2003 by the Terrorism Insurance Act 2003, to provide reinsurance cover for eligible terrorism losses in Australia.

On 30 March 2022, the Terrorism Insurance Act 2003 was amended by the passing of the Treasury Laws Amendment (Cyclone and Flood Damage Reinsurance Pool) Bill 2022. The Bill received Royal Assent and became new legislation on 31 March 2022. As a result of this legislation, the Terrorism Insurance Act 2003 became the Terrorism and Cyclone Insurance Act 2003, establishing a framework for a cyclone and cyclone-related flood damage reinsurance pool to be administered by ARPC. The Insurance Act 1973 was also amended to create a civil penalty for insurers who do not reinsure eligible cyclone risks with ARPC.

The cyclone pool today

The cyclone pool covers claims for cyclone and cyclone-related flood damage arising during a cyclone event, which lasts from the time a cyclone begins until 48 hours after the declared cyclone end date and time – this is known as the cyclone event period. The cyclone pool covers home, strata, and small business policies. This includes:

›     residential home and contents, including landlord insurance and farm residential cover.

›     residential strata, including mixed-use strata schemes (where 50 per cent or more of floor space is used mainly for residential purposes); and

›     commercial property policies with less than $5 million total sum insured across risks covered by the cyclone pool (property, contents, and business interruption).

Participation is mandatory for general insurers with eligible policies. All large insurers and most small insurers have joined the cyclone pool, with the remaining small insurers expected to join by 31 December 2024. Policyholders will continue to have freedom to choose their insurer, and insurers will continue to manage all claims.

The cyclone pool is supported by an annually reinstated $10 billion Commonwealth guarantee. Any shortfall in reserves built up over time will be paid for through the Commonwealth guarantee. If the $10 billion guarantee is likely to be exceeded by a single cyclone event or series of cyclone events within a single year, the Government will increase the guarantee to support the cyclone pool to meet all its obligations.

The cyclone pool is funded by charging reinsurance premiums to insurers that are consistent with ARPC's expected claims and operating expenses. The pricing formula uses property-level data such as geography, building characteristics, and mitigation. It has been developed in line with the principles that the cyclone pool will:

›     be cost-neutral to Government over the longer term

›     lower the reinsurance cost for most policies with medium-to-high exposure to cyclone risk

›     have minimal impact on policy premiums for lower cyclone-risk properties and

›     maintain incentives for risk reduction and offer discounts for properties that undertake mitigation.

The terrorism pool today

ARPC also administers a separate terrorism reinsurance pool that was established on 1 July 2003, following the 11 September 2001 attacks in the United States and the withdrawal of terrorism cover by insurers. The terrorism pool was established after discussions with key industry stakeholders, including insurers and reinsurers, banks, representatives of property owners, industry associations, insurance brokers, and actuaries.

The terrorism pool provides insurers with reinsurance for commercial property and associated business interruption losses arising from Declared Terrorism Incidents (DTIs).

• ARPC Programme Summary