ARPC, filling the gap in terrorism reinsurance for business

ARPC, filling the gap in terrorism reinsurance for business


In 2003, in the aftermath of the terrorist attacks in the United States and following the withdrawal of terrorism insurance cover by insurance companies, the Australian Government established a scheme for replacement terrorism reinsurance. The scheme was introduced as a result of calls for the Government to intervene in an area of clear market failure and after discussions with key industry stakeholders.

ARPC is a statutory authority established by the Terrorism Insurance Act 2003 to administer Australia’s terrorism reinsurance scheme and provide terrorism reinsurance for commercial property, associated business interruption losses and public liability claims.

Basis of the scheme

The Government decided that any intervention should be consistent with the need to:

maintain, to the greatest extent possible, private sector provision of insurance;
ensure that risk transferred to the Commonwealth is appropriately priced to minimise the impact on the Commonwealth’s financial position;
ensure that the Commonwealth is being compensated by those benefitting from the assistance;
allow the commercial insurance and reinsurance markets to re-enter the terrorism market when they are able;
be compatible with global solutions.

How the Act works

The Act overrides terrorism exclusion clauses in eligible insurance contracts to the extent the losses excluded are eligible terrorism losses arising from a declared terrorist incident.

The Act makes terrorism exclusion clauses ineffective for all classes of insurance included in the scheme. This requires insurers to meet eligible claims, in accordance with the other terms and conditions of their policies.

The Act applies to all eligible insurance contracts issued by Australian or offshore insurers. Insurance companies may reinsure their terrorism risk exposure with ARPC.

Structure of the scheme

The terrorism reinsurance scheme provides a multi-layer model that will spread the cost of any claims. The diagram below illustrates the scheme structure.

Diagram: scheme structure

Diagram of ARPC's scheme structure, which includes the Commonwealth guarantee, Retrocession program, ARPC's co-reinsurance, ARPC's pool and industry retention

The pool comprises premium and investment income received by ARPC to meet claims. The co-reinsurance is provided in part by the pool and the balance by the Commonwealth guarantee.

Application of a reduction percentage

If the responsible Minister considers that the amount paid or payable under the Commonwealth guarantee will exceed $10 billion, the Minister must also announce a reduction percentage at the time a declared terrorist incident is announced. This will have the effect of limiting the level of cover, by reducing the amount payable by the insurer to the policyholder.

Review of the scheme

The Act requires that a review of the need for the scheme to continue in operation must be undertaken every three years. Reviews were conducted in 2006, 2009 and 2012. The 2012 review made the following recommendations:

  • the Act continue in operation, subject to a further review within three years;
  • premiums continue to be collected at the current rates;
  • industry retention levels remain unchanged;
  • ARPC is to re-examine the issue ¬†of extending the scheme to mixed use, high rise buildings that are not predominantly for commercial use;
  • ARPC pay a dividend to the Commonwealth of $400 million over four years.

Contact us


Sydney office

+61 2 8223 6777
+61 2 9241 1887
Physical address:
Level 23, 56 Pitt Street, Sydney NSW 2000
Postal address:
PO Box R1798, Royal Exchange NSW 1225

Creative Commons licence

With the exception of the Commonwealth Coat of Arms, the Australian Reinsurance Pool Corporation logo and images all material presented in this document is provided under a Creative Commons Attribution 3.0 Australia license

The document must be attributed to the Australian Reinsurance Pool Corporation.