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2020-21 Financial Statements

Certification

Image: Independent auditor's report, page 1
Image: Independent auditor's report, page 2
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Primary financial statements

Statement by the Accountable Authority, Chief Executive and Chief Financial Officer

In our opinion, the attached financial statements for the year ended 30 June 2021 comply with subsection 42(2) of the Public Governance, Performance and Accountability Act 2013(PGPA Act), and are based on properly maintained financial records as per subsection 41(2) of the PGPA Act. In our opinion, at the date of this statement, there are reasonable grounds to believe that the Australian Reinsurance Pool Corporation will be able to pay its debts as and when they fall due. This statement is made in accordance with a resolution of the Members. Signed for and on behalf of and in accordance with a resolution of the Members.
Signature supplied Mr Ian Carson AM Chair 21 September 2021 Signature supplied Dr Christopher Wallace Cheif Executive 21 September 2021 Signature supplied Mr John Park Cheif Financial Officer 21 September 2021

Statement of Comprehensive Income for the period ended 30 June 2021

Notes 2021 $’000 2020 $’000
Premium revenue 1.1A 245,722 220,876
Outwards retrocession premium expense 1.1A (65,866) (65,827)
Commonwealth guarantee fee 1.1A (55,000) (55,000)
Net premium revenue 124,856 100,049
Claims expense
Retrocession and other recoveries revenue
Net claims incurred
Retrocession commission income 1.1B 936 3,023
Acquisition costs 1.2G (1,942) (1,739)
Other operating expenses 1.2G (7,812) (6,908)
Underwriting result 116,038 94,425
Investment income 1.1C 3,877 9,650
Other income 1.1D 11
Finance charges 1.2E (12) (16)
Operating result before capital holding fee 119,903 104,070
Capital holding fee 1.2D (35,000) (35,000)
Operating result 84,903 69,070
The above statement should be read in conjunction with the accompanying notes.

Statement of Financial Position as at 30 June 2021

Notes 2021 $’000 2020 $’000
ASSETS
Financial assets
Cash and cash equivalents 2.1A 2,029 1,775
Trade and other receivables 2.1B 64,707 59,787
Investments 2.1C 654,700 571,500
Deferred insurance assets 2.1D 34,052 34,226
Total financial assets 755,488 667,288
Non-financial assets
Leasehold improvements 2.2A 1,310 1,842
Plant and equipment 2.2A 122 113
Intangibles 2.2A 175 218
Work in progress 2.2A 20
Other non-financial assets 2.2B 211 64
Total non-financial assets 1,838 2,237
Total assets 757,326 669,525
LIABILITIES
Unearned liabilities
Unearned premium liability 2.3A 124,675 112,300
Unearned commission liability 2.3A 936
Total unearned liabilities 124,675 113,236
Payables
Suppliers 2.4A 34,108 33,640
Other payables 2.4B 77 54
Total payables 34,185 33,694
Provisions
Employee provisions 3.1A 646 570
Other provisions 2.5A 1,390 122
Total provisions 2,036 692
Interest bearing liabilities
Leases 2.6A 1,000 1,376
Total interest bearing liabilities 1,000 1,376
Total liabilities 161,896 148,998
Net assets 595,430 520,527
EQUITY
Accumulated reserves
Asset revaluation reserve 60 60
Claims handling reserve 34,648 37,252
Reserve for claims 560,722 483,215
Total equity 595,430 520,527
The above statement should be read in conjunction with the accompanying notes.

Statement of Changes in Equity for the period ended 30 June 2021

Accumulated reserves Asset revaluation reserve Claims handling reserve Reserve for claims Total equity
2021 $’000 2020 $’000 2021 $’000 2020 $’000 2021 $’000 2020 $’000 2021 $’000 2020 $’000 2021 $’000 2020 $’000
Opening balance at 1 July 60 60 37,252 34,864 483,215 426,533 520,527 461,457
Income and expenses
Net operating result 84,903 69,070 84,903 69,070
Total income and expenses 84,903 69,070 84,903 69,070
Asset revaluation reserve
Transfers between equity components
Transfer to reserves (84,903) (69,070) (2,604) 2,388 87,507 66,682
Transactions with owners
Distributions to owners (10,000) (10,000) (10,000) (10,000)
Closing balance at 30 June 60 60 34,648 37,252 560,722 483,215 595,430 520,527
The above statement should be read in conjunction with the accompanying notes.
Accounting Policy Transactions with the Government as owners Pursuant to section 38(3)(a) of the Terrorism Insurance Act 2003 (TI Act), the Minister may give written direction to require ARPC to make payments to the Commonwealth designed to ensure that sections 35 and 36 do not result in a competitive advantage for ARPC. Pursuant to section 38(3)(b) of the TI Act, the Minister may give written direction to require ARPC to make payments to the Commonwealth in the nature of dividends. A direction was given by the Minister on 8 September 2020, to pay to the Commonwealth a sum of $90 million in the nature of a combined fee ($55 million Commonwealth guarantee fee and $35 million capital holding fee) (s.38(3)(a)) and a sum of $10 million as a temporary dividend (s.38(3)(b)). ARPC has made payments to the Commonwealth during 2021 totalling $100 million (2020: $100 million). Reserves The intention of the Government in establishing ARPC was that premiums would be used to fund a reserve pool. The reserve for claims has been created to enable ARPC to build up the required pool.

Cash Flow Statement for the period ended 30 June 2021

Notes 2021 $’000 2020 $’000
OPERATING ACTIVITIES
Cash received
Premiums 275,594 248,729
Commission 1,024 3,313
Interest 4,339 11,060
Other cash received 11
Total cash received 280,957 263,113
Cash used
Retrocession payments 68,042 68,074
Employees 4,016 4,008
Suppliers 4,422 3,501
Government 90,329 90,709
Net GST paid 20,212 18,138
Interest payments on lease liabilities 10 13
Total cash used 187,031 184,443
Net cash from operating activities 93,926 78,670
INVESTING ACTIVITIES
Cash received
Proceeds from maturities of term deposits 1,260,000 1,395,600
Total cash received 1,260,000 1,395,600
Cash used
Placement of term deposits 1,343,200 1,463,000
Purchase of property, plant and equipment 96 204
Purchase of externally developed software 36
Total cash used 1,343,296 1,463,240
Net cash used by investing activities (83,296) (67,640)
FINANCING ACTIVITIES
Cash used
Principal payments of lease liabilities 376 354
Distributions to owners 10,000 10,000
Total cash used 10,376 10,354
Net cash used by financing activities (10,376) (10,354)
Net increase/(decrease) in cash held 254 676
Cash and cash equivalents at the beginning of the reporting period 1,775 1,099
Cash and cash equivalents at the end of the reporting period 2.1A 2,029 1,775
The above statement should be read in conjunction with the accompanying notes.
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Overview

Objectives of Australian Reinsurance Pool Corporation

Australian Reinsurance Pool Corporation (ARPC) is a Commonwealth corporate entity established under the Terrorism Insurance Act 2003 (TI Act). It is wholly owned by the Commonwealth of Australia (Commonwealth). ARPC’s vision is to be an effective provider of terrorism risk insurance that facilitates private participation, supports national resilience and reduces losses arising from catastrophic events caused by terrorism. ARPC provides commercial property insurers with reinsurance for commercial property and associated business interruption losses arising from a Declared Terrorism Incident (DTI). The TI Act renders terrorism exclusion clauses in eligible insurance contracts ineffective to the extent that the loss or liability is an eligible terrorism loss arising from a DTI. The ARPC Board is the accountable authority for the purposes of the Public Governance,Performance and Accountability Act 2013 (PGPA Act). ARPC has the power to do all things necessary in connection with the performance of its functions. The continued existence of ARPC in its present form and with present programs is dependent upon Government policy.

The basis of preparation

The financial statements are general purpose financial statements and are required by section 42 of the PGPA Act 2013. The financial statements have been prepared in accordance with:
  1. Public Governance, Performance and Accountability (Financial Reporting) Rule 2015(FRR); and
  2. the Australian Accounting Standards and Interpretations – Reduced Disclosure Requirements issued by the Australian Accounting Standards Board that apply for the reporting period.
The financial statements have been prepared on an accrual basis and in accordance with the historical cost convention, except for certain assets and liabilities at fair value. Except where stated, no allowance is made for the effect of changing prices on the results or the financial position. The financial statements are presented in Australian dollars and values are rounded to the nearest thousand dollars unless otherwise stated. The financial statements have been prepared on the basis that ARPC is a going concern.

New accounting standards

Consistent with Government policy, no accounting standard has been adopted earlier than the application date as stated in the standard. The adoption of new standards and amendments that came into effect for this financial year did not have a significant impact on the financial statements. A number of new and revised Australian Accounting Standards apply to ARPC’s financial statements in later years. ARPC’s assessment of the main effect of these standards on its financial statements is set out below.

AASB 17 – Insurance contracts

In July 2020 the International Accounting Standards Board published the final IFRS 17 standard (IFRS 17 Insurance Contracts), with the final amendments subsequently being adopted into AASB 17. AASB 17 Insurance Contracts will first be applicable to ARPC for the reporting period beginning 1 July 2023 and ending 30 June 2024, and will require comparatives for the period beginning 1 July 2022 and ending 30 June 2023. It replaces the current accounting standard used by ARPC for measuring insurance liabilities, AASB 1023 General Insurance Contracts. At the current time interpretation of the final standard is still ongoing and the full impacts on ARPC are still being determined. AASB 17 will however require the application of new measurement models and extensive changes to the presentation and disclosure of the results of the insurance business. In terms of measurement models there is both a ‘general measurement model’ and a ‘simplified’ model, known as the Premium Allocation Approach (PAA). The PAA has many similarities to the current basis that general insurance contracts are accounted for under AASB 1023. ARPC has completed a ‘gap’ assessment and has concluded it is likely that:
  • The contracts issued that provide protection for terrorism insurance will compromise a single portfolio, and all contracts will belong to a single group;
  • The contracts purchased that provide retrocession protection for terrorism risk will compromise a single portfolio, and all contracts will belong to a single group;
  • Both portfolios will be eligible to be accounted for using the PAA;
  • At this stage, there are no facts or circumstances to suggest that segments within the portfolio are onerous;
  • The annual financial results and financial position applying AASB 17 are not expected to be materially different to the results under AASB 1023; and
  • It is expected there will be substantial changes to the presentation of results and the disclosures.
The requirements of the new accounting standard are complex, and the initial views set out above may change as ARPC continues to analyse and work through implementing the standard.

Impact of COVID-19

ARPC has not been materially impacted from COVID-19. Premium revenue has increased from pre-COVID-19 levels as a result of increases in commercial property insurance premiums in the direct insurance market. This increase in premium revenue has been partially offset by a decrease in investment income on ARPC’s cash and term deposit investment portfolio, as a result of decreased interest rates. During 2020-21, all team members successfully navigated a hybrid working arrangement. During ordinary times, employees balanced their work and personal lives by remote working up to two days a week, with the remaining three days in the office to catch up with colleagues and collaborate on projects. During COVID-19 lockdowns, all employees worked remotely and continued supporting our stakeholders through ARPC’s processes and systems. Our Pandemic Response Plan remained active and the Pandemic Response Team met regularly and updated employees with relevant information and advice. ARPC’s Wellness Committee ran more than 10 types of wellness activities for the ARPC team, and we have regular video meetings for all staff and for small groups. We have continued to keep our staff employed and focused on our corporate plan. ARPC has been able to pivot stakeholder engagement activities online, converting our Terrorism Insurance Seminar and Cyber Research Seminar to webinars, and meeting with stakeholders regularly through video meetings.

Taxation

ARPC is exempt from income tax by virtue of section 36 of the TI Act. ARPC is subject to Fringe Benefits Tax (FBT) and the Goods and Services Tax (GST). Revenues, expenses and assets are recognised net of the amount of GST except:
  • where the amount of GST incurred is not recoverable from the Australian Taxation Office (ATO); or
  • for receivables and payables.

Insurance

ARPC has insured its operating risks with a number of leading insurers using the brokering services of Aon Risk Services Australia Limited. The insurance coverage includes Directors and Officers Liability, Public and Products Liability, Group Journey Injury Insurance, Corporate Travel Insurance, Cyber Liability Insurance and Business Package Insurance. Workers compensation is insured through Comcare Australia.

Outstanding claims liability

The financial statements have not included a liability for outstanding claims (2020: $0). There were no declared terrorist incidents announced during the reporting period or outstanding claims from incidents in prior periods. Any such declaration must be announced by the Minister after consultation with the Attorney-General. ARPC considers that there are no significant inherent uncertainties in respect of the liability estimate. Accordingly, ARPC has not established a central estimate and has not, therefore, applied a prudential margin in respect of the outstanding claims liability. This is in accordance with AASB 1023 General Insurance Contracts. In the event of a declared terrorist incident, an actuary will be engaged to independently assess the outstanding claims liability at the balance date and a liability will be held if it is estimated that claims are in excess of the primary insurer’s deductible.

Net claims incurred

There were no declared terrorist incidents during the reporting period. Net claims incurred from prior year declared terrorist incidents did not exceed the individual primary insurer’s deductible.

Assets backing general insurance liabilities

With the exception of property, plant and equipment and intangibles, ARPC has determined that all assets are held to back general insurance liabilities.

Events after the reporting period

ARPC is not aware of any significant events that have occurred since reporting date which warrant disclosure in these financial statements. Back to top

Notes to the financial statements

1. Financial performance

This section analyses the financial performance of ARPC for the financial year ended 30 June 2021.

1.1 Revenue

1.1A: Net premium revenue 2021 $’000 2020 $’000
Gross written premium 258,097 234,348
Movement in unearned premium reserve (12,375) (13,472)
Total premium revenue 245,722 220,876
Outwards retrocession premium expense (65,866) (65,827)
Commonwealth guarantee fee (55,000) (55,000)
Net premium revenue 124,856 100,049
Accounting policy Premium revenue Premium revenue comprises amounts charged to insurers, excluding taxes collected on behalf of third parties. The earned portion of premiums received and receivable, including unclosed business, is recognised as revenue in the Statement of Comprehensive Income. Premiums are recognised as earned based on time from the date of attachment of risk. Premiums not received at reporting date and for the quarter ended 30 June 2021 are recognised as premiums receivable in the Statement of Financial Position. The proportion of premium received or receivable not earned in the Statement of Comprehensive Income at the reporting date is recognised in the Statement of Financial Position as unearned premium. Unearned premiums are determined using the one eighth method, a fractional method of calculation of the balance. This method is driven by the assumption that the risk attached to the revenue ceded expires evenly over each quarter of the financial year. Premiums on unclosed business are brought to account using estimates based on the previous year’s actual unclosed business with due allowance made for any changes in the pattern of new business and renewals and having regard to the premium reported for the current year prior to the signing of the financial statements. Retrocession premium expense Amounts paid to retrocessionaires are recorded as an outwards retrocession premium expense and are recognised in the Statement of Comprehensive Income from the attachment date over the contract indemnity period. This is in accordance with the expected pattern of the incidence of risk ceded. Commonwealth guarantee fee Pursuant to section 38(3)(a) of the TI Act, the Minister may give written direction to require ARPC to make payments to the Commonwealth designed to ensure that sections 35 and 36 do not result in a competitive advantage for ARPC. A direction was given by the Minister on 08 September 2020, to pay to the Commonwealth a sum of $55 million in the nature of a Commonwealth guarantee fee. The Commonwealth guarantee operates as retrocession protection above the private market retrocession layers. The guarantee is an unlimited solvency guarantee, but the reduction percentage mechanism is designed to limit the guarantee to $10 billion.
1.1B: Retrocession commission income 2021 $’000 2020 $’000
Retrocession commission income 936 3,023
Total retrocession commission income 936 3,023
Accounting policy Retrocession commission revenue is recognised in the Statement of Comprehensive Income in accordance with the pattern of retrocession expenses incurred.
1.1C: Investment income 2021 $’000 2020 $’000
Cash at bank 2 26
Term deposits 3,875 9,624
Total investment income 3,877 9,650
Accounting policy Interest revenue is recognised using the effective interest method.
1.1D: Other income 2021 $’000 2020 $’000
Other revenue 11
Total other income 11

1.2 Expenses

1.2A: Employee benefits 2021 $’000 2020 $’000
Wages and salaries 3,222 3,139
Superannuation
Defined contribution plans 441 432
Defined benefit plans 4 4
Leave and other entitlements 324 318
Separation and redundancies 123 34
Total employee benefits 4,114 3,927
Accounting policy Accounting policies for employee related expenses are contained in the People and Relationships section.
1.2B: Suppliers 2021 $’000 2020 $’000
Goods and services supplied or rendered
Consultants 2,814 1,775
Reinsurance broker services 558 571
Assurance Services 440 264
Information and Communications Technology (ICT) 421 365
Shared Services 130 180
Legal fees 121 92
Staff Development and Training 50 137
Travel 32 251
Other 413 442
Total goods and services supplied or rendered 4,979 4,077
Goods supplied 86 107
Services rendered 4,893 3,970
Total goods and services supplied or rendered 4,979 4,077
Other supplier expenses
Workers compensation insurance 19 18
Total other supplier expenses 19 18
Total supplier expenses 4,998 4,095
For the current financial year ARPC paid $105,000 for the provision of external audit services (2020: $105,000). Accounting policy Short-term leases and leases of low-value assets ARPC has elected not to recognise right-of-use assets and lease liabilities for short-term leases that have a lease term of 12 months or less and leases of low-value assets (less than $10,000). ARPC recognises the lease payments associated with these leases as an expense on a straight-line basis over the lease term.
Amortisation
1.2C: Depreciation and amortisation 2021 $’000 2020 $’000
Depreciation
Leasehold improvements 146 125
Property, plant and equipment 63 54
Total depreciation 209 179
Intangibles – computer software 43 16
Right-of-use asset – office lease 386 386
Total amortisation 429 402
Total depreciation and amortisation 638 581
Accounting policy Accounting policies for depreciation and amortisation are contained in the non-financial assets section.
1.2D: Capital holding fee paid to the Commonwealth 2021 $’000 2020 $’000
Capital holding fee 35,000 35,000
Total capital holding fee paid to the Commonwealth 35,000 35,000
1.2E: Finance charges 2021 $’000 2020 $’000
Bank charges 2 3
Interest on lease liabilities 10 13
Total finance charges 12 16
The above lease disclosures should be read in conjunction with the accompanying notes 1.2C, 2.2A and 2.6A. Accounting policy All finance charges are expensed as incurred.
1.2F: Losses from asset sales 2021 $’000 2020 $’000
Property, plant and equipment
Carrying value of assets disposed 4 44
Total losses from asset sales 4 44
1.2G: Reconciliation of expenses to the Statement of Comprehensive Income 2021 $’000 2020 $’000
Expenses by nature
Employee benefits 4,114 3,927
Suppliers 4,998 4,095
Depreciation and amortisation 638 581
Capital holding fee paid to the Commonwealth 35,000 35,000
Finance charges 12 16
Losses from asset sales 4 44
Total expenses by nature 44,766 43,663
Expenses by function
Acquisition costs 1,942 1,739
General and administration expenses 42,824 41,924
Total expenses by function 44,766 43,663
Reconciliation of expenses to the Statement of Comprehensive Income
General and administration expenses 42,824 41,924
Less: Capital holding fee paid to the Commonwealth (35,000) (35,000)
Less: Finance costs (12) (16)
Other operating expenses 7,812 6,908
.

2. Financial position

This section analyses ARPC’s assets used to conduct its operations and the operating liabilities incurred as a result. Employee related information is disclosed in the People and Relationships section.

2.1 Financial assets

2.1A: Cash and cash equivalents 2021 $’000 2020 $’000
Cash at bank 2,029 1,775
Total cash and cash equivalents 2,029 1,775
Accounting policy Cash and cash equivalents includes notes and coins held and any deposits in bank accounts with an original maturity of three months or less and subject to insignificant risk of valuation changes. Cash is recognised at the nominal amount.
2.1B: Trade and other receivables 2021 $’000 2020 $’000
Premium receivable 63,669 57,378
Commission receivable 931
Interest receivable 978 1,441
Net GST receivable from the Australian Taxation Office 60 37
Total receivables 64,707 59,787
Credit terms are net 30 days (2020: 30 days). Trade debtors are non-interest bearing. Interest receivable Effective interest rates range from 0.21% to 0.63% (2020: 0.10% to 1.72%) and the frequency of payment is monthly for cash accounts and on maturity for term deposits. Accounting policy Amounts due from policyholders and intermediaries are initially recognised at fair value, being the amounts due. They are subsequently measured at fair value, which is approximated by taking the initially recognised amount and reducing it for impairment, as appropriate. A provision for receivables impairment is established when there is objective evidence that ARPC will not be able to collect all amounts due according to the original terms of the receivables. The provision established is the difference between the asset’s carrying amount and the present value of estimated future cash flows. The discount is calculated using a risk-free rate. The impairment charge is recognised in the Statement of Comprehensive Income.
2.1C: Investments 2021 $’000 2020 $’000
Fixed interest term deposits 654,700 571,500
Total investments 654,700 571,500
Term deposits at balance date are held with local banks regulated by the Australian Prudential Regulation Authority (APRA). These deposits earn an effective rate of interest of 0.37% (2020: 1.06%). Interest is payable on maturity for all term deposits. Terms are between 91 and 365 days (2020: 91 and 276 days). Accounting Policy Fixed interest deposits are carried at the face value of the amounts deposited. The carrying amounts are an approximate to their fair value.
2.1D: Deferred insurance assets Notes 2021 $’000 2020 $’000
(i) Deferred insurance assets
Deferred retrocession premium 2.1D(ii) 33,065 33,340
Deferred acquisition costs 2.1D(iii) 987 886
Total deferred insurance assets 34,052 34,226
(ii) Deferred retrocession premium
Deferred retrocession premium as at 1 July 33,340 32,850
Retrocession premium deferred 33,065 33,340
Amortisation charged to expense (33,340) (32,850)
Deferred retrocession premium as at 30 June 33,065 33,340
(iii) Deferred acquisition costs
Deferred acquisition costs as at 1 July 886 763
Acquisition costs deferred 987 886
Amortisation charged to expense (886) (763)
Deferred acquisition costs as at 30 June 987 886
Accounting policy Deferred acquisition costs Acquisition costs are incurred in obtaining and recording policies of insurance. They include legal, advertising, risk assessment and other administrative costs. A portion of acquisition costs relating to unearned premium revenue is deferred in recognition in that it represents future benefits to ARPC, where they can be reliably measured and where it is probable that they will give rise to premium revenue that will be recognised in the Statement of Comprehensive Income in subsequent reporting periods. Deferred acquisition costs are measured at the lower of cost and recoverable amount. These costs are amortised on the same basis as the earning pattern of the corresponding premium revenue. Deferred retrocession premium Deferred retrocession premiums are recognised as part of deferred insurance assets. The amortisation of deferred retrocession premiums is in accordance with the pattern of retrocession benefit received. The amount deferred represents the future economic benefit to be received from the retrocession contracts. Unexpired risk liability ARPC has compared the net present value of the expected future cash flows relating to future claims arising under general insurance contracts with the reported unearned premium liability. There is no deficiency noted or recorded in these financial statements (2020: $0). Accordingly, there has been no write down in ARPC’s deferred acquisition costs and no requirement to establish an unexpired risk liability.

2.2 Non-financial assets

2.2A: Reconciliation of the Opening and Closing Balances of Property, Plant and Equipment and Intangibles Reconciliation of the opening and closing balances of property, plant and equipment and intangibles for 2021
Leasehold improvements $’000 Plant and equipment $’000 Intangibles – computer software purchased $’000 Work in progress – software purchased $’000 Total $’000
As at 1 July 2020
Gross book value 2,692 213 2,361 5,266
Accumulated depreciation, amortisation and impairment (850) (100) (2,143) (3,093)
Total as at 1 July 2020 1,842 113 218 2,173
Additions – By purchase 76 20 96
Depreciation and amortisation expense (146) (63) (43) (252)
Amortisation on right-of-use asset (386) (386)
Asset disposal (27) (27)
Accumulated depreciation on asset disposal 23 23
Other movements – transfer between classes
Total as at 30 June 2021 1,310 122 175 20 1,627
Total as at 30 June 2021
Gross book value 2,692 262 2,361 20 5,335
Accumulated depreciation, amortisation and impairment (1,382) (140) (2,186) (3,708)
Total as at 30 June 2021 1,310 122 175 20 1,627
Carrying amount of right-of- use asset 957 957
No indicators of impairment were found for property, plant and equipment and intangibles (2020: Nil). No property, plant and equipment and intangibles are expected to be sold or disposed of within the next 12 months. At the time of preparing the prior year financial statements, there were no plans to dispose of assets within the next 12 months. Revaluations of non-financial assets All revaluations were conducted in accordance with the revaluation accounting policy stated below. Accounting policy Assets are recorded at cost on acquisition except as stated below. The cost of acquisition includes the fair value of assets transferred in exchange and liabilities undertaken. Financial assets are initially measured at their fair value plus transaction costs where appropriate. Assets acquired at no cost or for nominal consideration are initially recognised as assets and income at their fair value at the date of acquisition. Asset recognition threshold Purchases of property, plant and equipment are recognised initially at cost in the Statement of Financial Position, except for purchases costing less than $2,000, which are expensed in the year of acquisition (other than where they form part of a group of similar items which are significant in total). The initial cost of an asset includes an estimate of the cost of dismantling and removing the item and restoring the site on which it is located. This is also relevant to make good provisions in property leases taken up by ARPC where there exists an obligation to restore the property back to its original condition. These costs are included in the value of ARPC’s leasehold improvements with a corresponding provision for the make good recognised. Lease Right of Use (ROU) Assets Leased ROU assets are capitalised at the commencement date of the lease and comprise of the initial lease liability amount, initial direct costs incurred when entering into the lease less any lease incentives received. These assets are accounted for by Commonwealth lessees as separate asset classes to corresponding assets owned outright, but included in the same column as where the corresponding underlying assets would be presented if they were owned. On initial adoption of AASB 16 ARPC adjusted the ROU assets at the date of initial application by the amount of any provision for onerous leases recognised immediately before the date of initial application. Following initial application, an impairment review is undertaken for any right of use lease asset that shows indicators of impairment and an impairment loss is recognised against any right of use lease asset that is impaired. Leased ROU assets continue to be measured at cost after initial recognition in ARPC, GGS and Whole of Government financial statements. Revaluations Following initial recognition at cost, property, plant and equipment (excluding ROU assets) are carried at fair value less subsequent accumulated depreciation and accumulated impairment losses. Valuations are conducted with sufficient frequency to ensure that the carrying amounts of assets did not differ materially from the assets’ fair values as at the reporting date. The regularity of independent valuations depended upon the volatility of movements in market values for the relevant assets. Revaluation adjustments are made on a class basis. Any revaluation increment is credited to equity under the heading of asset revaluation reserve except to the extent that it reversed a previous revaluation decrement of the same asset class that was previously recognised in the surplus/deficit. Revaluation decrements for a class of assets are recognised directly in the surplus/deficit except to the extent that they reversed a previous revaluation increment for that class. Any accumulated depreciation as at the revaluation date is eliminated against the gross carrying amount of the asset and the asset restated to the revalued amount. Depreciation is recalculated over the remaining estimated useful life of the asset. Depreciation Depreciable property, plant and equipment assets are written-off to their estimated residual values over their estimated useful lives to ARPC using, in all cases, the straight-line method of depreciation. Depreciation rates (useful lives), residual values and methods are reviewed at each reporting date and necessary adjustments are recognised in the current, or current and future reporting periods, as appropriate. Depreciation rates applying to each class of depreciable asset are based on the following useful lives:
2021 2020
Leasehold improvements Lease term Lease term
Plant and equipment 3 to 8 years from purchase date 3 to 8 years from purchase date
The depreciation rates for ROU assets are based on the commencement date to the earlier of the end of the useful life of the ROU asset or the end of the lease term. Impairment All assets were assessed for impairment at 30 June 2021. Where indications of impairment exist, the asset’s recoverable amount is estimated, and an impairment adjustment made if the asset’s recoverable amount is less than its carrying amount. The recoverable amount of an asset is the higher of its fair value less costs of disposal and its value in use. Value in use is the present value of the future cash flows expected to be derived from the asset. Derecognition An item of property, plant and equipment is derecognised upon disposal or when no further future economic benefits are expected from its use or disposal. Intangibles Software development expenditure that meets the criteria as an intangible asset is capitalised in the Statement of Financial Position and amortised over its expected useful life, subject to impairment testing. Costs incurred in researching and evaluating a project up to the point of formal project commitment are treated as research costs and are expensed as incurred. ARPC’s intangibles comprise purchased software for internal use. These assets are carried at cost less accumulated amortisation and accumulated impairment losses. Software is amortised on a straight-line basis over its anticipated useful life. The useful lives of ARPC’s software assets are 4 to 5 years (2020: 4 to 5 years). All software assets were assessed for indications of impairment as at 30 June 2021.
2.2B: Other non-financial assets 2021 $’000 2020 $’000
Prepayments 211 64
Total other non-financial assets 211 64

2.3 Unearned liabilities

2.3A: Unearned liability Notes 2021 $’000 2020 $’000
Unearned premium liability 2.3B 124,675 112,300
Unearned commission liability 2.3C 936
Total unearned liability 124,675 113,236
2.3B: Unearned premium liability 2021 $’000 2020 $’000
Unearned premium liability as at 1 July 112,300 98,828
Deferral of premiums on contracts written in the period 124,675 112,300
Earning of premiums written in the previous periods (112,300) (98,828)
Unearned premium liability as at 30 June 124,675 112,300
2.3C: Unearned commission liability 2021 $’000 2020 $’000
Unearned commission liability as at 1 July 936 2,097
Deferral of commissions on contracts written in the period 936
Earning of commissions written in the previous periods (936) (2,097)
Unearned commission liability as at 30 June 936

2.4 Payables

2.4A: Supplier payables 2021 $’000 2020 $’000
Retrocession payable 32,795 33,159
Trade creditors 17 63
Accruals 1,273 418
GST Payable to the Australian Taxation Office 23
Total supplier payables 34,108 33,640
Retrocession payable In accordance with ARPC’s retrocession treaty expiring 31 December 2021, the retrocession premium is paid quarterly in advance. Settlement is made net 30 days. Trade creditors Settlement is made net 30 days. All of ARPC’s liabilities are guaranteed by the Commonwealth by virtue of section 35 of the TI Act.
2.4B: Other payables 2021 $’000 2020 $’000
Salaries and wages 68 48
Superannuation 9 6
Total other payables 77 54
Accounting policy Accounting policies for employee related payables are contained in the People and Relationships section.

2.5 Other provisions

2.5A: Other provisions Provision for restoration $’000 Other provisions $’000 Total $’000
Carrying amount as at 1 July 2020 122 122
Additional provisions made 1,268 1,268
Amounts used
Unwinding of discount
Amounts owing at 30 June 2021 122 1,268 1,390
Provisions noted in Other provisions relate to future premium refund payable. ARPC currently has one (2020: one) agreement for the leasing of premises which has a provision requiring ARPC to restore the premise to their original condition at the conclusion of the lease. ARPC has made a provision to reflect the present value of this obligation. The financial statements have not included an outstanding claims liability (2020: nil).

2.6 Interest bearing liabilities

2.6A: Leases 2021 $’000 2020 $’000
Lease liabilities
Office lease 1,000 1,376
Total leases 1,000 1,376
Maturity analysis – contractual undiscounted cash flows
Within 1 year 404 385
Between 1 to 5 years 603 1,007
More than 5 years
Total leases 1,007 1,392
Total cash outflows for leases for the year ended 30 June 2021 was $385,462 (2020: $367,512) The above lease disclosures should be read in conjunction with the accompanying notes 1.2C, 2.2A and 2.6A Accounting policy For all new contracts entered into, ARPC considers whether the contract is, or contains a lease. A lease is defined as ‘a contract, or part of a contract, that conveys the right to use an asset (the underlying asset) for a period of time in exchange for consideration’. Once it has been determined that a contract is, or contains a lease, the lease liability is initially measured at the present value of the lease payments unpaid at the commencement date, discounted using the interest rate implicit in the lease, if that rate is readily determinable, or the department’s incremental borrowing rate. Subsequent to initial measurement, the liability will be reduced for payments made and increased for interest. It is remeasured to reflect any reassessment or modification to the lease. When the lease liability is remeasured, the corresponding adjustment is reflected in the right-of- use asset or profit and loss depending on the nature of the reassessment or modification.

3. People and relationships

This section describes a range of employment and post-employment benefits provided to our people and our relationships with other key people.

3.1 Employee provisions

3.1A: Employee Provisions 2021 $’000 2020 $’000
Leave 646 570
Total employee provisions 646 570
Accounting policy Liabilities for short-term employee benefits and termination benefits expected within twelve months of the end of reporting period end are measured at their nominal amounts. Other long-term employee benefits are measured as the net total of the present value of the defined benefit obligation at the end of the reporting period. Leave The liability for employee benefits includes provision for annual leave and long service leave. No provision has been made for sick leave, as all sick leave is non-vesting and the average sick leave taken in future years by employees of ARPC is estimated to be less than the annual sick leave entitlement. The leave liabilities are calculated on the basis of employees’ remuneration at the estimated salary rates that will be applied at the time the leave is taken. This includes ARPC’s employer superannuation contribution rates and other employee benefits to the extent that the leave is likely to be taken during service, rather than being paid out on termination. The liability for long service leave is the present value of employee entitlements based on the Australian Government shorthand method as per the Public Governance,Performance and Accountability (Financial Reporting) Rule 2015. The estimate of the present value of the liability takes into account attrition rates and pay increases through promotion and inflation. Superannuation Superannuation guarantee contributions are made by ARPC for employees and Members. The default superannuation scheme is AustralianSuper. The liability for superannuation recognised as at 30 June 2021 represents the outstanding contributions for the final fortnight of the year.

3.2 Key management personnel remuneration

Key management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of ARPC, directly or indirectly, including any director (whether executive or otherwise) of ARPC. ARPC has determined the key management personnel to be the Portfolio Minister, ARPC’s Board Members, the Chief Executive, the Chief Underwriting Officer, the Chief Operating Officer, the Chief Financial Officer, the Chief Governance Officer and the General Counsel. Key management personnel remuneration is reported in the table below:
2021 $ 2020 $
Short-term employee benefits 1,613,763 1,496,409
Post-employment benefits 153,656 146,816
Other long-term employee benefits 31,938 69,406
Termination benefits 85,230
Total key management personnel remuneration expense 1,884,587 1,712,631
The total number of key management personnel that are included in the above table are 13 (2020: 12). The above key management personnel remuneration excludes the remuneration and other benefits of the Portfolio Minister. The Portfolio Minister’s remuneration and other benefits are set by the Remuneration Tribunal and are not paid by ARPC.

3.3 Related party disclosures

Members of ARPC at 30 June 2021 were: Mr Ian Carson AM Ms Janet Torney Mr John Peberdy Ms Robin Low Ms Elaine Collins Maria Fernandez PSM Changes in membership during the year:
  • Ms Karen Payne’s term expired on 04 October 2020
  • Mr John Peberdy’s term expired on 30 June 2021
  • Ms Janet Torney’s term expired on 30 June 2021
  • Ms Elaine Collins’ term expired on 30 June 2021 and she was re-appointed effective 1 July 2021 for a 3-year term
  • Mr Jan van der Schalk was appointed effective 1 July 2021 for a 3-year term
  • Ms Julie-anne Schafer was appointed effective 14 September 2021 for a 3-year term.
Other than where noted, Members held their positions for the full year. Key management personnel employed by ARPC at 30 June 2021 were:
  • Dr Christopher Wallace – Chief Executive
  • Mr Michael Pennell PSM – Chief Underwriting Officer
  • Ms Helen Williams – Chief Operating Officer
  • Mr John Park – Chief Financial Officer
  • Ms Samantha Lawrence – Chief Governance Officer
Related party relations: ARPC is an Australian Government controlled entity established by section 9 of the TI Act. ARPC is only authorised to transact business and carry out functions as provided in the TI Act or as approved or directed by the Minister. ARPC’s liabilities are guaranteed by the Commonwealth by virtue of section 35 of the TI Act. Related parties to ARPC are the Members, Key Management Personnel including the Portfolio Minister and Cabinet, and other Australian Government entities. Transactions with related parties: Given the breadth of Government activities, related parties may transact with the government sector in the same capacity as ordinary citizens. These transactions are disclosed in the table below. Apart from the items disclosed in the table below and in note 3.2 relating to the remuneration and expenses of key management personnel during the year, there were no further related party transactions. The following cash transactions with related parties occurred during the year:
2021 $ 2020 $
Related Party – Owner Purpose
The Treasury Commonwealth guarantee fee 55,000,000 55,000,000
The Treasury Capital holding fee 35,000,000 35,000,000
The Treasury Provision of corporate support services to ARPC 204,763 180,223
Australian Government Solicitor Provision of legal services 97,787 22,591
Comcare Workers compensation insurance premiums 18,817 20,013
Artbank Hire of artwork 7,300 3,929
Australian Public Service Commission Subscription Services 350
Geoscience Australia Development of loss estimate model 480,500
Department of Communications and the Arts Copyright fees 1,591
Attorney General’s Department Legal services panel 502
90,329,017 90,709,349
Total Related Party Transactions 90,329,017 90,709,349

4. Managing uncertainties

This section analyses how ARPC manages risks within its operating environment.

4.1 Risk management

ARPC’s approach to managing risk is consistent with the Australian/New Zealand Standard for Risk Management (AS/NZS IS0 31000:2009). The Board maintains a Risk Appetite and Tolerance Statement, and monitors performance reports against this statement provided by management at each Board meeting. The Board-approved Risk Management Policy outlines the commitment of the Board and senior management to promote a supportive risk culture, set risk objectives, provide training and resources for risk management activities, manage and report risk information, and monitor, review and continually improve. The Risk Management Policy describes the key risk types and the systems and controls to manage these. The broad risk categories discussed below are:
  • insurance risk
  • operational risk
  • ​capital risk, and
  • financial risks
Within each of these categories, risks are evaluated before considering the impact of mitigating controls. The existence and effectiveness of such mitigating controls are measured such that residual risks are managed within risk tolerance.
4.1A: Insurance risk
The following outlines how ARPC manages its insurance risks across the underwriting, claims and actuarial disciplines.
Underwriting risks
Section 8 of the TI Act renders terrorism exclusion clauses in all eligible insurance contracts ineffective in the event of a declared terrorist incident. Insurers have the right to reinsure this risk with ARPC. Key aspects of the process established to mitigate risks include:
  • ARPC’s underwriting risk is limited to eligible terrorism losses arising in respect of eligible insurance contracts
  • ARPC utilises a standard reinsurance agreement for underwriting and accepting insurance risks, with retentions to share risk exposure with each cedant
  • ARPC undertakes a cedant review program to verify premium levels; and
  • ARPC’s exposure to insurance risk concentrations is mitigated by the fact the TI Act applies to all eligible insurance contracts. The TI Act wording is designed to facilitate concentration risk diversification both geographically and by type of risk.
Claims risk
Claims submitted to ARPC associated with the 2014 DTI did not exceed the retentions of the reinsured. Therefore, no claims expense has been incurred and no liability has been recognised for the payment of claims. ARPC’s mitigation strategies for the claims risks include:
  • access to a Commonwealth guarantee for the due payment of money that may become payable by ARPC to any person other than the Commonwealth. If a DTI occurs the Minister must specify a pro rata (percentage) reduction in claims to be paid out by insurers, if, in the absence of such a reduction percentage, the total amounts payable by the Commonwealth might exceed $10 billion;
  • the appointment of a claims manager and the development of claims procedures to validate that all claim advices are captured and updated on a timely basis;
  • a standing agreement with an actuarial firm to value claims arising from a DTI;
  • collecting annual aggregate exposure data from cedants;
  • supporting the continued development of blast and plume models estimating terrorism losses to support advice given regarding a reduction percentage and ultimate claim costs;
  • the asset mix which ARPC invests in is regulated by section 59 of the PGPA Act. The management of investments is closely monitored to confirm the liquidity of funds to match the cash needs of ARPC; and
  • maintaining a claims handling reserve. The purpose of this reserve is to validate that there are sufficient monies set aside to allow ARPC to continue to operate in order to finalise any claims and reinsurance recoveries following the pool cessation or a significant DTI. The claims handling reserve as at 30 June 2021 is $34.65 million (2020: $37.25 million).
4.1B: Operational risk
Operational risk is the risk of loss arising from system failure or inadequacies, human error or external events that do not relate to insurance, capital and financial risks. ARPC manages these risks within the entity’s enterprise wide risk management framework. ARPC’s mitigation strategies for operational risk include:
  • effective staff recruitment and retention policies;
  • segregation of duties including access controls, delegated authorisation levels and accounting reconciliations controls;
  • maintenance and use of sophisticated information systems which provide up to date and reliable data to assist in managing the risk to which the business is exposed to at any point in time; and
  • ongoing management of ARPC’s Business Continuity Policy.
4.1C: Capital risk
ARPC’s capital structure to cover claims from declared terrorist incidents is outlined below:
  • ARPC has access to its reserve for claims in cash and investments of $561 million (2020: $483 million);
  • In the event of a DTI, ARPC would be required to pay $225 million (2020: $250 million) before claiming on its retrocession program;
  • ARPC has access to a $3.475 billion retrocession program in excess of the $225 million retention (2020: $3.45 billion retrocession program, in excess of $250 million); and
  • ARPC has access to a Commonwealth guarantee for the due payment of money that may become payable by ARPC to any person other than the Commonwealth. If a DTI occurs, the Minister must specify a pro rata (percentage) reduction in claims to be paid out by insurers if, in the absence of such a reduction percentage, the total amounts payable by the Commonwealth might exceed $10 billion (2020: $10 billion).
4.1D Financial risk
ARPC is exposed to financial risks such as market risk, credit risk, and liquidity risk. It seeks to minimise potential adverse effects on its financial performance through its risk management framework. The key objectives are capital stability, accessibility and rate of return.
Market risk
Market risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market factors. Market risk comprises two types of risk:
  • interest rate risk (owing to fluctuations in market interest rates), and
  • pricing risk (owing to fluctuations in market prices).
Interest rate risk Interest rate risk refers to the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. Financial instruments with floating rate interest expose ARPC to cash flow interest rate risk, whereas fixed interest rate instruments expose ARPC to fair value interest rate risk. ARPC manages the interest rate risk through its investment policy. The policy notes ARPC must comply with the requirements of the PGPA Act. Section 59(1)(b) of the PGPA Act provides that a corporate Commonwealth entity may invest surplus money:
  1. on deposit with a bank, including a deposit evidenced by a certificate of deposit; or
  2. in securities of, or securities guaranteed by, the Commonwealth, a State or a Territory;or
  3. in any other form of investment authorised by the Finance Minister in writing; or
  4. in any other form of investment prescribed by the rules; or
  5. for a government business enterprise – in any other form of investment that is consistent with sound commercial practice.
ARPC actively manages portfolio duration. The maturity profile of ARPC’s interest bearing financial assets, the exposure to interest rate risk and the effective weighted average interest rate for interest bearing financial assets is listed below.
Floating interest rate Fixed interest rate maturing in Total
1 year or less 1 year or less 1 to 5 years > 5 years
Notes 2021 $’000 2021 $’000 2021 $’000 2021 $’000 2021 $’000
Interest bearing financial assets
Cash and cash equivalents 2.1A 2,029 2,029
Fixed term deposits 2.1C 654,700 654,700
Total 2,029 654,700 656,729
Weighted average interest rate 0.00% 0.37% 0.37%
Floating interest rate Fixed interest rate maturing in Total
1 year or less 1 year or less 1 to 5 years > 5 years
Notes 2020 $’000 2020 $’000 2020 $’000 2020 $’000 2020 $’000
Interest bearing financial assets
Cash and cash equivalents 2.1A 1,775 1,775
Fixed term deposits 2.1C 571,500 571,500
Total 1,775 571,500 573,275
Weighted average interest rate 0.14% 1.06% 1.06%
The Department of Finance deemed a 74-basis point change to be reasonably possible and ARPC adopted this when reporting interest rate risk (2020: 9-basis point change). ARPC has considered the implied financial impact of the deemed 74 basis point change. The table below details the interest rate sensitivity analysis of ARPC at the reporting date, holding all other variables constant.
Movement in variable Financial impact
Profit/Loss Equity
2021 % 2020 % 2021 $’000 2020 $’000 2021 $’000 2020 $’000
Interest rate movement
– Interest bearing +0.74 +0.09 4,860 516 4,860 516
Financial assets -0.74 -0.09 (4,860) (516) (4,860) (516)
Pricing risk Pricing risk is the risk that the fair value of a financial instrument’s future cash flows will fluctuate because of market price changes, other than those arising from interest rate or currency risk. These changes can be caused by factors specific to the individual financial instrument or its issuer, or factors affecting all similar, financial instruments traded on the market. The premium charged for reinsurance is determined by Ministerial Direction. The premiums have been set having regard to the level of risk.
Credit risk
Credit risk is the risk that one party to a financial instrument will cause financial loss to the other party by failing to discharge an obligation. The following policies and procedures are in place to mitigate ARPC’s credit risk:
  • premium debtors in respect of credit risk is monitored monthly, and
  • an approved investment policy document. Compliance with the policy is monitored and reported monthly
The following table provides information regarding the aggregate credit risk exposure to ARPC in respect of financial assets. The table classifies the assets according to Standard and Poor’s counterparty credit ratings.
Credit rating
AAA AA- A+ A Unrated Total
Notes 2021 $’000 2021 $’000 2021 $’000 2021 $’000 2021 $’000 2021 $’000
ARPC
Cash and cash equivalents 2.1A 2,029 2,029
Receivables 2.1B 64,707 64,707
Fixed term deposits 2.1C 596,800 25,000 32,900 654,700
Total 2,029 596,800 25,000 32,900 64,707 721,436
Credit rating
AAA AA- A+ A Unrated Total
Notes 2020 $’000 2020 $’000 2020 $’000 2020 $’000 2020 $’000 2020 $’000
ARPC
Cash and cash equivalents 2.1A 1,775 1,775
Receivables 2.1B 59,787 59,787
Fixed term deposits 2.1C 396,500 125,500 49,500 571,500
Total 1,775 396,500 125,500 49,500 59,787 633,062
The carrying amount of the relevant asset classes in the Statement of Financial Position represents the maximum amount of credit exposure. The following table provides information regarding the carrying value of ARPC’s financial assets that have been impaired and the ageing of those that are past due but not impaired at the balance date.
Not past due or impaired Past due Total
Notes 2021 $’000 2020 $’000 2021 $’000 2020 $’000 2021 $’000 2020 $’000
Financial assets
Premium receivables 2.1B 63,630 57,335 39 43 63,669 57,378
Commission receivables 2.1B 931 931
Interest receivable 2.1B 978 1,441 978 1,441
Net GST receivable 2.1B, 2.4A 38 37 38 37
Total 64,646 59,744 39 43 64,685 59,787
Ageing of financial assets past due
0 to 30 days 31 to 60 days 61 to 90 days 90+ days Total
Notes 2021 $’000 2021 $’000 2021 $’000 2021 $’000 2021 $’000
Financial assets
Premium receivables 2.1B 38 1 39
Total 38 1 39
Ageing of financial assets past due
0 to 30 days 31 to 60 days 61 to 90 days 90+ days Total
Notes 2020 $’000 2020 $’000 2020 $’000 2020 $’000 2020 $’000
Financial assets
Premium receivables 2.1B 29 6 8 43
Total 29 6 8 43
Retrocession counterparty risk ARPC purchases retrocession to encourage commercial market reinsurance capacity to return to the terrorism insurance market, control exposure to DTI losses and protect capital. ARPC’s strategy for retrocession selection, approval and monitoring is addressed by:
  • placing treaty retrocession in accordance with ARPC’s retrocession management strategy requirements
  • regularly reassessing retrocession arrangements based on current exposure information, and
  • actively monitoring the credit quality of retrocessionaires
Counterparty exposures and limits are reviewed by management on a regular basis. Retrocession is only placed with counterparties that have a Standard and Poor’s credit rating of A minus and above and concentration risk is managed through counterparty limits. In the event of a DTI, ARPC will receive recognised collateral from non-APRA authorised participants in the program. The following tables provide information about the quality of ARPC’s credit risk exposure in respect of its retrocession program. The analysis classifies the counterparty risk according to counterparty Standard and Poor’s (or equivalent) credit ratings.
Retrocession program counterparty credit rating 2021 $’000 2020 $’000
AAA
AA+ 71,800 71,800
AA 103,579 91,210
AA- 643,916 648,660
A+ 1,391,255 1,316,976
A 801,694 730,106
A- 462,756 591,248
ARPC Total Exposure 3,475,000 3,450,000
Liquidity risk
ARPC’s financial liabilities are payables. Liquidity risk is the risk of encountering difficulty in meeting obligations associated with financial liabilities. ARPC has the internal policies and procedures in place such that there are sufficient resources to meet its financial obligations. ARPC’s liquidity risk is also mitigated through the strategy of short-term investments that provides for ready access to assets. The table below summaries the maturity profile of ARPC’s financial liabilities. All liabilities are measured on an undiscounted cash flow basis given their short-term maturity.
1 year or less From 1-5 years Total
Notes 2021 $’000 2020 $’000 2021 $’000 2020 $’000 2021 $’000 2020 $’000
Financial liabilities
Payables 2.4A 34,108 33,640 34,108 33,640
Total 34,108 33,640 34,108 33,640

4.2 Contingent assets and liabilities

Quantifiable contingencies
As at 30 June 2021 ARPC had no quantifiable contingencies (2020: Nil).
Unquantifiable contingencies
As at 30 June 2021 ARPC had no unquantifiable contingencies (2020: Nil). Accounting policy Contingent assets and liabilities Contingent assets and liabilities are not recognised in the Statement of Financial Position but are reported in the relevant notes. They may arise from uncertainty as to the existence of a liability or asset or represent an existing liability or asset in respect of which settlement is not probable or the amount cannot be reliably measured. Contingent assets are reported when settlement is probable, but not virtually certain, and contingent liabilities are recognised when settlement is greater than remote.

4.3 Financial instruments

4.3A: Categories of financial instruments 2021 $’000 2020 $’000
Financial assets:
Financial assets at fair value through profit or loss
Cash and cash equivalents 2,029 1,775
Fixed term deposits 654,700 571,500
Total financial assets at fair value through profit or loss 656,729 573,275
Financial assets at amortised cost
Receivables (gross) 64,707 59,787
Total financial assets at amortised cost 64,707 59,787
Total financial assets 721,436 633,062
Financial liabilities:
Financial liabilities measured at amortised cost
Suppliers payables 34,108 33,640
Other payables 77 54
Total financial liabilities measured at amortised cost 34,185 33,694
Total financial liabilities 34,185 33,694
Accounting policy Financial Assets In accordance with AASB 9 Financial Instruments, ARPC classifies its financial assets in the following categories:
  1. financial assets at fair value through profit or loss; and
  2. financial assets measured at amortised cost.
The classification depends on both ARPC’s business model for managing financial assets and contractual cash flow characteristics at the time of initial recognition. Financial assets are recognised when ARPC becomes a party to the contract and, as a consequence, has a legal right to receive or a legal obligation to pay cash and derecognised when the contractual rights to the cash flows from the financial asset expire or are transferred upon trade date. Comparatives have not been restated on initial application. Financial Assets at Amortised Cost Financial assets included in this category need to meet two criteria:
  1. the financial asset is held in order to collect the contractual cash flows; and
  2. the cash flows are solely payments of principal and interest (SPPI) on the principal outstanding amount.
Amortised cost is determined using the effective interest method. Effective Interest Method Income is recognised on an effective interest rate basis for financial assets that are recognised at amortised cost. Financial Assets at Fair Value Through Profit or Loss (FVTPL) Financial assets are classified as financial assets at fair value though profit or loss where the financial assets either do not meet the criteria of financial assets held at amortised cost or at financial assets at fair value through other comprehensive income (FVOCI) or may be designated. Financial assets at FVTPL are stated at fair value, with any resultant gain or loss recognised in profit or loss. The net gain or loss recognised in profit or loss incorporates any interest earned on the financial asset. Impairment of Financial Assets Financial assets are assessed for impairment at the end of each reporting period based on Expected Credit Losses, using the general approach which measures the loss allowance based on an amount equal to lifetime expected credit losses where risk has significantly increased, or an amount equal to 12-month expected credit losses if risk has not increased. The simplified approach for trade, contract and lease receivables is used. This approach always measures the loss allowance as the amount equal to the lifetime expected credit losses. A write-off constitutes a derecognition event where the write-off directly reduces the gross carrying amount of the financial asset. Financial liabilities Financial liabilities are classified as financial liabilities measured at amortised cost. Financial liabilities are recognised and derecognised upon ‘trade date’. They represent trade creditors, accruals and leases and are recognised at the amounts at which they are expected to be settled. Financial liabilities are recognised to the extent that the goods or services have been received (irrespective of having been invoiced). All payables are unsecured and are paid within credit terms.
4.3B: Net gains from financial assets 2021 $’000 2020 $’000
Financial assets at fair value through profit or loss
Interest revenue 3,877 9,650
Net gains on financial assets at fair value through profit or loss 3,877 9,650
.

5. Other information

5.1 Current/non-current distinction for assets and liabilities 2021 $’000 2020 $’000
Assets expected to be recovered in:
No more than 12 months
Cash and cash equivalents 2,029 1,775
Trade and other receivables 64,707 59,787
Investments 654,700 571,500
Deferred insurance assets 34,052 34,226
Other non-financial assets 211 64
No more than 12 months 755,699 667,352
More than 12 months
Property, plant and equipment 1,432 1,955
Intangibles 175 218
Work in progress 20
No more than 12 months 1,627 2,173
Total assets 757,326 669,525
Liabilities expected to be settled in:
No more than 12 months
Unearned premium liability 124,675 112,300
Unearned commission liability 936
Suppliers 34,108 33,640
Other payables 77 54
Employee provisions 404 363
Other provisions 1,268
Leases 1,000 1,376
No more than 12 months 161,532 148,669
More than 12 months
Employee provisions 242 207
Other provisions 122 122
No more than 12 months 364 329
Total liabilities 161,896 148,998
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How we lorum

Report of operations declaration

The Members of the Australian Reinsurance Pool Corporation are pleased to present their annual report on the operations of the Corporation for the financial year ended 30 June 2021. This report is made in accordance with a resolution of the Members.

The Members are responsible under section 46 of the PGPA Act for the preparation and content of this report in accordance with the PGPA Rule.

Signed for and on behalf of Members in accordance with the resolution of the Members.

Signature supplied

Ian Carson AM
BEc PGDip Professional Accounting FAICD
Chair
21 September 2021

Signature supplied

Robin Low
BCom FCA GAICD
Member and Chair of the Audit, Risk and Compliance Committee
21 September 2021

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Insurer customer logins to ARPC

Terrorism Insurer Portal (RISe)

RISe is ARPC’s Terrorism Reinsurance Pool (terrorism pool) insurer customer portal, which allows terrorism pool insurer customers to lodge their company information in a secure and user-friendly environment.

Cyclone Insurer Portal (PACE)

PACE is ARPC’s Cyclone Reinsurance Pool (cyclone pool) insurer customer portal, which allows cyclone pool insurer customers to lodge their company information in a secure and user-friendly environment.