Treasurer to Australian Reinsurance Pool Corporation (Risk Retention) Direction 2003 (Cth)

TERRORISM INSURANCE ACT 2003

Treasurer to Australian Reinsurance Pool Corporation (Risk Retention) Direction 2003

I, Peter Costello, Treasurer, give this written direction to the Australian Reinsurance Pool Corporation under s.38(2)(e) of the Terrorism Insurance Act 2003 (the Act).

Dated   30 September 2003

PETER COSTELLO

Treasurer

1.       Name of Direction

This Direction is the Treasurer to Australian Reinsurance Pool Corporation (Risk Retention) Direction 2003.

2.       Commencement

This Direction commences when it is made.

3.       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.

Retention Period means:

(a)     initially, the period from the commencement date of the Reinsurance Agreement  between the Corporation and the Reinsured to 30 June 2004;

(b)     thereafter, each period of 12 consecutive calendar months during the Reinsurance Period commencing on 1 July 2004;

(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.

4.       Risk to be retained

The following risk is to be retained by the Reinsured under a Reinsurance Agreement.

A Reinsured’s Retention shall apply in respect of all declared terrorist incidents that happen during the same Retention Period.  The Reinsured's Retention shall be fixed for each Retention Period and shall be an amount equal to the lesser of:

(a)     $1 million; or

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

A.4% 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 A above as determined by the Corporation in its discretion.

If, however, the sum of the Reinsured's Retention and the retentions of all the Corporation's other reinsureds together total more than $10 million 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 $10 million.

5.         Corporation to ensure consistency

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