NO.050

CHIEF EXECUTIVE OF AUSTRALIAN REINSURANCE POOL CORPORATION

The Federal Government today announced the selection of Mr Neil Weeks as Chief

Executive of the Australian Reinsurance Pool Corporation (ARPC). Mr Weeks will

be formally appointed to the position on establishment of the ARPC, and in the

meantime will be positioned within the Treasury to assist in setting up the

Corporation.

The ARPC is being established to operate the Government’s terrorism risk insurance

scheme. The development of the Scheme followed calls from the community for

the Government to intervene in an area of clear market failure after commercial

insurers and reinsurers withdrew terrorism risk cover following the events in

the United States of September 2001.

Mr Weeks takes on the position after 10 years in the role of Chief Executive

Officer of the Territory Insurance Office, a Northern Territory-owned insurance

and finance organisation. He has extensive experience in the insurance industry,

having also performed senior roles with Eagle Star Insurance Group (1981-1992),

The Guild Insurance Company Ltd (1975-1981) and other organisations. Mr Weeks

has a Masters of Business Administration, Bachelor of Economics and Diploma

of Education from Monash University. He is a fellow of the Institute of Company

Directors, the Australian Institute of Management and the Australian Society

of Certified Practising Accountants.

The Senate is expected to reconsider the Terrorism Insurance Bill 2003

– the legislation establishing the Government’s replacement terrorism insurance

scheme and the ARPC – in the week beginning 16 June.

The terrorism insurance scheme is scheduled to begin from 1 July 2003.

From that date, commercial property owners with eligible insurance contracts

will benefit from terrorism insurance cover written in by the Terrorism Insurance

Bill. The Government encourages Labor and the Democrats to reconsider the need

for amendments to the Bill. As indicated when the House of Representatives considered

the amendments on 4 June, such provisions are unnecessary. Drawn out deliberation

and calculated stalling by the Opposition could delay commencement of the scheme.

Any delays would bring substantial uncertainty to property owners who have made

plans on the basis of having terrorism insurance cover from 1 July 2003.

CANBERRA

11 June 2003

Contact: David Alexander 02 6277 7340

Murray Edwards (Treasury) 02 6263 3973

ATTACHMENT

COMMONWEALTH GOVERNMENT SCHEME FOR THE PROVISION OF TERRORISM

INSURANCE COVER

Following the events in the United States of September 2001, cover for terrorism

risk was progressively withdrawn by insurance and reinsurance companies. With

a large pool of assets uninsured for terrorism risk, financiers and investors

face uncertainty that could result in adverse economic circumstances, delaying

commencement of investment projects and altering portfolio management decisions.

The Terrorism Insurance Bill 2003, which was introduced into Parliament

on 16 December 2002, establishes the framework to implement the Government’s

scheme for replacement terrorism insurance. The main features of the Scheme

are:

• The Terrorism Insurance Bill will override terrorism exclusion clauses in

  eligible insurance contracts.

• Eligible insurance contracts have a starting point definition of insurance

  for loss of or damage to eligible property located in Australia, and associated

  business interruption and public liability cover. Eligible property is defined

  as buildings or other structures or works on, in or under land; or tangible

  property that is located in or on that property. Regulations to be gazetted

  on enactment of the legislation will exclude insurance for residential property,

  farms that do not have business interruption cover, insurance that covers

  Commonwealth, State or Territory Governments (but not Government Business

  Enterprises), marine insurance, aviation insurance, workers’ compensation

  insurance, and certain other classes of insurance.

• Through the ARPC, insurers will be able to reinsure their exposure to liability,

  under eligible insurance contracts, for losses arising from declared terrorist

  incidents.

• It is not compulsory for insurers to reinsure the risk of eligible terrorism

  losses through the ARPC. However, from 1 July 2003 insurance companies that

  issue eligible insurance contracts would be exposed to claims arising from

  declared terrorist incidents, due to the operation of the legislation. For

  eligible contracts entered into up to 30 September 2003, the ARPC has an obligation

  to compensate insurers. However for eligible contracts that become effective

  from 1 October 2003 insurers would need to reinsure the risk through a commercial

  reinsurer, accept the risk themselves, or reinsure through the ARPC.

• The legislation allows the Treasurer to direct the ARPC to set particular

  premiums for reinsurance. Premiums will depend on the risk of insured properties

  and facilities. An initial premium of 2 % of the underlying property premium

  will apply, with rates of 12 % and 4% applying to properties located in capital

  city CBDs and other urban areas, respectively. CBD and urban property will

  be designated by postcodes. The Insurance Council of Australia and Property

  Council of Australia have been provided a list of relevant postcodes.

• Insurers who seek terrorism reinsurance through the ARPC will retain part

  of the risk of liability from a declared terrorist incident. The Treasurer

  will set the retention by issuing directions to the ARPC. Initially it is

  anticipated that the retention will be set at the lesser of $1 million

  or 4 per cent of gross Fire/ISR premium revenue per insurer per annum, and

  $10 million across the industry per event.

• Payouts by the ARPC will come from three sources. The Scheme provides for

  a pool of funds (initially planned to accumulate to about $300 million)

  funded by reinsurance premiums. The pool will be supplemented by a back-up

  bank line of credit of $1 billion, underwritten by the Commonwealth,

  as well as a Commonwealth Government indemnity of $9 billion, giving

  aggregate cover of up to $10.3 billion when the pool is fully funded.