ARPC Annual Report 2019 – 2020 ARPC Annual Report 2019-2020 24 September 2020
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ARPC Annual Report 2019 – 2020 ARPC Annual Report 2019-2020 24 September 2020 The Hon. Michael Sukkar MP Assistant Treasurer Parliament House CANBERRA ACT 2600 Dear Minister I have pleasure in presenting to you the annual report of Australian Reinsurance Pool Corporation (ARPC) for the year ended 30 June 2020. The report has been prepared under section 46 of the Public Governance, Performance and Accountability Act 2013 (PGPA Act) and in accordance with the Public Governance, Performance and Accountability Rule 2014 (PGPA Rule). Signed for and on behalf of the members of the Board, as the accountable authority of ARPC and being responsible for preparing and giving the Annual Report to ARPC’s Minister in accordance with Section 46 of the PGPA Act. Yours sincerely Mr Ian Carson AM BEc PGDip Professional Accounting FAICD Chair Correspondence to: GPO Box Q1432 Queen Victoria Building NSW 1230 T (02) 8223 6777 | E [email protected] www.arpc.gov.au | ABN 74807136872 1 © Commonwealth of Australia 2020 ISSN: 2203-2274 (print) ISSN: 2203-2282 (online) This publication is available for your use under a Creative Commons Attribution 3.0 Australia licence, with the exception of the Commonwealth Coat of Arms, the Australian Reinsurance Pool Corporation logo and where otherwise stated [graphics and photos]. The full licence terms are available from http://creativecommons.org/licenses/by/3.0/au/legalcode. Use of the Australian Reinsurance Pool Corporation material under a Creative Commons Attribution 3.0 Australia licence requires you to attribute the work (but not in any way that suggests that the Australian Reinsurance Pool Corporation endorses you or your use of the work). Australian Reinsurance Pool Corporation material used 'as supplied' Provided you have not modified or transformed the Australian Reinsurance Pool Corporation material in any way including, for example, by changing the Australian Reinsurance Pool Corporation text; calculating percentage changes; graphing or charting data; or deriving new statistics from published Australian Reinsurance Pool Corporation statistics—then the Australian Reinsurance Pool Corporation prefers the following attribution: Source: Australian Reinsurance Pool Corporation Derivative material If you have modified or transformed the Australian Reinsurance Pool Corporation material, or derived new material from those of the Australian Reinsurance Pool Corporation in any way, then Australian Reinsurance Pool Corporation prefers the following attribution: Based on Australian Reinsurance Pool Corporation data Use of the Coat of Arms The terms under which the Coat of Arms can be used are set out on the It’s an Honour website (see www.itsanhonour.gov.au) Other uses Enquiries regarding this licence and any other use of this document are welcome at: Chief Financial Officer Australian Reinsurance Pool Corporation GPO Box Q1432 Queen Victoria Building, NSW, 1230 Email: [email protected] A copy of this document and other information appears on the Australian Reinsurance Pool Corporation website www.arpc.gov.au 2 ARPC Annual Report 2019-2020 Highlights 3 “Our Purpose is expressed through our Vision and Mission.” Our strategy Vision Mission Values To be an effective § Provide confidence to the market, § Integrity provider of terrorism knowing that in the event of a claim, we § Collaboration risk insurance that will pay claims and deliver on our promise. § Personal facilitates private § Support recovery following a terrorism Leadership participation, incident. § Delivering to our supports national § Provide links between government, stakeholders resilience and national security and the private insurance reduces losses market to enhance understanding of the risk. arising from § Address a market failure and provide catastrophic events cover for terrorism where the private caused by terrorism. insurance market is unable to. § Lead international collaboration on terrorism risk insurance. About us ARPC is a public financial corporation established by the Terrorism Insurance Act 2003 to administer the terrorism insurance scheme. ARPC provides insurers with reinsurance for commercial property and associated business interruption losses arising from a declared terrorism incident. $13.7B $3.450B $10B Total funding Reinsurance sector Solvency available for claims funding for claims guarantee Protecting more than Protecting the Government Provided by 835,000 eligible insured guarantee and encouraging the Australian property assets participation by more than Government 70 reinsurers Payments to Government $100M Compensating the Government for providing the in fees and dividends guarantee and dividends for ownership Providing terrorism Premium reinsurance cover to more income $234.3M than 220 insurer customers To sustain the Retained terrorism insurance assets $521M pool for first losses Cash and investments $573M Operating expenses Cost effective wiith 23 staff. 4% p.a. 23 STAFF Operating expenses are 4% of gross premium revenue. 4 ARPC Annual Report 2019-2020 HIGHLIGHTS 2020 Scheme structure Commonwealth guarantee: This is a solvency Up to $10B guarantee for ARPC, which is limited to $10 billion Commonwealth guarantee as per the Terrorism Insurance Act 2003. Retrocession program: This layer of funding is $3.45B sourced from the commercial reinsurance market. Retrocession program It is mostly placed as multi-year deals. $250M ARPC deductible: This is funded from ARPC ARPC deductible net assets. Funding layers Industry retention: This is the aggregate of $100K to $200M the treaty retentions of all insurers involved in Industry retention a calendar year. Policy deductible: This is the excess or Policy deductible deductible in the underlying insurance policies. Strategic projects Geospatial Cyber Terrorism modelling Research Project HB 188 Handbook Working with specialist Launch ARPC’s cyber terrorism Working with Standards Australia to providers to enhance research findings to government and develop a handbook to assist physical ARPC’s modelling capability re/insurance sector stakeholders protection decisions made by businesses to reduce exposure to terrorism losses Performance ARPC performed well against the targets summary set in the 2019-23 Corporate Plan Measure 1 Gross written premium – Exceeded ✔ ✔ Measure 2 Scheme capacity – Exceeded ✔ ✔ Measure 3 Private sector participation – Exceeded ✔ ✔ Measure 4 Payments to Government – Met ✔ Measure 5 Net Assets – Exceeded ✔ ✔ Measure 6 Projects – Met ✔ Measure 7 Stakeholder survey – Partially Met 5 Our story ARPC ARPC holds the IFTRIP Presidency 2020 ARPC designs geospatial 2019 catastrophe model with Risk Frontiers – providing modelling capability for all mainland locations ARPC embarks on risk mitigation handbook for buildings project with Standards Australia 2018 ARPC commissions OECD and Cambridge Centre for Risk Studies to research potential cyber terrorism scenarios and losses Expanded scheme to include high value residential and mixed-use 2017 commercial/residential buildings and biochemical attacks ARPC hosts inaugural IFTRIP Conference with OECD in Canberra 2016 ARPC moves from Canberra to 2015 Sydney to be closer to stakeholders ARPC starts paying the Federal 2012 Government fees and dividends ARPC buys a retrocession program 2009 on global markets for the first time ARPC begins designing 3D catastrophe 2008 models with Geoscience Australia ARPC established under the 2003 Terrorism Insurance Act 2003 World Trade Centre terrorist attacks in New York City ‘September 11’ 2001 6 ARPC Annual Report 2019-2020 Contents Highlights 3 2 The Scheme 35 From the Chair 9 How ARPC’s terrorism insurance scheme operates 37 From the CEO 11 Background to the Scheme 38 Report of operations declaration 16 Scheme coverage 38 1 ARPC’s strategy 17 Scheme funding capacity 40 Reduction percentage 41 Background 19 How the scheme is administered 42 Vision, Mission and Values 19 Premiums 42 Strategic context 20 Retrocession placement 42 Addressing market failure 20 International threat environment 21 ARPC modelling capabilities 44 Australian threat context 21 Three-dimensional blast model 44 Plume model 44 Strategic priorities 22 Progress against the 2019-23 Geospatial model 44 Strategic Priorities 22 Exposure risk management 44 Working with ARPC stakeholders 26 Global terrorism reinsurance pools 45 Activity-based metrics 26 Insurer customer review program 46 Outcome-based metrics 26 Knowledge sharing 26 Insurer customers review trends 46 Communications and publications 27 Statistics 47 Industry involvement 27 Active insurer customers’ ARPC engages with global terrorism pools 28 reinsurance agreements 47 Insurance premium report 49 ARPC hosts Terrorism Landscape Seminar 29 Aggregate sum insured reports 50 ARPC reveals cost of Cyber Terrorism 30 2018 Triennial Review 52 ARPC expands modelling with geospatial catastrophe model 33 ARPC supports Standards Australia Risk Mitigation Handbook 34 7 3 Annual performance statement 53 Corporate governance practices 82 Entity purpose 53 Compliance 82 Results 55 Public interest disclosure 83 Financial snapshot 56 Information publication scheme statement 83 Performance statement detail 58 Judicial and administrative decisions 83 Key Performance Area One: Providing reinsurance for Consultation arrangements 83 eligible terrorism losses 58 Consultancies 83 Key Performance Area Two: Ecologically sustainable development 84 Encouraging private sector participation through retrocession 60 5 ARPC’s people 85 Key Performance Area Three: Compensating the Government