{"id":"F2017L00610","name":"Terrorism Insurance Act 2003 – Risk Retention Direction 2017","slug":"terrorism-insurance-act-2003-risk-retention-direction-2017","collection":"legislative_instrument","jurisdiction":"commonwealth","status":"in_force","isInForce":true,"actNumber":null,"makingDate":null,"administeringDepartment":null,"currentVersion":{"id":96382,"registerId":"commonwealth-F2017L00610-current","compilationNumber":null,"startDate":"2026-04-02","status":"InForce","reasons":null,"registeredAt":null},"sections":[{"sectionNumber":"1","sectionType":"section","heading":"Terrorism Insurance Act 2003 – Risk Retention Direction 2017","content":"TERRORISM INSURANCE ACT 2003\n\nRisk Retention Direction\n\n2017\n\nI, Kelly O’Dwyer, Minister for Revenue and Financial Services, give this written direction to the Australian Reinsurance Pool Corporation under paragraph 38(2)(e) of the Terrorism Insurance Act 2003.\n\nDated 23 March 2017\n\nKELLY O’DWYER\n\nMinister for Revenue and Financial Services\n\n  \n1 Name of Direction\n\n    This Direction is the Terrorism Insurance Act 2003 – Risk Retention Direction 2017.\n\n2 Commencement\n\nThis Direction commences on 1 July 2017.\n\n    3 Repeal\n\nThe Treasurer to Australian Reinsurance Pool Corporation (Risk Retention) Direction 2003 and the Treasurer to Australian Reinsurance Pool Corporation (Risk Retention) Direction 2007 are repealed once this Direction takes effect.\n\n4 Definitions\n\n    In this Direction:\n\nAPRA means the Australian Prudential Regulation Authority.\n\nCorporation means the Australian Reinsurance Pool Corporation.\n\nDate of Expiry means the date and time at which the Reinsurance Agreement expires, according to the terms of the Agreement.\n\nReinsurance Agreement means a contract of reinsurance between the Corporation and another person (the Reinsured) relating to terrorism risks.\n\nReinsurance 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.\n\nReinsured’s Retention means the risk to be retained by the Reinsured under a Reinsurance Agreement.\n\nRetention Period means:\n\n(a) initially, the period from the commencement date of the Reinsurance Agreement between the Corporation and the Reinsured to the next 30 June;\n\n(b) thereafter, each period of 12 consecutive calendar months during the Reinsurance Period commencing on 1 July each year;\n\n(c) thereafter, each period of 12 consecutive calendar months commencing on the day following the Date of Expiry.\n\nFor the avoidance of doubt, each such period constitutes a separate Retention Period for the purpose of applying the Reinsured's Retention.\n\nNote: Some terms in this Direction, for example, declared terrorist incident, have the same meaning as in the Act.\n\n5 Reinsured’s Retention\n\n(a) A Reinsured’s Retention, calculated in accordance with clause 5(b), shall apply in respect of all declared terrorist incidents which happen during the same Retention Period.\n\n(b) The Reinsured's Retention shall be fixed for each Retention Period and shall be an amount equal to the lesser of:\n\n(i) the Default Figure specified in the table set out below in paragraph (e) (the Retention Table); or\n\n(ii) either of the following which is appropriate to the circumstances of the Reinsured:\n\nA 5% of the amount calculated as follows:\n\nThe 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).\n\nOR\n\nB 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 clause 5(b)(ii)A as determined by the Corporation in its discretion.\n\nOR\n\nC If the amount calculated in accordance with clauses 5(b)(ii)A or 5(b)(ii)B is less than the Minimum specified in the Retention Table then the Reinsured’s Retention shall be an amount equivalent to the Minimum.\n\n(c) The Reinsured’s Retention may be borne by the Reinsured or wholly or partly reinsured elsewhere at the Reinsured’s discretion.\n\n(d) If, however, the sum of the Reinsured's Retention and the retentions of all the Corporation's other reinsureds together total more than the Maximum Industry Retention set out in the Retention Table 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:\n\n(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);\n\n(ii) the Reinsured's Retention shall be an amount equal to the Reinsured's Proportion of the Maximum Industry Retention.\n\n(e) Retention Table\n\n| Retention Period             | Minimum  | Default Figure | Maximum Industry Retention |\n| ---------------------------- | -------- | -------------- | -------------------------- |\n| 1 July 2017 to 30 June 2018  | $100,000 | $12.5 million  | $150 million               |\n| Occurring after 30 June 2018 | $100,000 | $12.5 million  | $200 million               |\n\n6 Corporation to ensure consistency\n\nThe Corporation must ensure that a contract of reinsurance between the Corporation and another person is consistent with this Direction.","sortOrder":0}],"analysis":{"flash_summary_failed":{"failed":true,"reason":"A positive credit balance is required for all requests, including BYOK, so fallback providers remain available. Add credits at https://vercel.com/d?to=%2F%5Bteam%5D%2F%7E%2Fai%3Fmodal%3Dtop-up to continue.","source":"analysis-cron"},"kimi_summary":{"content_quality":"ok","complexity_score":4,"scope_assessment":{"changed":false,"description":"This is a straightforward replacement direction that updates the dollar figures from the 2003 and 2007 versions. It maintains the same structural approach: setting minimum, default and maximum retention amounts, using the same 5% of premium calculation method, and preserving the industry-wide cap mechanism. The scope remains tightly focused on determining insurer retentions for terrorism reinsurance contracts."},"complexity_factors":["Multiple calculation pathways with conditional logic (clauses 5(b)(ii)A, B, and C create an if/then/else structure)","Cross-referencing to external data sources (APRA returns for the 12 months ending 30 June prior to each Retention Period)","Nested temporal definitions (Retention Period has three distinct phases: initial partial year, standard 12-month periods, and post-expiry periods)","Proportional adjustment mechanism in clause 5(d) requiring aggregation across all reinsureds and recalculation if industry cap exceeded","Defined terms section with 6 specific definitions plus a note referencing external statutory definitions ('declared terrorist incident' from the parent Act)","Table-based parameters with tiered dates (pre/post 30 June 2018 thresholds)"],"plain_english_summary":"This ministerial direction fixes how much risk insurers must retain when buying terrorism reinsurance from the government-backed ARPC. It applies to property insurers and the ARPC, requiring insurers to keep \"skin in the game\" via a retention that is the lesser of a $12.5M default or 5% of gross fire/ISR premium (minimum $100K), with an industry cap ($150M, rising to $200M after June 2018).\n\nIf combined retentions would exceed the industry cap after an attack, shares are scaled back proportionally—protecting the industry and taxpayers."},"flash_summary":{"complexity_score":5,"scope_assessment":{"changed":true,"description":"This Direction replaces the 2003 and 2007 Treasurer Risk Retention Directions (clause 3) and updates how insurer retentions are set: it prescribes a specific calculation based on APRA-reported Gross Fire and ISR premium net of Fire Service Levy (clause 5(b)(ii)A), provides corporate discretion for entities without returns (clause 5(b)(ii)B), sets tabled Default/Minimum/Maximum figures (clause 5(e)), and adds an industry cap with proportional adjustment if aggregate retentions exceed that cap (clause 5(d)). Who pays: the Reinsured bears the retention (clause 5(a),(c)). Compliance points: APRA reporting is the data source (clause 5(b)(ii)A); discretionary determinations and proportional adjustments rest with the Corporation (clauses 5(b)(ii)B and 5(d)(i))."},"complexity_factors":["Formulaic calculation using insurer-specific APRA returns for Gross Fire and ISR premium less Fire Service Levy (clause 5(b)(ii)A) — requires accurate reporting and data extraction.","Fallback and discretionary equivalents for entities without APRA returns or newly formed entities, determined by the Corporation (clause 5(b)(ii)B) — introduces administrative discretion.","Minimum and Default Figure mechanics plus an industry-wide Maximum Industry Retention cap, presented in the Retention Table (clause 5(e)) — multiple numeric thresholds to apply.","Pro rata adjustment if aggregate reinsured retentions exceed the industry cap: Corporation calculates each Reinsured’s Proportion of total retentions and scales to the cap (clause 5(d)(i)–(ii)) — requires aggregation and allocation across affected claims.","Definition of multiple Retention Periods tied to contract dates, financial year slices and expiry dates (clauses 4; definition of Retention Period) — timing complexity for application of retention.","Option for a Reinsured to bear retention or to re‑insure it elsewhere (clause 5(c)) — creates potential for downstream contract complexity and market substitution effects.","Requirement that the Corporation ensure reinsurance contracts are consistent with the Direction (clause 6) — imposes contract-drafting and compliance duties on the Corporation.","Repeal of earlier Treasurer directions on risk retention, replacing prior instruments (clause 3) — transitional/legal scope considerations."],"plain_english_summary":"This Direction tells the Australian Reinsurance Pool Corporation how to set each insurer’s “retention” — the amount an insurer must absorb for terrorism claims before the Pool pays. It fixes a formula (using APRA-reported Fire and ISR premium, net of Fire Service Levy, or a table default/minimum) and industry caps, affecting insurers that buy terrorism reinsurance and shaping who bears initial losses and how much they must report to regulators."}},"importantCases":[],"_links":{"self":"/api/acts/terrorism-insurance-act-2003-risk-retention-direction-2017","history":"/api/acts/terrorism-insurance-act-2003-risk-retention-direction-2017/history","analysis":"/api/acts/terrorism-insurance-act-2003-risk-retention-direction-2017/analysis","conflicts":"/api/acts/terrorism-insurance-act-2003-risk-retention-direction-2017/conflicts","importantCases":"/api/acts/terrorism-insurance-act-2003-risk-retention-direction-2017/important-cases","documents":"/api/acts/terrorism-insurance-act-2003-risk-retention-direction-2017/documents"}}