The Australian Reinsurance Pool Corporation (ARPC) has completed its terrorism retrocession program for 2026, adjusting the structure and limit of its protection in line with updated legislation and its current view of terrorism risk in Australia.
For the 2026 calendar year, ARPC has arranged $2 billion of retrocession with a deductible of $500 million. The cover sits above ARPC’s retention and is intended to protect the terrorism pool’s net assets in the event of a declared terrorist incident under the Terrorism and Cyclone Insurance Act 2003 (TCI Act). The reduced limit and higher attachment point are based on ARPC’s assessment of its portfolio, prevailing reinsurance market conditions and the presence of the $10 billion Commonwealth guarantee that supports the scheme’s funding structure.
Retrocession, in this context, involves ARPC purchasing its own reinsurance protection to transfer part of the terrorism risk it assumes from insurers. The program operates as an additional capital management tool alongside the terrorism pool’s accumulated net assets and the federal guarantee. ARPC chief executive Dr Christopher Wallace said the placement followed discussions with domestic and offshore markets. “Retrocession is a prudent risk management tool that helps protect ARPC’s balance sheet and maintain confidence in the scheme. We purchase private reinsurance where it represents value for money and supports the long-term sustainability of the pool. The 2026 placement reflects a disciplined approach in current market conditions,” Wallace said. ARPC met with 35 reinsurers across Australian and international markets before finalising the placement. The program is placed with a panel of global reinsurers, spreading counterparty exposure across multiple markets.
The terrorism pool is funded through several layers: participating insurers’ retentions, ARPC’s retained earnings, the retrocession program and, as a final layer of capacity, the Commonwealth guarantee of up to $10 billion. When a declared terrorist incident occurs, insurers pay eligible claims up to their individual retentions. Claims that exceed those retentions are then met from ARPC’s net assets until the retrocession deductible of $500 million is reached. At that point, recoveries under the retrocession program are available. If losses surpass the $2 billion retrocession limit, additional claims are funded by the government guarantee.
The combined capacity of the terrorism pool – including industry retentions, ARPC capital, retrocession, and the guarantee – is estimated at about $14 billion. Under the TCI Act, if the responsible minister considers that payments under the guarantee are likely to exceed $10 billion, a reduction percentage must be declared, which reduces the amount payable by insurers to policyholders so that liabilities remain within the guaranteed cap.
The Terrorism Reinsurance Pool was created after consultation with insurers, reinsurers, banks, property owners, industry associations, brokers, and actuaries. Insurers can cede eligible terrorism exposure to ARPC under a Terrorism Reinsurance Agreement, with eligibility defined in the TCI Act. Policyholders covered under eligible contracts are indemnified for eligible terrorism losses following a declared terrorist incident, subject to the terms and conditions of their underlying policies. The operation of the pool is unchanged by the 2026 program; the retrocession structure alters the way ARPC manages its own aggregate terrorism risk, rather than the way primary insurers handle claims.
The 2026 retrocession renewal follows amendments to the terrorism insurance framework that extend the scheme to state-sponsored terrorism. In November 2025, the Australian Parliament passed the Criminal Code Amendment (State Sponsors of Terrorism) Bill 2025, which changes the TCI Act so that its definition of a terrorist act is aligned with the Crimes Act 1914. Under the revised definition, ARPC can respond to losses arising from acts involving or supported by foreign state actors, provided they meet the statutory terrorism definition.
Wallace said the amendment is intended to keep the scheme aligned with the current threat environment. “This amendment is an important step in ensuring that Australia’s terrorism insurance framework keeps pace with the changing nature of the terrorism risk. It reinforces the Australian government’s commitment to protecting the economy, the domestic insurance industry, and policyholders from potential impacts of terrorism, including those backed or orchestrated by foreign state actors,” Wallace said. The amendment does not alter ARPC’s statutory role or the operational mechanics of the terrorism reinsurance scheme. Instead, it aligns the terrorism pool’s coverage with the updated legal definition of terrorism, including state-sponsored activity, and sets the parameters within which the 2026 retrocession program is structured around the broadened scope of risk.
