The Australian Reinsurance Pool Corporation (ARPC) has expressed concern over its financial sustainability, blaming fees and dividends demanded by the Federal Government.

The terrorism pool’s annual report shows that while the last financial year delivered a positive operating result of $23.5 million, the scheme finished the period with net assets shrinking from $538 million to $504 million.

Chairman Joan Fitzpatrick says this is due to “ongoing significant fee and dividend payments to the Federal Government, which amounted to $112.5 million [last financial year]”.

The weakening financial position remains a “key concern” for the board, she says.

“To remain financially sustainable, we have maintained a lower than desired retrocession purchasing program and cut operating expenses.

“Notwithstanding these expense savings, the ARPC still experienced a reduction in net assets.”

In 2014 the Federal Government announced it would take $450 million from the pool over four years in fees and dividends.

The fee is in return for the $10 billion Commonwealth guarantee, while the dividend reflects the return on capital for the Government as ARPC owner. Neither payment was envisaged when the ARPC was set up in 2003.

In 2013/14 the ARPC paid a total of $150 million, and in 2012/13 it paid $175 million.

To date, the ARPC has paid $550 million in dividends and fees, and by the end of 2017/18 it will have paid $845 million.

Ms Fitzpatrick says that at the current level of fee and dividend payments, “our outlook shows continuing reductions in net assets over the next four years”.

She says the ARPC wants to address the issue of cyber terrorism, because its current exclusion of computer crime “may mean large, physically destructive cyber terrorism events are not covered”.

See ANALYSIS