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. HIH. HIH was 2nd largest general insurer in Australia Majority of business in Australia but also written in:UKNorth AmericaNZ Asia PacificComplex corporate structure. HIH - Group structure. . . . . . . . . . . . . . . . . . . . . . . . Provisional liquidators appointed. Licensed insura
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1. The HIH Disaster
Lindsay Joyce & Peter Rashleigh
14 April 2003
2. HIH HIH was 2nd largest general insurer in Australia
Majority of business in Australia but also written in:
UK
North America
NZ
Asia Pacific
Complex corporate structure
3. HIH - Group structure
4. Largest corporate insolvency in Australia’s history Over 1 million policy holders impacted globally
Wide impact on Australian economy through large share of:
Professional indemnity
Public liability
Workers’ compensation
Compulsory motor vehicle
Builders Warranty insurance
5. Liquidation of HIH
Unqualified audit report: June 2000 (signed Oct 2000)
Net assets - $940m
Provisional liquidators appointed: March 2001
Liquidators’ estimate of deficiency $3.6m
Liquidators appointed: August 2001
Current estimated deficiency: About $5.3bn
7. What is a Royal Commission? Inquiry established by Government – usually major issue
Royal Commission Act (Cth) 1902
Letters Patent – Terms of Reference
Don’t prosecute
Don’t sue
8. What is a Royal Commission? Don’t award damages
Don’t “sentence”
Civil & criminal proceedings usually follow Commissioner’s findings
9. HIH Royal Commissions’ Terms of Reference Letters Patent dated 29 August 2001
Causes of the failure of HIH
Undesirable corporate governance practices
Breaches of any civil or criminal law
Exercise of powers under Commonwealth/State laws
Future regulation, prudential supervision and other insurers for the Australian general insurance industry
10. The Commission The Royal Commissioner – Justice Owen
The Secretariat
The Legal Team – Counsel Assisting
The Parties (more than 40 represented)
The Website – http://www.hihroyalcom.gov.au
11. The Hearing
1. Investigations by External Entities and the Final Days of HIH
2. Aspects of Reinsurance
3. FAI Issues
4. HIH Issues
5. Issues Relating to Government and Regulatory Agencies
12. The Hearing 6. Future Policy Directions
7. Closing Addresses – Counsel Assisting
8. Closing Addresses – the Parties
13. Statistics 194 witnesses
201 sitting days
25,000 documentary exhibits
Database of 1.6 million images
18,700 pages of transcript (as at mid January 2003)
Over 4,500 pages of Counsel Assisting’s submissions
More than 1,000 possible breaches of Corporations Law
Estimated cost to Federal Government of $40 million
Estimated total cost of $100 million
14. The Commissioner’s Report Due 4 April 2003
Causes of HIH’s collapse
Future regulation of the general insurance industry
Likely to refer individuals’ conduct to APRA, ASIC, DPP and Companies Auditors & Liquidators Disciplinary Board
15. The Issues Reinsurance and ‘financial reinsurance’
Reserving practices within FAI and HIH
HIH’s acquisition of FAI in 1998
HIH’s UK and USA businesses
Regulator performance – APRA and ASIC
Corporate governance
Auditor and actuary independence
Accounting practices
16. The One Big Question? When did HIH first become insolvent?
Will the Commission establish this?
17. Principal Causes of the Collapse (according to Counsel Assisting)
- Under provisioning
Unprofitability of the UK business
Unprofitability of the USA business
Acquisition of FAI
18. Future Policy Direction Regulation & prudential supervision of the industry
Protection for general insurance policy holders
Prudential regulation & price supervision in State & Territory statutory regimes
Taxation
Alternative risk transfer products and accounting for reinsurance products
19. What’s Next? Criminal
Prosecutions?
Civil
Recoveries
Reinsurance
Others
Issues for Indemnity Insurers
20. Who will pay? Possible prosecutions/civil proceedings against:
Directors?
Auditors?
Actuaries?
Officers?
Advisers?
Reinsurers?
Regulators (the Australian Government?)?
21. Liquidator’s Proceedings Commonwealth of Australia
APRA
Arthur Andersen (HIH’s auditors)
David Slee (HIH’s external actuary)
22. ASIC Proceedings Ray Williams
Rodney Adler
Dominic Fodera
23. Implications for the Industry Problems confined to HIH Group?
Pricing or should we say, underpricing
Reserving
Corporate Governance
Transparency / Disclosure
24. The Good Old Days are Long Gone! Prosecutions/litigation tomorrow?
The party ended yesterday!
25. The Legacy of HIH – What follows?
- It will live long and not just for the benefit of lawyers!
Has highlighted the role and importance of insurance in the fabric of modern society
Is the industry ready and able to assume that responsibility?