HIH Insurence Group Collapse.docx
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HIH Insurence Group Collapse.docx
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HIHInsurenceGroupCollapse
∙Assessmentitem1:
WebBasedResearch
Length:
3000words
Task
GotothefollowingwebsiteabouttheHIHInsuranceCompany.http:
//www.aph.gov.au/library/intguide/econ/hih_insurance.htm(HIHInsuranceGroupCollapse)andreadthearticle.ItisasummaryofaverylargeinsurancecompanyfailureinAustralia.Youmayuseanyotherwebsiteorsourceofinformationwhichyouthinkmighthelp.
Makeahistoryofthemaineventsinthecollapseofthecompany.Canyouidentifythebadorwrongmovesthatcontributedtothecollapse?
Canyouidentifythemostimportantpeopleinthecompanywhomighthavecontributedtothecollapse?
Usingthedescriptionsofmanagementtypesdiscussedinthecourse,makecommentontheethicalbehavioursoftheprincipalmanagementpersonsinthecompanyandexplainthebasisforyourassessmentofthesepersons.
Rationale
Ultimately,strategyandstrategicthinkingcanbeappliedtoorganisationstotakeadvantageofacompanyinamannerwhichwouldnotbeconsideredethical.Studentsarerequiredtoconsiderhowdifferentdecisionchoicesbythedirectorsmayhaveavoidedthecollapseofthecompany.
Markingcriteria
Thisitemisintendedtomakestudentsthink'outsidethesquare'andexaminetheneedtochangestrategyduringasequenceofevents.
Demonstratedappreciationofthesituation
25%
StrategicissuesrelatedtoCompanyissues
25%
StrategicissuesrelatedtotheOperationsofthecompany
25%
Summaryofhowdifferentlyyoumighthaverunthecompany
25%
AttachmentarticlefromAustraliagovernmentreports
HIHInsuranceGroupCollapse
E-Brief:
OnlineOnlyissuedDate29November2001
DavidKehlAnalysisandPolicy
Economics,CommerceandIndustrialRelationsGroup
Background
Therearefewsurpriseswhenitcomestoinsurance,butwhentheydocome,theynearlyalwaysbringbadnews.SuchwasthedemiseofHIHInsuranceLimited(HIH):
bothasurprise(tomany)andverybadnewsformanypolicyholders.
OnThursday,15March2001,HIHreceivedapprovalfromtheNSWSupremeCourttoplaceHIHintoprovisionalliquidation.TonyMcGrathofKPMGwasappointedasprovisionalliquidatortoHIHand17ofitscontrolledentities.ProvisionalliquidationisatemporaryformofadministrationthatgivesHIHtimefortheprovisionalliquidatorstoreviewHIHoperationsandassessthefinancialposition.
HIHinsuranceisnowinrun–off,whichmeansitismanagingitsoutstandingclaimsandnotwritinganynewbusiness.Thiscouldtakeseveralyearstocomplete;somehavesuggestedaslongas10years.
FactsAboutHIHInsurance
HIHcomprisedseveralseparategovernment–licensedinsurancecompanies,includingHIHCasualtyandGeneralInsuranceLimited,FAIGeneralInsuranceCompanyLimited(FAI),CICInsuranceLimited(CIC)andWorldMarineandGeneralInsurancesLimited(WMG).
HIHwrotemanytypesofinsuranceinAustralia,theUSA,andtheUK.IlAu1t0alia,thisincludescompulsoryinsurance(suchasworkers’compensationandcompulsorythirdpartymotorvehicle)andnon–compulsoryinsurance(suchashomecontentsandtravelinsurance).
AccordingtotheHIH2000AnnualReportthecompanyhadgrosspremiumrevenueof$2.8 billion,totalassetsof$8.0billion,totalliabilitiesof$7.1billion,withnetassetsof$900 million.
AbriefrecenthistoryofHIHisprovidedbelow.
Date
Event
Jun41992
BritishinsurancebrokerCEHeathfloatsoff45percentofitsunder–performingsubsidiaryCEHeathInternationalHoldingsLtd(HIH)onthestockexchange.HIHin1991hadnetassetsof$A39.7million.
April1995
HIHInsuranceLtdacquiresCICInsurance
Jun61996
HIHacquiresUtilitiesInsurance
Jan81997
HIHbecomesAustralia'slargestunderwriterofbancassurancebusinessafteracquiringColonialMutualGeneralInsurance.
Sep1998
HIHblacklistsstockbrokinganalystswhodisputeditsassessmentofthecompany
January1999
HIHwinsa$300-milliontakeoverbidforFAIInsurance
3March1999
HIHpostsa39percentfallin1998netprofitto$37.6million,blamingdamageclaims
19November1999
HIHadmitsitpaidmorethanitexpectedforFAI.
March2000
HIHreturnstoprofitabilityinfirsthalfof1999/2000.
June2000
AnalystsareconcernedaboutHIHaftertheAustralianPrudentialRegulatoryAuthority's(APRA)proposestoincreasecapitaladequacyrequirementsforinsurers
13September2000
HIHsellspartofitsdomesticpersonallinesbusinesstoGermaninsurancegiantAllianzfornearly$500million
14September2000
HIHsharestumbletoanall-timelowafteralower-than-expectedprofitresultandcriticismoftheAllianzdeal
12October2000
HIHchiefexecutiveRayWilliamsannounceshisretirement
15December2000
HIHshareholderscallforresignationofformerFAIchiefRodneyAdlerfromtheHIHboard
26February2001
RodneyAdlerresignsfromHIHboard
14March2001
NRMAInsurancebuysHIH'sworkers'compensationportfolio.
15March2001
HIHInsurancegoesintoprovisionalliquidationwithlossesof$800million
16March2001
APRAsaysHIH'swoesstemlargelyfromareassessmentofclaimsliabilities
11April2001
Provisionalliquidatorwarnsitcouldtakeupto10yearsbeforesomecreditorsarepaid.
16May2001
AustralianSecuritiesandInvestmentsCommissionlaunchesitsbiggesteverinvestigation,seizingHIHdocuments
18May2001
FormerHIHchiefRayWilliamshandsinhispassportandsayshehasnothingtohide
21May2001
ThefederalgovernmentannouncesaroyalcommissionintowhatisAustralia'sbiggestcorporatecollapse.
Source:
AAP,compiledbyRobLundie.
WhoIsAffected?
ShareholdersofHIHarelikelytoincursignificantlossesontheirinvestment,perhapstheirentirecapital.Theextentoftheselosseswillberevealedovertime.
ImmediatelyfollowingthecollapseofHIH,numerousreportsappearedinthepressaboutHIHpolicyholdersnothavingtheirinsurancecontractshonoredandtheirclaimsnotpaid.Thissectiondiscusseshowdifferentpolicyholderswereaffectedimmediatelyafterthecollapse.
PriortoandafterthecollapseofHIH,asubstantialnumberofpolicyholderswithparticulartypesofinsurancehadtheirpoliciestakenoverandhonouredbyotherinsurers.Thefollowingsections:
▪Explainwhichpolicyholdershavehadtheirpoliciestakenoverbyothercompanies
▪IdentifiesthosepolicyholderswithHIHanditssubsidiariesthatwereatriskofsufferingfinanciallossbynothavingtheirinsurancecontractshonoredandclaimspaid,and
▪Identifiespolicyholdersthatmayneedtotakeoutnewinsurancecover.
PersonalandDomesticInsurance
Accordingtotheprovisionalliquidator,AllianzAustraliaInsuranceLimited(Allianz)haveconfirmedthatprivatemotor,compulsorythirdparty("CTP"),privatepleasurecraft,homebuildingandhomecontentsinsurancepolicieswithHIH,FAI,CICandWMG,thatwerecurrentat1January2001orhavebeenissuedbyAllianzsincethisdate,arecoveredbyAllianz.Accordingly,policiesinthesecategoriesdonotneedtobereplaced.Foranyotherpersonalanddomesticinsuranceproductsnotlistedabove,customersshouldobtainadviceastowhethertheyneedtoobtainalternativeinsurancecover.
ClaimsonpoliciesinpriorperiodsofinsuranceandinrespectofthosepoliciesnotcoveredbytheAllianzarrangements,willconstituteclaimsagainstHIHandwillnotbepaidatthistime.Thereisthereforearealriskthatpersonalanddomesticpolicyclaims(withtheexceptionofCTPclaims)madeonpoliciesnotcurrentat1January2001andonpoliciesnotcoveredbytheAllianzarrangements,maynotbecapableofbeingfullysatisfied.
Accordingtotheprovisionalliquidator,CTPpolicyclaimswillbemetinfulleitherbyAllianz(policiescurrentat,orissuedbyAllianzsince1January2001)orthroughtherelevantstatestatutoryschemesregardlessofwhenthepolicywasissued.Accordingly,currentCTPpoliciesdonotneedtobereplacedandnormalclaimsprocessesremaininplace.
Workers'CompensationInsurance
Schemesexistineachstateandterritorytomakepaymentstoclaimantsundercertaincircumstances.InNSW,VictoriaandSA,HIHmanagedworkers’compensationclaimsfortherelevantstateauthority,whichwillcontinuetosettleclaimsinaccordancewiththeirnormalpractice.
Accordingtotheprovisionalliquidator,NRMAInsuranceLimited(NRMA)iscurrentlyintheprocessofseekingtotakeontherenewalrightsintheHIHworkers’compensationbusiness.TheprovisionalliquidatorhasagreedwithNRMAthatsubjecttocompletionofthetransaction,NRMAwillassumeHIH’sriskinrelationtocurrentworkers’compensationpoliciesfromthedateonwhichHIHwentintoprovisionalliquidation(ie15March2001).Accordingly,currentpoliciesinthiscategoryofinsurancedonotneedtobereplaced.
Nonetheless,workers’compensationpolicieswritteninVictoria,WesternAustralia,TasmaniaandtheACThavebeenthesubjectofgovernment–fundedrescuepackages(seebelow).
SmallBusiness,RuralandCommercialInsurance
Accordingtotheprovisionalliquidator,Allianzhaveconfirmedthatsmallbusinesspackages,ruralpackagesandmostsmallcommercialinsurances(suchascommercialmotor,fleetmotorlessthan150vehicles,propertywithassetvalueslessthan$20million,publicandproductsliabilitypolicieswithturnoverlessthan$5millionandmarine)arrangedthroughdistributorsotherthaninternationalbrokerswithHIH,FAI,CICandWMGthatwerecurrentat1January2001orhavebeenissuedbyAllianzsincethisdate,willbecoveredbyAllianz.Accordingly,mostcurrentpoliciesinthiscategoryofinsurancedonotneedtobereplaced.
Smallbusiness,ruralandcommercialinsurancepolicycustomersthatarenotcoveredundertheAllian
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