• On 15 March 2001, the major companies in the HIH Insurance group, Australia’s second largest insurer, were placed in provisional liquidation, and formal winding-up orders were made on 27 August 2001.
  • By then, the deficiency of the group was estimated to be between AUD 3.6 billion and AUD 5.3 billion.⁴⁹
  • The collapse of HIH qualified then as the largest corporate failure in the history of Australia.
• According to the Royal Commission appointed to examine the cause of the failure and its lessons, “the collapse of HIH has reverberated throughout the community, with consequences of the most serious kind.”⁵⁰
• Incorporated in 1968, HIH started as provider of workers compensation cover in the Victorian market.
  • In the mid 1980s, after legislative changes had significantly reduced business in Victoria and South Australia, HIH began to diversify mainly through acquisitions.
  • By 2000, the group through its many subsidiaries had become a key player in Australian and international non-life insurance markets with lines of business comprising workers compensation; public and private liability; and property, industrial and commercial insurance.
• While there were many factors contributing to the failure of HIH, the Royal Commission identified as key elements the lack of a clear and integrated group strategy, including a poorly implemented growth strategy without adequate due diligence; poor underwriting; systemic under-reserving and under-pricing; the use, and abuse, of reinsurance; and poor corporate governance with an ineffectual board that did not adequately probe management.

2011 11 - IAIS - Insurance and Financial Stability - 47p