Hih Case

HIH Insurance was founded in 1968 by Ray Williams and Michael Payne with the initial name was “M W Payne Underwriting Agency Pty Ltd”. Through acquiring a series of companies during its operations, HIH Insurance Ltd became one of the largest insurance organisations in Australia. On Thursday, 15 March 2001, HIH Insurance received approval from the NSW Supreme Court to place it in to provisional liquidation with Tony McCrath of KPMG in role of provisional liquidator. This provisional liquidation is only the first step of the investigation to re-evaluate HIH operations and consider its financial position. Subsequently, a Royal Commission was appointed in August 2001 and then a HIH Royal Commission report was publicized two year later on 16 April 2003. This essay is comprised of two parts which demonstrating the main reasons of the HIH collapse and a discussion about the HIH Royal Commission role in the HIH investigation process.

Main causes of HIH collapse and the verdicts for the case.

HIH was a combination of several separate government licensed insurance companies such as General Insurance Ltd, HIH Casualty, FAI General Insurance Company Ltd and CIC Insurance Ltd and working mainly in Australia, USA and UK. It did not only write compulsory insurances like workers’ compensation and third party motor vehicle but also non-compulsory insurances such as home contents and travel insurances. According to the HIH 2000 Annual Report, its gross premium revenue was $2.8 billion, total assets was $8.0 billion, total liabilities was $7.1 billion so net assets was $900 million. However, after considering potential insurance claims against HIH, its remained value was just $133 million. HIH directors Charles Abbott also mentioned about the company’s situation in McGrath & Riddle report that: “an extremely small movement in the value of assets could move the balance sheet into net asset deficiency” which means the insolvency can come to HIH even with a smallest fall in...