HIH case study
Contents
1.0 Executive Summary
Firstly, an introduction and background relating to HIH insurance company will be given. Then the cause of HIH collapse is going to be discuss in the following part, mainly focused on the failure of financial risk management, the failure of auditor, the failure of regulation and the lack of independence for non-executive director. Thirdly, according to the analysis of the problem, the paper offers suggestions as to deal with those problems，followed by a brief conclusion at the end of this paper.
2.0 Introduction and background
Prior to its collapse in 2011, HIH insurance was Australia 's second largest insurance company. It was placed into provisional liquidation on 15 March 2001 due to its inability to pay its debts as they fell due. Two days later, the Royal Commission was established to investigate the reasons for and the circumstances surrounding the failure of HIH. The HIH collapse is considered to be the largest corporate failure in Australia 's history, with liquidators estimating that HIH 's losses can reach up to $5.3 billion. The collapse of HIH has a negative influence on the society and the interests of the stockholders, general creditors and policy holder are also affected by HIH collapse.
3.0 Causes of HIH Collapse
3.1 The failure of financial risk management
3.11 Weak underwriting performance
The insurance industry is in the position of high risk, especially for long-tail risk. Three important vehicles for the insurance company to use against the high risk and make a profit, which are risk pricing ability, provision for reserve policy and the investment decision. The combination of inferior risk pricing ability, under-reserving policy and failure investment decisions finally exhausts the financial resource of HIH.
Underwriting is the core aspect to general insurer 's operations and it reflects the risk pricing ability of the insurance company. According to
1.0 Executive Summary
Firstly, an introduction and background relating to HIH insurance company will be given. Then the cause of HIH collapse is going to be discuss in the following part, mainly focused on the failure of financial risk management, the failure of auditor, the failure of regulation and the lack of independence for non-executive director. Thirdly, according to the analysis of the problem, the paper offers suggestions as to deal with those problems，followed by a brief conclusion at the end of this paper.
2.0 Introduction and background
Prior to its collapse in 2011, HIH insurance was Australia 's second largest insurance company. It was placed into provisional liquidation on 15 March 2001 due to its inability to pay its debts as they fell due. Two days later, the Royal Commission was established to investigate the reasons for and the circumstances surrounding the failure of HIH. The HIH collapse is considered to be the largest corporate failure in Australia 's history, with liquidators estimating that HIH 's losses can reach up to $5.3 billion. The collapse of HIH has a negative influence on the society and the interests of the stockholders, general creditors and policy holder are also affected by HIH collapse.
3.0 Causes of HIH Collapse
3.1 The failure of financial risk management
3.11 Weak underwriting performance
The insurance industry is in the position of high risk, especially for long-tail risk. Three important vehicles for the insurance company to use against the high risk and make a profit, which are risk pricing ability, provision for reserve policy and the investment decision. The combination of inferior risk pricing ability, under-reserving policy and failure investment decisions finally exhausts the financial resource of HIH.
Underwriting is the core aspect to general insurer 's operations and it reflects the risk pricing ability of the insurance company. According to
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