Hih Insurance

Topics: Insurance, Investment, Actuarial science Pages: 5 (1539 words) Published: May 23, 2006
HIH Insurance – Liquidation and Breach of Duty by Directors

There are few surprises when it comes to insurance, but when they do come; they nearly always bring bad news. Such was the demise of HIH Insurance Limited (HIH): both a surprise (to many) and very bad news for many policyholders. On Thursday, 15 March 2001, HIH received approval from the NSW Supreme Court to place HIH into provisional liquidation. Tony McGrath of KPMG was appointed as provisional liquidator to HIH and 17 of its controlled entities. Provisional liquidation is a temporary form of administration that gives HIH time for the provisional liquidators to review HIH operations and assess the financial position. HIH insurance is now in run–off, which means it is managing its outstanding claims and not writing any new business. This could take several years to complete; some have suggested as long as 10 years. Facts about HIH Insurance

HIH comprised several separate government–licensed insurance companies, including HIH Casualty and General Insurance Limited, FAI General Insurance Company Limited (FAI), CIC Insurance Limited (CIC) and World Marine and General Insurances Limited (WMG). HIH wrote many types of insurance in Australia, the USA, and the UK. In Australia, this includes compulsory insurance (such as workers' compensation and compulsory third party motor vehicle) and non–compulsory insurance (such as home contents and travel insurance). According to the HIH 2000 Annual Report the company had gross premium revenue of $2.8 billion, total assets of $8.0 billion, total liabilities of $7.1 billion, with net assets of $900 million.

Affected Parties
Shareholders of HIH are likely to incur significant losses on their investment, perhaps their entire capital. Immediately following the collapse of HIH, numerous reports appeared in the press about HIH policyholders not having their insurance contracts honored and their claims not paid. This section discusses how different policyholders were affected immediately after the collapse. Prior to and after the collapse of HIH, a substantial number of policyholders with particular types of insurance had their policies taken over and honored by other insurers. The following sections: •Explain which policyholders have had their policies taken over by other companies •Identifies those policyholders with HIH and its subsidiaries that were at risk of suffering financial loss by not having their insurance contracts honored and claims paid, and •Identifies policyholders that may need to take out new insurance cover HIH collapse - breach of directors' duties - case note on ASIC v Adler [2002] In ASIC V Adler [2002]; ASIC sought declarations against three directors of HIH Insurance Ltd (HIH). It was due to the fact that HIH had breached the directors duties contained in the Corporations Act 2001. ASIC also sought declarations that the three directors were liable as persons involved in HIH's insurance and its subsidiary HIH Casualty LTD's (HIHC) contraventions of the Corporations Act. ASIC also sought various civil penalty orders under the Corporations ACT 2001 against each director. Facts

On 15 June 2000 a cheque for $10 million was paid by HIHC to Pacific Eagle Equity Pty Ltd (PEE) controlled by Mr. Adler. ASIC alleged that the payment was made at the instigation of Mr. Adler (a non-executive director and substantial shareholder of HIH) with the agreement and under the direction of Mr. Williams and with the assistance of Mr. Fodera (who were both executive directors of HIH). PEE subsequently became trustee of Australian Equities Unit Trust (AEUT). Control of AEUT was vested in Adler Corporation Pty Ltd (Adler Corporation) with two others. Subsequently, $10 million worth of units in AEUT were issued to HIHC which gave HIHC an entitlement to receive ninety percent of AEUT's distributable income. ASIC alleged that at the instigation of Mr. Adler, $3,991.856.21 (sourced from the $10 million payment...
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