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Australia only has 40 companies generating more than $200 million a year offshore and HIH was one of them. Its collapse and the slump in the dollar are closely intertwined.

The company has millions of policyholders, 30,000 shareholders and more than $2 billion in annual premium income.

They are also the first Australian general insurer to collapse in 30 years, coming hard on the heels of the collapse of the entire Australian reinsurance industry.

Much has been written about the inadequate regulatory framework and HIH have long been an obstinate operator when it comes to satisfying interested observers.

This is a company that has banned analysts and issued stock exchange announcements abusing critical journalists.

But the collapse over the past year is not that surprising when you consider what has happened. It is just another example of inadequate information disclosure and incompetent management.

Australian companies just aren’t good enough to cut it on the global stage. HIH bought back into the Californian workers’ compensation business in January 1997 and got clobbered by a huge blowout in expenses and a massive dive in premium income.

This is hard to believe but California is one of the 10 biggest economies in the world and in 1995 workers’ compensation premium income totalled $US11billion. This dived to $US5.5 billion in 1997 but at the same time annual claim costs surged to $US8 billion. It was one of the world’s biggest insurance blood baths and HIH were in the thick of it.

You can’t blame Rodney Adler’s FAI Insurance for the California experience or the $150 million HIH have dropped playing the Lloyds of London insurance market. But FAI is still a big part of the reason that HIH has collapsed. Rodney coaxed them into paying $300 million in cash and shares for something that, with the benefit of hindsight, was worth about negative $200 million.

At the time of the last AGM in December, they had already written off $400million from FAI but there was still an incredible $438 million of FAI goodwill on the balance sheet

There was the occasional good story out of Rodney’s mess. FAI invested $475,000 into One.Tel and pulled out $60 million.

Rodney’s mates used to joke with him that FAI did not even have a claims department. The HIH team were shocked with what they found. FAI’s paper records did not accord with computer files and the level of reinsurance cover was not as high as expected. The corporate insurance and professional indemnity exposures were far worse than expected.

Accountants Arthur Anderson must be shaking in their boots at the moment. You see they were the auditors for both HIH and FAI.

Crikey was at the last ever FAI annual meeting in 1998 asking questions. We have also attended the last two HIH AGMs and would certainly not want to be the auditor who signed off on any of the accounts presented to these three meetings. The lawyers should be licking their chops.

Everyone is professing to be shocked by the $800 million loss that the HIH board announced on Friday after the provisional liquidator from KPMG presented a report to the board.

Clearly part of that loss has been confirmed by the fire sale prices HIH achieved selling its personal lines business to Allianz of Germany, its corporate business to QBE and its Australian workers’ compensation business to NRMA.

The saddest aspect of this story is the destruction of Australian capital and the ever-worsening performance of our companies on the global stage.

HIH’s former parent, the Swiss insurance giant Winterthur, sold its 51 per cent stake in June 1998 for $2.60 a share, collecting more than $500 million.

This was a direct transfer of wealth from Australia to Switzerland. Even canny sharemarket investors such as Gerry Harvey dropped $2.6 million on HIH.

After the Swiss were safely out of it, HIH then went on and destroyed the company by tipping about $500 million into California and Lloyds of London and dropping about $500 million on FAI.

HIH now has to be removed from the list of Australian companies generating more than $200 million a year in offshore markets. As the list below shows, Australia’s foreign investment performance is woeful with about 200 foreign companies generating more than $200 million a year in Australia but only 40 Australian companies doing likewise offshore.

As long as this remains the case, the dollar will continue to fall. HIH have destroyed a lot of Australia’s wealth and savings and that is what the world is rating when it prices the dollar.

Australian Companies Generating More Than $200M Overseas

Company Where What
Amcor US European,NZ,Asian paper
AGL NZ gas assets
AMP UK NZ and Chile.
ANZ NZ and the Grindlays network
Amcor European NZ and US paper and packaging
Aristocrat Global poker machines all over the world
BHP Escondida Canadian diamonds,US copper etc
Boral US bricks,tiles,flyash. Asia plasterboard
Brambles Chep records business etc
BRL Hardy Global wine
Burns Philp US and Europe herbs,spices,yeast
Commonwealth Bank NZ and Asian operations
Computershare UK HK and South African registry businesses
CSR US building products
Faulding US pharmaceuticals
Foster’s Brewing China Molson and European wine clubs
Goodman Fielder Nth and Sth America food operations.
Honan, Dick global agricultural products
Lend Lease UK US property management,Asian development
Liberman family Global property, banking
Macquarie Bank Asia property development,global trading
Mayne Nickless Indonesia, UK, US hospitals,express freight,security
MIM UK and Argentina Alumbrera mine in Argentina,UK smelting
News Corp Global Media
NAB UK, NZ and US banking
Normandy Mining Global Gold mines and base metal assets
Orica Global Worldwide explosives business.
Pacific Dunlop Ansell batteries
Pacifica US car parts
Pasminco US zinc
PBL/Packer Global chemical,publishing,gambling,film production,cinemas.
Qantas Global airline business
QBE Global various insurance operations
Ridley Corp US feedlot operation
Simsmetal UK and Asian scrap metal operations
Telstra Global international operations
Visy US paper
Village Roadshow Global cinemas
Washington H Soul Pattinson SE Asian coal pharmaceutical,property and fragrances.
Westfield US,NZ and Malaysia property development and management
Westpac NZ operations
WMC Global aluminium/bauxite operations

Foreign Companies Generating More Than $200m In Australia Each Year

Company Where What
ABB Swiss engineering,Redbank power station
ABN Amro Dutch investment banking and funds management
Accor French Manages dozens of Australian hotels
Acer Taiwan computer hardware
ACI US glass
Adidas German sports goods and clothes
AES US Victorian and Queensland power stations
AIG US Insurance
Air New Zealand NZ 50% of Ansett
Airbus Industrie European aircraft
Alcan Canada Gove alumnium plant
Alcoa US aluminium and bauxite joint venture with WMC
Allianz German joint venture with HIH Insurance
American Express US card services
Anglo America South African bought Acacia and Shell coal assets
AOL-Time Warner US internet,magazines,film production,theme parks
Astra Zeneca UK pharmaceuticals
Axa French 51% of National Mutual
Babcock & Brown Global bought AIDC
Bass Group UK various hotels
BAT UK tobacco
Baulderstone Hornibrook German construction
Bechtel Belgian power and construction
Billiton South African QNI nickel business
Boeing US aircraft
Bosch German electrical and car parts
Bridgestone US tyres
Brierley Investments NZ retail,James Hardie and Wills
Bristol Myers Squibb US pharmaceuticals
British Airways UK stake in Qantas
British Telecom UK various telco investments
Cable & Wireless UK 51% of CW Optus
Cadbury Schweppes UK confectionary and drinks
Campbell Soup US control of Arnotts
Canwest Canadian controls Ten network
Capital Group US funds management
Cargill US various agribusiness investments
Carter Holt Harvey US/NZ forestry
CED US bought cable company Metal Manufactures
CGEA French transport,water
Chase Manhattan-JP Morgan US investment banking
Chevron US oil and gas
Chemcor US chemicals
Cisco Systems US software and telco systems
CITIC Chinese Portland aluminium smelter,beef
Citigroup US banking and financial services
CMS US 50% of Loy Yang A power station
Coca Cola Company US control of Coca Cola Amatil
CS First Boston Swiss-US investment banking
Daimler-Chrysler US/German cars and trucks
Dairy Farm HK Franklins
DBS Land Singapore control Australand and Walker Corp
Dell Computers US computers
Deutsche Bank German investment banking
Diageo UK drinks and spirits
DRD South African gold mining
Dresdner German banking
Du Pont US chemicals and textiles
Duke Energy US gas pipelines
Edison Mission US owns Loy Yang B power station
EDS US Commonwealth Bank IT contract
Electrolux Swedish white goods
Erricson Swedish telecommunication products
Exide US PacDun’s battery business
Exxon-Mobil US oil and gas
Fisher & Paykel NZ white goods
Fletcher Challenge NZ construction,forestry
Fluor Daniel US engineering,plant management
Ford US car manufacturing
Fuji Japanese cameras, film, Subaru
Fujitsu Japanese electrical products, cars
General Electric US card processing
General Motors US car manufacturing
Gillette US shavers
Glaxo-Wellcome/Smithkline Beecham UK pharmaceuticals
Glencore Swiss various mining projects
Goodyear US tyres
GPU US Vic energy distribution
Granda UK Seven Network stake,production
Grand Hotel Group Malaysian various hotels
Guiness Peat Group UK corporate raiders
Hagermeyer Dutch Bought Pacific Dunlop’s electrical distribution business.
Hanson UK coal and bought Pioneer
Hawker de Havilland UK aircraft, defence, heavy engineering
Heinz US food,Weight Watchers
Hewlett Packard US computers
Hilton Corp US Jupiters casinos and various hotels
Hochtief control Leighton Holdings
Hoechst German chemicals,food
Homestake US Kalgoorlie super pit
HSBC Hong Kong banking and broking
Huntsman US mormons,chemicals
Hutchison HK telecommunications
Hyundai Korean cars
IBM US computers,IT
Illinois Tool Works US Bought Siddons Ramset
Independent Newspapers Irish newspapers,radio,outdoor advertising
Itochu Japanese mining,energy and engineering
ING Dutch investment banking,insurance
Johnson & Johnson US personal products
Kelloggs US cereals.
Kodak US film and cameras
KPN Dutch bought TNT
Kumugai Gumi Japanese hotels and property
Kwok family Singapore/HK property
Li Ka Shing Hong Kong bought SA power industry and Victoria’s Powercor.
Lion Nathan Japanese brewing
Lucent US backbone for web and mobile,bought JNA.
LVMH French leather goods and drinks
Malaysia Mining Corp Malaysia mining but no more Ashton
Marriott US hotels
Mars US chocolates, pet food
Marubeni Japanese aluminium and mining
Mazda Australia Japanese cars and bikes
McDonalds US fast food
MCI-Worldcom US telecommunications,Ozemail
Merck Sharpe Dohme US pharmaceuticals
Merrill Lynch US stockbroking
Metro Cash & Carry Sth African controls Davids Holdings
Microsoft US software, NineMSN
Mitsubishi Japanese car manufacturing
Mitsui Japanese iron ore through Robe River
Motorola US stake in ERG,telecommunications
National Express UK Vic public transport
National Power UK Vic power station
NEC Japanese Computers
Nestle Swiss former PacDun assets and various other food
Nippon Steel Japanese iron ore through Robe River
Nokia Norway mobile phones
Norske Skog Norway Bought Fletcher Paper
Norwich Union UK financial services
NRG US power stations
Nufarm NZ chemicals
Obayishi Japanese tollroads
Ong Beng Seng Singapore hotels,retail
Oracle US IT industries
Orlando French wine
MPH Singapore Av Jennings home builder
Mr CK Ow Singapore Stamford hotel chain
Panasonic Japanese electrical goods
Parmalat Italian dairy industry
Pearson UK Grundy TV production,financial information.
Pfizer US pharmaceuticals/viagra
Philip Morris US food and tobacco
Phillips Dutch Polygram, electricals
Phillips Petroleum US oil, bidding for Petroz
Placer Dome US gold mining operations
P&O UK stevedoring,ports,cold storage, resorts.
Primus Telecommunications US telecommunications
Principal Group US BT funds management
Ricket & Coleman US pharmaceuticals
Rio Tinto UK Comalco,North and various other mining assets
Roche Swiss pharmaceuticals
Rothmans South African tobacco
Royal-Sun Alliance UK insurance
Rugby Plc UK controls concrete giant Adelaide Brighton
Salomon Smith Barney US investment banking
San Miguel Phillipines beverages (20% of Coca Cola Amatil)
SBC Swiss investment banking
Service Corp International US death industry
Shell Dutch-UK oil,coal and gas
Siemens German electricals and engineering
Singapore Govt Singapore telecommunications,energy
Singapore Power Singapore Bought Vic power transmission assets
Spudman US bought PacDun pastry businesses
Sony Japanese music,electricals
Starwood US hotels
Sumitomo Japanese iron ore through Robe River
Suez Lyonnaise des Eaux French Pacific Waste Management
Telecom NZ NZ AAPT
Texas Utilities US Vic gas and electricity assets
Thakral family Singapore/HK hotel chain
Thames Water UK water
Toronto Dominion Canadian discount broking and banking
Toyota Japanese car manufacturing
Unilever Dutch-UK detergents and ice cream
UnitedGlobalCom US control of pay-TV group Austar
Utilicorp US controls United Energy plus other energy assets
Visa US credit cards
Virgin UK airlines, mobiles, music
Vivendi French Victorian public transport,publishing,water
Vodafone UK mobile phone business
Volvo Swedish cars
Weyerhaeuser US bought $300m of CSR’s timber businesses
Yamaha Japanese pianos,motorbikes
Yu Feng Taiwan 17 shopping centres

Peter Fray

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