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

CompanyWhereWhat
AmcorUSEuropean,NZ,Asian paper
AGLNZgas assets
AMPUKNZ and Chile.
ANZNZand the Grindlays network
AmcorEuropeanNZ and US paper and packaging
AristocratGlobalpoker machines all over the world
BHPEscondidaCanadian diamonds,US copper etc
BoralUSbricks,tiles,flyash. Asia plasterboard
BramblesCheprecords business etc
BRL HardyGlobalwine
Burns PhilpUS and Europeherbs,spices,yeast
Commonwealth BankNZ and Asianoperations
ComputershareUKHK and South African registry businesses
CSRUSbuilding products
FauldingUSpharmaceuticals
Foster’s BrewingChinaMolson and European wine clubs
Goodman FielderNth and Sth Americafood operations.
Honan, Dickglobalagricultural products
Lend LeaseUKUS property management,Asian development
Liberman familyGlobalproperty, banking
Macquarie BankAsiaproperty development,global trading
Mayne NicklessIndonesia, UK, UShospitals,express freight,security
MIMUK and ArgentinaAlumbrera mine in Argentina,UK smelting
News CorpGlobalMedia
NABUK, NZ and USbanking
Normandy MiningGlobalGold mines and base metal assets
OricaGlobalWorldwide explosives business.
Pacific DunlopAnsellbatteries
PacificaUScar parts
PasmincoUSzinc
PBL/PackerGlobalchemical,publishing,gambling,film production,cinemas.
QantasGlobalairline business
QBEGlobalvarious insurance operations
Ridley CorpUSfeedlot operation
SimsmetalUK and Asianscrap metal operations
TelstraGlobalinternational operations
VisyUSpaper
Village RoadshowGlobalcinemas
Washington H Soul PattinsonSE Asian coalpharmaceutical,property and fragrances.
WestfieldUS,NZ and Malaysiaproperty development and management
WestpacNZoperations
WMCGlobalaluminium/bauxite operations

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

CompanyWhereWhat
ABBSwissengineering,Redbank power station
ABN AmroDutchinvestment banking and funds management
AccorFrenchManages dozens of Australian hotels
AcerTaiwancomputer hardware
ACIUSglass
AdidasGermansports goods and clothes
AESUSVictorian and Queensland power stations
AIGUSInsurance
Air New ZealandNZ50% of Ansett
Airbus IndustrieEuropeanaircraft
AlcanCanadaGove alumnium plant
AlcoaUSaluminium and bauxite joint venture with WMC
AllianzGermanjoint venture with HIH Insurance
American ExpressUScard services
Anglo AmericaSouth Africanbought Acacia and Shell coal assets
AOL-Time WarnerUSinternet,magazines,film production,theme parks
Astra ZenecaUKpharmaceuticals
AxaFrench51% of National Mutual
Babcock & BrownGlobalbought AIDC
Bass GroupUKvarious hotels
BATUKtobacco
Baulderstone HornibrookGermanconstruction
BechtelBelgianpower and construction
BillitonSouth AfricanQNI nickel business
BoeingUSaircraft
BoschGermanelectrical and car parts
BridgestoneUStyres
Brierley InvestmentsNZretail,James Hardie and Wills
Bristol Myers SquibbUSpharmaceuticals
British AirwaysUKstake in Qantas
British TelecomUKvarious telco investments
Cable & WirelessUK51% of CW Optus
Cadbury SchweppesUKconfectionary and drinks
Campbell SoupUScontrol of Arnotts
CanwestCanadiancontrols Ten network
Capital GroupUSfunds management
CargillUSvarious agribusiness investments
Carter Holt HarveyUS/NZforestry
CEDUSbought cable company Metal Manufactures
CGEAFrenchtransport,water
Chase Manhattan-JP MorganUSinvestment banking
ChevronUSoil and gas
ChemcorUSchemicals
Cisco SystemsUSsoftware and telco systems
CITICChinesePortland aluminium smelter,beef
CitigroupUSbanking and financial services
CMSUS50% of Loy Yang A power station
Coca Cola CompanyUScontrol of Coca Cola Amatil
CS First BostonSwiss-USinvestment banking
Daimler-ChryslerUS/Germancars and trucks
Dairy FarmHKFranklins
DBS LandSingaporecontrol Australand and Walker Corp
Dell ComputersUScomputers
Deutsche BankGermaninvestment banking
DiageoUKdrinks and spirits
DRDSouth Africangold mining
DresdnerGermanbanking
Du PontUSchemicals and textiles
Duke EnergyUSgas pipelines
Edison MissionUSowns Loy Yang B power station
EDSUSCommonwealth Bank IT contract
ElectroluxSwedishwhite goods
ErricsonSwedishtelecommunication products
ExideUSPacDun’s battery business
Exxon-MobilUSoil and gas
Fisher & PaykelNZwhite goods
Fletcher ChallengeNZconstruction,forestry
Fluor DanielUSengineering,plant management
FordUScar manufacturing
FujiJapanesecameras, film, Subaru
FujitsuJapaneseelectrical products, cars
General ElectricUScard processing
General MotorsUScar manufacturing
GilletteUSshavers
Glaxo-Wellcome/Smithkline BeechamUKpharmaceuticals
GlencoreSwissvarious mining projects
GoodyearUStyres
GPUUSVic energy distribution
GrandaUKSeven Network stake,production
Grand Hotel GroupMalaysianvarious hotels
Guiness Peat GroupUKcorporate raiders
HagermeyerDutchBought Pacific Dunlop’s electrical distribution business.
HansonUKcoal and bought Pioneer
Hawker de HavillandUKaircraft, defence, heavy engineering
HeinzUSfood,Weight Watchers
Hewlett PackardUScomputers
Hilton CorpUSJupiters casinos and various hotels
Hochtiefcontrol Leighton Holdings
HoechstGermanchemicals,food
HomestakeUSKalgoorlie super pit
HSBCHong Kongbanking and broking
HuntsmanUSmormons,chemicals
HutchisonHKtelecommunications
HyundaiKoreancars
IBMUScomputers,IT
Illinois Tool WorksUSBought Siddons Ramset
Independent NewspapersIrishnewspapers,radio,outdoor advertising
ItochuJapanesemining,energy and engineering
INGDutchinvestment banking,insurance
Johnson & JohnsonUSpersonal products
KelloggsUScereals.
KodakUSfilm and cameras
KPNDutchbought TNT
Kumugai GumiJapanesehotels and property
Kwok familySingapore/HKproperty
Li Ka ShingHong Kongbought SA power industry and Victoria’s Powercor.
Lion NathanJapanesebrewing
LucentUSbackbone for web and mobile,bought JNA.
LVMHFrenchleather goods and drinks
Malaysia Mining CorpMalaysiamining but no more Ashton
MarriottUShotels
MarsUSchocolates, pet food
MarubeniJapanesealuminium and mining
Mazda AustraliaJapanesecars and bikes
McDonaldsUSfast food
MCI-WorldcomUStelecommunications,Ozemail
Merck Sharpe DohmeUSpharmaceuticals
Merrill LynchUSstockbroking
Metro Cash & CarrySth Africancontrols Davids Holdings
MicrosoftUSsoftware, NineMSN
MitsubishiJapanesecar manufacturing
MitsuiJapaneseiron ore through Robe River
MotorolaUSstake in ERG,telecommunications
National ExpressUKVic public transport
National PowerUKVic power station
NECJapaneseComputers
NestleSwissformer PacDun assets and various other food
Nippon SteelJapaneseiron ore through Robe River
NokiaNorwaymobile phones
Norske SkogNorwayBought Fletcher Paper
Norwich UnionUKfinancial services
NRGUSpower stations
NufarmNZchemicals
ObayishiJapanesetollroads
Ong Beng SengSingaporehotels,retail
OracleUSIT industries
OrlandoFrenchwine
MPHSingaporeAv Jennings home builder
Mr CK OwSingaporeStamford hotel chain
PanasonicJapaneseelectrical goods
ParmalatItaliandairy industry
PearsonUKGrundy TV production,financial information.
PfizerUSpharmaceuticals/viagra
Philip MorrisUSfood and tobacco
PhillipsDutchPolygram, electricals
Phillips PetroleumUSoil, bidding for Petroz
Placer DomeUSgold mining operations
P&OUKstevedoring,ports,cold storage, resorts.
Primus TelecommunicationsUStelecommunications
Principal GroupUSBT funds management
Ricket & ColemanUSpharmaceuticals
Rio TintoUKComalco,North and various other mining assets
RocheSwisspharmaceuticals
RothmansSouth Africantobacco
Royal-Sun AllianceUKinsurance
Rugby PlcUKcontrols concrete giant Adelaide Brighton
Salomon Smith BarneyUSinvestment banking
San MiguelPhillipinesbeverages (20% of Coca Cola Amatil)
SBCSwissinvestment banking
Service Corp InternationalUSdeath industry
ShellDutch-UKoil,coal and gas
SiemensGermanelectricals and engineering
Singapore GovtSingaporetelecommunications,energy
Singapore PowerSingaporeBought Vic power transmission assets
SpudmanUSbought PacDun pastry businesses
SonyJapanesemusic,electricals
StarwoodUShotels
SumitomoJapaneseiron ore through Robe River
Suez Lyonnaise des EauxFrenchPacific Waste Management
Telecom NZNZAAPT
Texas UtilitiesUSVic gas and electricity assets
Thakral familySingapore/HKhotel chain
Thames WaterUKwater
Toronto DominionCanadiandiscount broking and banking
ToyotaJapanesecar manufacturing
UnileverDutch-UKdetergents and ice cream
UnitedGlobalComUScontrol of pay-TV group Austar
UtilicorpUScontrols United Energy plus other energy assets
VisaUScredit cards
VirginUKairlines, mobiles, music
VivendiFrenchVictorian public transport,publishing,water
VodafoneUKmobile phone business
VolvoSwedishcars
WeyerhaeuserUSbought $300m of CSR’s timber businesses
YamahaJapanesepianos,motorbikes
Yu FengTaiwan17 shopping centres

Peter Fray

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