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
|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|
|Burns Philp||US and Europe||herbs,spices,yeast|
|Commonwealth Bank||NZ and Asian||operations|
|Computershare||UK||HK and South African registry businesses|
|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|
|NAB||UK, NZ and US||banking|
|Normandy Mining||Global||Gold mines and base metal assets|
|Orica||Global||Worldwide explosives business.|
|QBE||Global||various insurance operations|
|Ridley Corp||US||feedlot operation|
|Simsmetal||UK and Asian||scrap metal operations|
|Washington H Soul Pattinson||SE Asian coal||pharmaceutical,property and fragrances.|
|Westfield||US,NZ and Malaysia||property development and management|
Foreign Companies Generating More Than $200m In Australia Each Year
|ABB||Swiss||engineering,Redbank power station|
|ABN Amro||Dutch||investment banking and funds management|
|Accor||French||Manages dozens of Australian hotels|
|Adidas||German||sports goods and clothes|
|AES||US||Victorian and Queensland power stations|
|Air New Zealand||NZ||50% of Ansett|
|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|
|Axa||French||51% of National Mutual|
|Babcock & Brown||Global||bought AIDC|
|Bass Group||UK||various hotels|
|Bechtel||Belgian||power and construction|
|Billiton||South African||QNI nickel business|
|Bosch||German||electrical and car parts|
|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|
|Chase Manhattan-JP Morgan||US||investment banking|
|Chevron||US||oil and gas|
|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|
|DBS Land||Singapore||control Australand and Walker Corp|
|Deutsche Bank||German||investment banking|
|Diageo||UK||drinks and spirits|
|DRD||South African||gold mining|
|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|
|Exide||US||PacDun’s battery business|
|Exxon-Mobil||US||oil and gas|
|Fisher & Paykel||NZ||white goods|
|Fluor Daniel||US||engineering,plant management|
|Fuji||Japanese||cameras, film, Subaru|
|Fujitsu||Japanese||electrical products, cars|
|General Electric||US||card processing|
|General Motors||US||car manufacturing|
|Glencore||Swiss||various mining projects|
|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|
|Hilton Corp||US||Jupiters casinos and various hotels|
|Hochtief||control Leighton Holdings|
|Homestake||US||Kalgoorlie super pit|
|HSBC||Hong Kong||banking and broking|
|Illinois Tool Works||US||Bought Siddons Ramset|
|Independent Newspapers||Irish||newspapers,radio,outdoor advertising|
|Itochu||Japanese||mining,energy and engineering|
|Johnson & Johnson||US||personal products|
|Kodak||US||film and cameras|
|Kumugai Gumi||Japanese||hotels and property|
|Li Ka Shing||Hong Kong||bought SA power industry and Victoria’s Powercor.|
|Lucent||US||backbone for web and mobile,bought JNA.|
|LVMH||French||leather goods and drinks|
|Malaysia Mining Corp||Malaysia||mining but no more Ashton|
|Mars||US||chocolates, pet food|
|Marubeni||Japanese||aluminium and mining|
|Mazda Australia||Japanese||cars and bikes|
|Merck Sharpe Dohme||US||pharmaceuticals|
|Metro Cash & Carry||Sth African||controls Davids Holdings|
|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|
|Nestle||Swiss||former PacDun assets and various other food|
|Nippon Steel||Japanese||iron ore through Robe River|
|Norske Skog||Norway||Bought Fletcher Paper|
|Norwich Union||UK||financial services|
|Ong Beng Seng||Singapore||hotels,retail|
|MPH||Singapore||Av Jennings home builder|
|Mr CK Ow||Singapore||Stamford hotel chain|
|Pearson||UK||Grundy TV production,financial information.|
|Philip Morris||US||food and tobacco|
|Phillips Petroleum||US||oil, bidding for Petroz|
|Placer Dome||US||gold mining operations|
|P&O||UK||stevedoring,ports,cold storage, resorts.|
|Principal Group||US||BT funds management|
|Ricket & Coleman||US||pharmaceuticals|
|Rio Tinto||UK||Comalco,North and various other mining assets|
|Rugby Plc||UK||controls concrete giant Adelaide Brighton|
|Salomon Smith Barney||US||investment banking|
|San Miguel||Phillipines||beverages (20% of Coca Cola Amatil)|
|Service Corp International||US||death industry|
|Shell||Dutch-UK||oil,coal and gas|
|Siemens||German||electricals and engineering|
|Singapore Power||Singapore||Bought Vic power transmission assets|
|Spudman||US||bought PacDun pastry businesses|
|Sumitomo||Japanese||iron ore through Robe River|
|Suez Lyonnaise des Eaux||French||Pacific Waste Management|
|Texas Utilities||US||Vic gas and electricity assets|
|Thakral family||Singapore/HK||hotel chain|
|Toronto Dominion||Canadian||discount broking and banking|
|Unilever||Dutch-UK||detergents and ice cream|
|UnitedGlobalCom||US||control of pay-TV group Austar|
|Utilicorp||US||controls United Energy plus other energy assets|
|Virgin||UK||airlines, mobiles, music|
|Vivendi||French||Victorian public transport,publishing,water|
|Vodafone||UK||mobile phone business|
|Weyerhaeuser||US||bought $300m of CSR’s timber businesses|
|Yu Feng||Taiwan||17 shopping centres|