The collapse of HIH is shaping up to be a big political liability for the Howard government with 78,000 policyholders left exposed.
The fact that the second or third largest insurance company in the country has collapsed in a complete failure of prudential regulation should have Financial Services Minister Joe Hockey and Treasurer Peter Costello offering their resignations.
The opposition and the Democrats should be pressing for a Royal Commission, or at the very least a Senate committee to investigate what went wrong.
It seems that Crean, Conroy and the other Labor head-kickers don’t yet realise what a whipping boy they have at hand.
Take a look at this letter from Graeme Thompson, CEO APRA, in the Sydney Morning Herald a couple of weeks back: http://www.smh.com.au/news/0103/28/html/letters.html. It makes the outrageous statement that “the vast majority of the HIH Group’s policyholders are in a better position now, as a result of arrangements made with other insurers, than they would have been if APRA had moved to appoint an inspector three months ago”.
This is only true in respect of some non-commercial policy holders but not all. In fact, there are 78,000 policy holders who are not covered including small business and corporate policy holders are up a gum tree. This is especially true of those with policies involving long tail claims eg. D&O and Professional Negligence. At the very least these latter are in a highly exposed position because they will have difficulty in buying “gap” coverage at a reasonable price.
Note the published letter did not include the last sentence of the press release: “APRA staff have worked very hard in recent weeks and months to facilitate those arrangements that now protect most of HIH’s policyholders.” So what? What they should have done is advise the public of what they knew and allowed policyholders to make their own judgements as to how they should arrange their insurance. If that meant that many chose not to renew their policies that would have been HIH’s bad luck. It is pertinent to ask at what time did APRA staff become aware of the need to start to “facilitate” these “arrangements” . Did they advise the relevant ministers of the situation?
Thompson also fails to point out that the most profitable part of HIH’s underwriting business has been delivered free of charge to foreign owned insurers such as Allianz of Germany.
APRA should be acting proactively in the interests of policyholders and claimants (ie. not shareholders and insurance company boards) and not sitting on its hands waiting for the shit to hit the fan.
It is small wonder that Joe (“tits on a bull”) Hockey did a song and dance routine in parliament over the alleged plagiarism of the ALP’s bank policy – obviously he hoped to distract the press chooks at the time.
Another big question is did company founder and former CEO Ray Williams get his $5 million? If so, will it be recovered as a preferential payment. He says that he didn’t and he is an unsecured creditor along with everyone else. But he still wants to be paid claiming he is suffering some financial hardship from all of this. Poor Ray, he’s now trying to sell his $8 million waterfront mansion at Balmoral.
The next letter in the SMH from Peter Lamble (not the ex-NRMA man) asks “(why) the banks loans are secured by $350 million of HIH assets? Why did APRA allow the banks such security in the face of possible failure to meet policyholder claims in full?” This begs the obvious question as to whether HIH were allowed to count the secured $350 millions in their solvency ratio and if so who thought that that was a prudent thing to do. I took the trouble to call APRA and ask them. They told me that the secrecy provisions of their Act precluded them from divulging such information.
The government when it framed this legislation seems to have forgotten that insurance companies are not simply a vehicle for speculators to make a profit on their shares but that their stability and reliability goes to the heart of the financial system and the economy.
The sticky fingers of Arthur Andersons are all over this with the involvement of ex-partners on the board and in the management of the company. I hope their PI cover wasn’t placed with HIH.
Geoffrey Cohen has to go
HIH chairman Geoffrey Cohen is a former Arthur Anderson partner who joined the Foster’s Brewing board in November 1991 when the shit was really hitting the fan. He was also a financial consultant to Dougie Reid’s merry band of promoters in the Compass Mark II float which collapsed inside 12 months.
Geoffrey Cohen now ranks right up there with the Stan Howard’s of this world and should resign from all his other board seats. He can’t possibly contribute productively to the likes of Foster’s and JB Were’s Diversified United Investment Ltd. Afterall, how can a failed businessman remain a fund manager choosing where people should invest their money.
Arthur Anderson have a lot to be worried about given that they were also the auditors to FAI when HIH bid $300 million for a business than ended up helping to send them broke.
Rodney Adler’s hypocrisy
When are the media going to stop quoting Rodney Adler, the man partly responsible for the HIH debacle, as if he is some sort of business authority. The guy is completely discredited. HIH paid $300 million for Rodney’s FAI outlet based on the public accounts when in reality FAI was worth about negative $200 million at the time. First it was the SMH which last week called Rodney “blue chip” and quoted him bagging John Howard. Then it was picked up by AM and then even The 7.30 Report ran with it last week. Now we are no fans of John Howard, but any media outlet that quotes Rodney Adler as an authority looks like it is desperate to find anyone to give the Liberals a kicking.
What did the company founder know?
And how about HIH CEO Ray Williams claiming he had “no idea” HIH would declare a massive loss and go into liquidation. It seems the key to the debacle is the value of the different businesses in the HIH books. When they stopped underwriting and conducted a fire sale, the prices they received for the businesses were nothing near what Williams and the board believed earlier. As someone who attended the last HIH AGM in Redfern on December 15, there were absolutely no clues offered to shareholders that the whole thing would collapse in such a spectacular way with a half year loss of $800 million. Geoffrey Cohen kept on saying the board believed HIH was solvent and new CEO Randolph Wein painted a positive picture of what lay ahead.
Aggressive statements to the ASX
Check out some of these amazingly aggressive Stock Exchange announcements made by HIH last year. They demonstrate how combative they were with regulators, the media and the markets. However, the aggression partly reflects the fact that Mark Westfield was buying some fairy tale scenarios being put to him by Rodney Adler who was steadily tipping out his remaining HIH shares, leaving his final take at about $40 million from the takeover of FAI by HIH. Neither Westfield, Adler or HIH were left looking particularly good at the end of all these exchanges when you consider what we know now.
An article by Mark Westfield appearing in “The Australian” newspaper of 30 May 2000 is a preposterous collection of baseless assertions.
There is no truth in Mr Westfield’s allegations concerning corporate activity. The two alleged bids for HIH that Mr Westfield refers to were not made and the dollar amounts he quotes are a complete fiction. HIH management refutes, absolutely, suggestions that the interests of all shareholders would be anything other than paramount in any such matters and/or that management would act to the detriment of all shareholders.
Mr Westfield’s article on HIH is one of a series, the timing of all of which have coincided with litigation activity surrounding a long-running professional indemnity matter known as the “Duke” case. Mr Westfield is wrong (now for the fourth occasion) to suggest that the HIH maximum liability in relation to the “Duke” case can be anything other than $1 million.
Mr Westfield is entitled to be hopelessly wrong – as he is, for example, in referring to alleged details of an HIH directors’ and officers’ cover even though such a policy does not even exist.
However, Mr Westfield is not entitled to use his privileged position to publish allegations that are false and damaging and, as a consequence, the matter has now been referred to HIH’s legal advisers.
Contact: John Clarke
General Manager, Public Affairs
Aggressive press release number two
An article by Mark Westfield which appeared in “The Australian” newspaper on 31 May 2000 repeated false claims made by that journalist in the same publication on 30 May 2000. HIH is yet to be approached by the journalist in relation to those false claims and does not intend to engage in a protracted series of media releases denying those false claims. The matter is now in the hands of HIH’s legal advisers and legal proceedings will be instituted forthwith.
However, for the benefit of HIH’s shareholders and other interested parties, the company wishes to make the following points clear:
* The alleged bids referred to by Mr Westfield did not occur.
* No situation has ever occurred where a bid has been made to HIH but a request for due diligence been rebuffed.
* As with all listed companies operating under proper principles of corporate governance, HIH would deal scrupulously in the interests of all shareholders if a bid were to be made.
As a final comment on this matter, the company notes that Mr Westfield has made mistakes before, not only in relation to HIH. In convicting Mr Westfield of Contempt of Court in 1998, Justice Gillard noted that Mr Westfield’s work was not only factually incorrect but also that his conduct was “nasty” and “spiteful” and “unnecessary” and “grossly careless”.
Contact: John Clarke
GENERAL MANAGER, Public Affairs
Telephone (02) 9550 2000 and (0418) 361 778