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HIH Insurance was Australia's second largest insurance company, which was placed into provisional liquidation on 15 March 2001. The demise of HIH is considered to be the largest corporate collapse in Australia's history, with liquidators estimating that HIH's losses totalled up to $5.3 billion.

Contents 1 History 2 Collapse 3 Royal Commission 4 Adler Pleads Guilty 4.1 Stock Market Manipulation 4.2 Disseminating False Information 4.3 Intentionally Acting Dishonestly 5 Williams Jailed 6 Brad Cooper 7 Adler Released 8 References

History

HIH Insurance was founded in 1968 by Ray Williams and Michael Payne and at this time it was known as "M W Payne Underwriting Agency Pty Ltd". It was acquired in 1971 by British company CE Heath PLC and Ray Williams was appointed to the board of CE Heath PLC in 1980. The business operations of this CE Heath PLC were transferred to "CE Heath International Holdings Ltd" in 1989 and CE Heath PLC retained 90% ownership of CE Heath International Holdings. In 1992, CE Heath International Holdings floated on the Australian Stock Exchange.

In 1995, CE Heath International Holdings acquired CIC Insurance Group and the remaining 48% holding that CE Heath PLC maintained in CE Heath International Holdings was sold to an offshoot of CIC Insurance Group called CIC Holdings Limited. CIC Holdings increased its share in CE Heath International Holdings to 50% and CIC Holdings was purchased by Winterthur Swiss Insurance Company (Winterthur Swiss). In May 1996 CE Heath International Holdings changed its name to HIH Winterthur.

Through 1997 and 1998, HIH Winterthur acquired a large number of companies both in Australia and globally, including Colonial Ltd General Insurance's operations in Australia and New Zealand, Solart in Argentina and Great States Insurance Co in the United States. Most notably however, HIH acquired the large Australian insurance company FAI Insurance, whose chief executive Rodney Adler became a director of HIH in 1999. Winterthur Swiss sold its 51% share in HIH Winterthur to the public and HIH changed its name to HIH Insurance Ltd.

Collapse

HIH directors Charles Abbott, review a report, entitled "Solvency Review," that had been prepared by McGrath & Riddell for HIH.

With $7.8 billion in assets, HIH was considered one of Australia's largest insurance firms. However after offsetting its assets with debts and potential insurance claims against the company, HIH was left, on paper, with net assets of $133 million. McGrath & Riddell described HIH's solvency as "marginal" and stated in their report that "an extremely small movement (just 1.7%) in the value of assets could move the balance sheet into net asset deficiency." Even the slightest setback to HIH would cause the company to become insolvent.

After considering a provisional liquidator to HIH and 17 of its controlled entities. Provisional liquidation is a temporary form of administration giving HIH time for the provisional liquidators review of HIH operations and assessment of financial position. On the same day, HIH was to announce its first-half result for the six months to 31 December 2000. The announcement had already been delayed once and rumours suggested that HIH's first-half result was a loss of $100 million. This figure quickly ballooned to $200 million and then $300 million. Although the result was never announced, when McGrath announced his appointment as provisional liquidator he estimated that HIH lost over $800 million during the six months to 31 December 2000. He attributed HIH company failures to rapid expansion, unsupervised delegation of authority, extensive and complex reinsurance arrangements, underpricing, reserve problems, false reports, reckless management, incompetence, fraud, greed, and self–dealing.

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.

The demise of HIH was the largest corporate failure in Australia's history. HIH liquidators estimated that the company collapsed with losses totalling up to $5.3 billion.

Royal Commission

Following the failure of HIH, Prime Minister John Howard announced that a Royal Commission would be established to inquire into the company's collapse. Justice Neville John Owen headed the Royal Commission, which tabled its report to Parliament on 16 April 2003. The findings of the Royal Commission are available on the HIH Royal Commission web site.

Adler Pleads Guilty

Former HIH director Rodney Adler was sentenced on 14 April 2005 to four and a half years jail, with a non-parole period of two and a half years. Adler's jail sentence comes after pleading guilty on 16 February 2005 to four criminal charges, which included:

• two counts of disseminating information knowing it was false
• one count of obtaining money by false or misleading statements
• one count of being intentionally dishonest and failing to discharge his duties as a director in good faith and in the best interests of the company

The sentence was a lenient one, since the judge accepted the defendant's plea of mitigation, citing that he had not sold any of his own shares, or personally benefitted from his actions.

Stock Market Manipulation

Criminal charges for stock market manipulation were laid against Adler after an investigation by the Australian Securities & Investment Commission (ASIC) into the purchase of HIH shares by Pacific Eagle Equities Pty Ltd, an Adler-controlled company. Pacific Eagle Equities purchased 1,873,661 HIH shares on 15 June 2000, 951,339 HIH shares on 16 June 2000 and 425,000 HIH shares on 19 June 2000 (ASIC, 2002) with HIH funds after Adler persuaded Ray Williams to shift $10 million from HIH to Pacific Eagle Equities. Adler's defence team negotiated with the Commonwealth Director of Public Prosecutions to drop charges of stock market manipulation in exchange for a guilty plea to other charges (Elias, 2005).

Disseminating False Information

Alder attempted to induce investors to purchase HIH shares by telling a finance journalist on 19 June 2000 and 20 June 2000 that he had purchased 1,873,661 HIH shares on 15 June 2000 and 951,339 HIH shares on 16 June 2000 for himself (ASIC, 2002). Adler also told the journalist that he believed the share price for HIH was undervalued and presented an opportunity for a quick profit (Elias, 2005).

Intentionally Acting Dishonestly

In October 2000 a company in which Adler had an interest, Business Thinking Systems (BTS), was in financial trouble. Adler sought a $2 million investment from HIH. Williams had been told by Adler that the company had raised $2.5 million, which it had not, and that Adler was prepared to invest $500,000, which he had no intention of doing, if HIH invested $2 million in BTS. HIH executive John Ballhausen was then told by Adler that he had invested the $500,000. The HIH board discussed and approved the $2 million investment in BTS in a November 2000 meeting. Adler attended the meeting and failed to disclose his financial interest in the business. Nor did he disclose his knowledge of its financial affairs (Elias, 2005).

Williams Jailed

Former HIH Insurance chief executive Ray Williams was sentenced to a minimum of two years and nine months imprisonment, with a maximum term of four years and six months. On January 14th 2008, Ray Williams was released from jail after serving just under three years for his role in Australia's largest corporate collapse. ^[1]

Brad Cooper

Sydney businessman Brad Cooper was sentenced in the Supreme Court on June 23, 2006 on 13 charges, relating to bribes he paid a senior HIH official to push through false claims in the months before the insurer's collapse. He received an eight year jail sentence with an order to spend at least five years in jail.^[2]

Adler Released

On 13 October 2007 at 8.30am, Adler was released from the St Heliers Correctional Centre in the Upper Hunter Valley on parole, after serving two and a half years of his sentence. However, in November 2007, he will face court in a NSW civil case related to bonuses he recommended for executives of the failed telco OneTel. Adler was on OneTel's remuneration committee.^[3].

References

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• Westfield, Mark (2003). HIH: The Inside Story of Australia's Biggest Corporate Collapse. John Wiley & Sons Australia. ISBN 1-74031-064-0
• Kehl, David (29 November 2001) HIH Insurance Group Collapse. Parliamentary Library (Parliament of Australia)
• ASIC (14 April 2005) Rodney Adler sentenced to four-and-a-half years' jail. Media Release.
• ASIC (3 December 2002) Rodney Stephen Adler charged. Media Release.
• Elias, David (17 February 2005). Adler guilty on 4 charges. The Age.

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• This page was last modified on 15 September 2008, at 05:16.

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