The Collapse Of HIH Insurance

Cheers

Accountability through a Clear Strategy

The Reasons of Failures

1. Identify and articulate strategy

• Inadequate Management Strategy, Inability to articulate the company’s strategy.

• Extensive and complex reinsurance arrangements, under pricing, reserve problems, false reports, reckless management, fraud, greed, and self–dealing.

Boards must consider and develop company strategy. Understanding of the company’s business and its business, regularity and competitive environment.

A designated periodic (usually yearly or half-yearly) strategy meeting in which information flows both to and from board members and senior executives.

Some lessons to be learnt

2. Clear lines of responsibility, reporting and authority

• A clear lesson from the HIH experience is that all directors must ensure that they are placed in a position whereby they can question management properly, review the performance of the company and monitor the effectiveness and implementation of the company’s strategy.

• Weak and ineffective Corporate Governance

• Tick-the-box guidelines

.

• Poor Management and lack of monitoring

For example, Sphere Drake's insurance business in UK

HIH was liquidated 15 March 2001

Group Members

Armin Imen 17504495

Wenguang Ge 18539745

linghang Wang 17592527

External Auditors Independence

The Fundamental Problems

Arthur Andersen: 1971-2001

• Insufficient evidence before releasing audit report
• Adjustments may have been made to the accounts

The Collapse Of HIH Insurance

1. Under-pricing and insufficient capital

2. Reinvested capital in reinsurance which makes reinsurance cover ran out

3. Risk reporting, corporate governance, external auditing and regulations

Close relationship

• Directors used to be senior directors in Andersen

Governance and Risk Management

Background

Better Governance Practices

Internal Audit

Reports

• Established in 1968 by Ray Williams
• By 1984, the second largest general insurer in Australia
• Expansion into the US (1987), UK (1993), New Zealand and Asia (during 1996 and 1997)
• Australian Stock Exchange listing in June 1992
• Purchase of FAI Insurance in September 1998
• Failed March 2001

• Internal audit reports should presented directly to the audit committee.
• Not only a summary
• Opportunities to delay or change unfavorable reports

• Implement adequate procedures for identifying and, if necessary, resolving conflicts of interest.
• Review the role and influence of senior executives in relation to the board.
• Ensure that the chairman acts independently from senior executives.
• Encourage questioning and challenging by the board of the information provided to it by management.
• Facilitate an effective audit committee independent from management, which meets with the auditors in the absence of management
• Promote a culture where management has responsibility to bring matters of concern to the board's attention