Australian Case Study in Corporate Governance – Hih Insurance Essay Example
1. INTRODUCTION
“The collapse of the HIH Insurance group (“HIH”) resulted in a deficiency of up to A$5.3 billion, making it Australia’s largest corporate failure. The ensuing Royal Commission report released in April 2003 provides a rare detailed dissection of a spectacular corporate implosion and a very useful case study from which corporate governance lessons may be learned. This is particular so because HIH was not unusual case of major fraud or embezzlement. The failures identified by Commissioner Owen were by and large failures stemming from mismanagement. Most breaches of the law were designed to cover up the consequential increasing financial difficulties which were engulfing HIH” (Lipton, P., 2003, p.273, Retrieved 19th December 2007).
2. CORPORATE DEVELOPMENT HIGHLIGHTS OF HIH
The origins of HIH can be traced back to 1968 when it was incorporated as MW Payne Liability Agencies Pty Ltd, changing its name to CE Heath International Holdings Limited in 1989. The company’s main business was the writing of workers compensation insurance in the Victorian market. In 1970 it expanded into Tasmania and subsequently into other States. The company’s sole business remained in workers compensation insurance until the mid-1980s when the company decided to diversify its underwriting into other classes, among them property, commercial and personal liability. The board also decided to expand offshore where it concentrated on workers compensation. In 1992 the company listed on the ASX as a public listed general insurer. After listing, the public held about 45% of the issued capital, 44% was held by UK-based CE Heath plc, and local directors held 11%. Until 1995 the company’s core business was in so-called long-tail classes of insurance where the financial outcome of some claims may be delayed or not known for more than 12 months.
After 1995 the board embarked on a period of rapid growth primarily through acquisitions of other companies that changed the company’s
“The collapse of the HIH Insurance group (“HIH”) resulted in a deficiency of up to A$5.3 billion, making it Australia’s largest corporate failure. The ensuing Royal Commission report released in April 2003 provides a rare detailed dissection of a spectacular corporate implosion and a very useful case study from which corporate governance lessons may be learned. This is particular so because HIH was not unusual case of major fraud or embezzlement. The failures identified by Commissioner Owen were by and large failures stemming from mismanagement. Most breaches of the law were designed to cover up the consequential increasing financial difficulties which were engulfing HIH” (Lipton, P., 2003, p.273, Retrieved 19th December 2007).
2. CORPORATE DEVELOPMENT HIGHLIGHTS OF HIH
The origins of HIH can be traced back to 1968 when it was incorporated as MW Payne Liability Agencies Pty Ltd, changing its name to CE Heath International Holdings Limited in 1989. The company’s main business was the writing of workers compensation insurance in the Victorian market. In 1970 it expanded into Tasmania and subsequently into other States. The company’s sole business remained in workers compensation insurance until the mid-1980s when the company decided to diversify its underwriting into other classes, among them property, commercial and personal liability. The board also decided to expand offshore where it concentrated on workers compensation. In 1992 the company listed on the ASX as a public listed general insurer. After listing, the public held about 45% of the issued capital, 44% was held by UK-based CE Heath plc, and local directors held 11%. Until 1995 the company’s core business was in so-called long-tail classes of insurance where the financial outcome of some claims may be delayed or not known for more than 12 months.
After 1995 the board embarked on a period of rapid growth primarily through acquisitions of other companies that changed the company’s