The Australian government plans to bail out at least some of the policyholders left stranded by the collapse of HIH Insurance last March, as loss estimates continue to mount. However HIH’s U.S.-based subsidiaries, including those in California currently under administration, don’t stand to benefit.
Two weeks ago KPMG, HIH’s provisional liquidator, said its preliminary audit put losses at around A$1 billion ($493 million), but more recent reports now estimate losses could reach A$4 billion ($1.97 billion). The news prompted the national government, and the state governments of New South Wales and Victoria to consider legislation to fund payments of over 28,000 outstanding claims.
While some policies, notably workers compensation, is federally guaranteed, no similar protection exists for the numerous individuals and commercial enterprises, particularly in the construction sector. All parties involved have also ruled out any bailout for HIH’s non-Australian subsidiaries.
As the crisis mounts, the failure to find a definitive solution has become more critical. Financial Services Minister Joe Hockey, has been holding talks with Australian insurers in an effort to convince them to take over at least a portion of HIH’s liabilities, but without some guarantee of government aid, they have been understandably reluctant to do so.
Officials considered a special levy on policies to fund an HIH rescue plan, but as this would effectively raise rates it met with substantial opposition. State and federal governments also considered an allocation from general revenue funds, or a combination of the two.
Prime Minister John Howard announced yesterday that around $250 million would be made available from general funds to help claimants who are not otherwise covered, but stopped short of setting up a separate organization to administer the scheme. His proposal would pay a “commission” to another insurers who agree to take over HIH policies. It would appear, however, that the fund proposed isn’t going to be enough, and additional measures will be required.
of the HIH debacle, and the huge losses run up by GIO, which was forced to sell out to AMP, criticism of the Australian Prudential Regulation Authority, which monitors the country’s insurance industry, has mounted, and calls for legislative reform have increased, as have demands for a judicial inquiry into HIH’s collapse.
Reforms under consideration include raising minimum reserve capital to A$5 (million ($2.46 million), and increasing reporting requirements, but these may still not be enough. In an interview with The Sydney Morning Herald KPMG partner Don Findlater called for a A$10 million (4.92 million) capital requirement, and quicker implementation of the reformed statutes, which are now programmed to be phased in over five years.
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