Essays on HIH Insurance Collapse Case Study

Download full paperFile format: .doc, available for editing

The paper "HIH Insurance Collapse" is a great example of a business case study.   In Australia, HIH Insurance Limited was publicly listed. HIH Group was the second-largest insurance limited in Australia before it collapsed in 2001 and also operated in many other countries. Some subsidiaries and HIH Group were put in provisional liquidation. Following that, the firms that were in provision liquidation were put in liquidation. For the eight companies, schemes of arrangement are now in place. Owing to that, initial payments have been made by the scheme administrators to various creditors and over the following years, it will make further payments.

Adding to that, an application to the Insolvency of the HIH group has to be made by the Australian priorities as peer the decision handed down by The House of Lords (Dagwell & Lambert, 2007).   The HIH case was as a result of manifest highest risk areas, financial depression and questionable practices and model setting of corporate governance as from the audit’ s perspective. These are big challenges and very desirable to the analysis of an audit. The interested party did not get a warning about the HIH financial strength deterioration before liquidation was announced since the process had to take more than a year which did not happen so.

Due to the inconveniences, the Anderson Accounting Firm must take the blame for its failure to observe fully the functions on behave of the interests of the stakeholders. As per the remarks in the HIH failure investigation report by Hon Justice Owen who is the royal commissioner, Anderson did not get enough audit evidence to use in support of his conclusion (Insurance Journal 2003). In this paper, the challenges and issues of the HIH Group are going to be discussed.

The corporate theories too will be discussed in accordance with the company. What Caused HIH Collapse The inability of the company to pay debts and the insurance policy holder’ s claims as they due fell is the main cause of what led to the liquidation of HIH, this is from the financial viewpoint. Sincerely, this statement is universally acknowledged as it brings out the concept right. As per our knowledge, the main agenda of any firm in operation is to make more profit and thus the cash is the beginning and ending point of its cycle of operation.

Regarding that, the money position of a given firm is actually the cash effect summary of financial and operation policies & activities, and hence in the long-run, there will be a reflection in the cash condition of the non-cash effect of the transaction. Using this explanation, we do not need to focus on cash positioning alone while examining the collapse of HIH but also financial and operational activities that are the real causes of the HIH insolvent position (Haines, 2007).   Pertaining to the HIH issue, what comes out is that the insurance firms get themselves into commitments of dealing with the risks which later place them in even more high-risk positions.

The important factors that the insurance companies have to use against risks that are high and squeezing the profit are; the investment decision, outstanding claims provision reserving policy and risk pricing ability. Firstly looking at the investment decision, which is a very important part of the insurance firms that involves the use and management of cash got from creditors, the shareholders and policyholders.

Mostly, the returns from the investments can show the existing loss. A disaster can occur to the insurance company as a consequence of the long term entailment and commitment in large scale funding, and hence the production of negative return flows by the investments. The HIH gives a typical illustration as per this concern. The HIH suffered three major investments failures as it was brought out in the royal investigation reports. The UK operation was the first failure, followed by the US operation.

In the UK, the losses summed up to $1.7 billion, and the expected profits never emerged concerning the US operation, and they ended up being placed in a run-off costing HIH $620 million. The FAI acquisition is the third failure (Vinten, 2005).  

References

Allan, G 2006,'The HIH collapse: A costly catalyst for reform', Deakin low review, vol.11, no.2, retrieved 17 September2013, < http://www.deakin.edu.au/buslaw/law/dlr/docs/vol11-iss2/vol11-2-6.pdf>.

Caliyurt, K. T., & Crowther, D. (2006). Globalization and Social Responsibility. Newcastle upon Tyne, Cambridge Scholars Publishing. http://www.UCM.eblib.com/patron/FullRecord.aspx?p=1080903.

Commonwealth of Australia 2003,the failure of HIH insurance, reasons, circumstances and responsibilities, vol. lll, retrieved 11 September2013, < http://www.publicaccountants.org.au/media/76456/a00009282.pdf>.

Dagwell, R., Wines, G. L., & Lambert, C. (2007). Corporate accounting in Australia. Sydney, N.S.W., University of New South Wales Press.

Du Plessis, Jean Jacques, Mcconvill, James, & Bagaric, Mirko. (2005).Principles of contemporary corporate governance. Cambridge University Press. http://hdl.handle.net/10536/DRO/DU:30000408.

Feetham, N., & Amos, R. (2012). A guide to insurance: combining governance, compliance and regulation. London, Spiramus Press.

Haines, F. (2007). The Paradox of Regulation What Regulation Can Achieve and What it Cannot. Cheltenham, Edward Elgar Pub. http://public.eblib.com/choice/publicfullrecord.aspx?p=730824.

Insurance Journal 2003, 'HIH Report Cites Mismanagement as Cause of Collapse', Insurance Journal, international news, vol.21, no.4, retrieved 10 September2013, .

Jiangbo, XU 2010,HIH Insurance Limited: Corporate Governance and Corporate Excesses, Capital University ofEconomics and business, p. 259-246, retrieved 10 September2013, .

Vinten, G. (2005). Financial regulation. Bradford, England, Emerald Group Publishing. http://proxy2.hec.ca/login?url=http://site.ebrary.com/lib/hecm/Doc?id=10085657.

Download full paperFile format: .doc, available for editing
Contact Us