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Labor Party; Tax; Property Prices; Stamp Duty; Drought; HIH Royal Commission; Gallipoli; Leadership
April 15, 2003
HIH Royal Commission; Budget
April 17, 2003
Labor Party; Tax; Property Prices; Stamp Duty; Drought; HIH Royal Commission; Gallipoli; Leadership
April 15, 2003
HIH Royal Commission; Budget
April 17, 2003

Report of the HIH Royal Commission



I am today releasing the Report of the HIH Royal Commission in its entirety.

The Royal Commission was established at the Government’s instigation following

the financial collapse of the HIH Insurance Group in March 2001. The collapse

affected individuals, community groups, and the public generally. The Commission

operated from September 2001 until the Report was delivered to the Governor-General

on 4 April 2003. The Government wishes to thank the Commissioner, Mr Justice

Owen, for all his efforts over the past 18 months.

The Commissioner concludes that the primary reason for the collapse of HIH

was the failure to provide properly for future claims. This failure was essentially

due to mismanagement and an inadequate response to pressures emerging in insurance

markets internationally.

The Commissioner has identified a number of possible breaches of the Corporations

Law and the Crimes Act (NSW). There are 56 matters that Mr Justice Owen has

indicated should be referred either to the Australian Securities and Investments

Commission (ASIC) or (in a small number of cases) to the NSW Director of Public

Prosecutions. The Government is referring these possible breaches to those authorities


In respect of the Corporations Law referrals, a taskforce will be established

immediately under the direction of ASIC to examine these issues and prepare

briefs for possible proceedings. Additional funding will be provided in the

budget for this task. The Government will give consideration to whether a Special

Prosecutor will be appointed to prosecute criminal charges.

ASIC has already brought some proceedings arising from the failure of HIH.

None of the Commissioner’s findings that there might have been a breach of the

law relates to or touches on those proceedings.

There were many individuals and companies who were the subject of adverse comment

in counsel assisting’s closing submissions. The Commissioner makes it clear

at page lix of the first volume of his report that “where there

is no finding in this report against [a] person or company, the reputation of

that person or company emerges entirely free of any adverse implications”.

The Commissioner also concludes that the Australian Prudential Regulation Authority

(APRA) did not cause the collapse of HIH. He notes at page 442 of the third

volume of his report that “APRA’s failure to act did not contribute to

the collapse of HIH. However, the manner in which APRA exercised its powers

and discharged its responsibilities under the Insurance Act fell short of that

which the community was entitled to expect from the prudential regulator of

the insurance industry”.

The Commissioner has made 61 policy recommendations. The recommendations

cover corporate governance and financial reporting, APRA’s governance arrangements,

the regulation of general insurance and APRA’s internal processes. Some recommendations

seek action by the States and Territories.

The demise of HIH occurred under regulatory arrangements that have since been

substantially strengthened. New legislation for general insurers was enacted

in September 2001 and new prudential standards were issued in February 2002.

This new framework, which commenced on 1 July 2002, means that general insurance

companies are now subject to much more robust arrangements. The reforms ensure

that companies establish appropriate systems of governance and internal controls,

in addition to more transparent valuation of liabilities and risk-based capital


There has also been a transition in supervisory practice from one based on

oversighting individual `transactions’ to a `systems’ based approach, consistent

with international regulatory standards and the direction of modern regulatory


The Government will consider very carefully the Commissioner’s recommendations.

The recommendations propose continuing the broad architecture for the financial

system introduced by the Government following the Wallis Report. Under this

structure APRA is responsible for prudential regulation of all deposit-taking

institutions, general and life insurance and superannuation, and ASIC is responsible

for maintaining market integrity, consumer protection and the supervision of

companies. The Commissioner notes the potential for improving the clarity of

roles and coordination between the regulatory agencies.

The Government accepts in-principle the Commissioner’s recommendation to replace

APRA’s non-executive board with an executive group (or commission). The executive

group would carry the responsibility and be accountable for the operation and

performance of APRA – this arrangement would further strengthen Australia’s

existing regulatory framework. As the Commissioner has suggested, the Government

wishes to consider his recommendations on these matters in light of the Uhrig

Report into Statutory Authorities and Office Holders, which is due to be delivered

to the Government in mid-May. Soon after, I expect to be able to introduce legislation

into the Parliament to give effect to any changes to the governance arrangements

of APRA.

The Government released its proposals to enhance corporate disclosure under

the CLERP 9 paper in September last year. At that time I indicated that

the CLERP 9 proposals would also allow any further recommendations from

the Royal Commission to be added to legislative proposals.

I am pleased to see that the Commissioner’s recommendations are generally consistent

with the CLERP 9 proposals. The Government will be considering the corporate

governance and financial reporting recommendations from the Commissioner in

preparing the legislation to enact the CLERP proposals.

I anticipate that draft legislation will be released for public comment in

the next few months. I expect to introduce the legislation into the Parliament

early in the Spring Sittings.

The Government will consider expeditiously the Report’s other recommendations

and announce further details of its response which will be designed to underpin

the continuation of an efficient, competitive and flexible financial system

while maintaining financial stability, prudence, and fairness.

Copies of the report will be available on the Royal Commission website at http://www.hihroyalcom.gov.au/.


16 April 2003


Niki Savva

David Alexander

02 6277 7340