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APRA disqualifies HIH non-executive directors

18 May 2006
06.28

The decision to disqualify Mr Gardener was set aside by the AAT on 24 December 2009. See Media Release 09.44.
 
The Australian Prudential Regulation Authority (APRA) today announced the disqualification of Mr Justin Herbert Gardener and Mr Alexander Walter Gorrie from being or acting as a director or senior manager of a general insurer, non-operating holding company or agent of a foreign general insurer.
 
Mr Gardener was a non-executive director of HIH Insurance from December 1998 to March 2001 and was also a member of the HIH Audit Committee. From February 2001, he was Chairman of the Committee.
 
Mr Gardener was also a member of the HIH Board's Human Resources Committee. APRA found that in his role as a non-executive director Mr Gardener:
  • failed to disclose to the board that HIH's auditor (Andersen's) had assessed HIH as a maximum audit risk;
  • compromised the independence and operation of the Audit Committee;
  • as a member of the Human Resources Committee, did not conduct proper internal reviews of the remuneration and performance of directors and senior management;
  • failed to take reasonable steps when a report from Ernst & Young raised serious doubts about HIH's solvency;
  • failed to make sufficient enquiries and obtain sufficient information about the Better Thinking Systems (BTS) transaction. This transaction was an investment by HIH, proposed by Mr Adler who was a shareholder and director of BTS;
  • with other board members, failed to take reasonable steps to familiarise himself with a proposed joint venture with Allianz and its financial and business implications; and
  • as a director, was aware of concerns about provisions and failed to make enquiries or raise concerns about the adequacy and accuracy of information presented to the board about provisions. He also continued to approve outstanding claims provisions and failed to take reasonable steps to ensure an adequate level of provisioning.
Mr Gorrie was an alternate non-executive director from August 1995 to May 1997. From May 1997 to November 1999 he was a non-executive director of HIH when he also became a member of the Human Resources Committee. APRA found that Mr Gorrie:
  • failed to disclose to the board that HIH's auditor (Andersen's) had assessed HIH as a maximum audit risk;
  • as a member of the Human Resources Committee, did not conduct proper internal reviews of the remuneration and performance of directors and senior management;
  • in relation to the acquisition of FAI, failed to give adequate consideration to, and raise with the board, the implications of the refusal by Mr Adler to allow HIH to conduct due diligence;
  • as a director, was aware of concerns about provisions and failed to make enquiries or raise concerns about the adequacy and accuracy of information presented to the board about provisions. He also failed to consider whether it was appropriate to include a prudential margin for the purposes of assessing HIH's outstanding claims provisions;
  • failed to ensure that a prospectus issued by HIH properly disclosed the nature of the underwriting arrangements for the transaction; and
  • despite being aware of problems with a joint venture insurance underwriting subsidiary in China, failed to make appropriate inquiries and ensure disclosure in the annual report of those problems as outlined in board papers.
APRA's Deputy Chairman, Mr Ross Jones, said that "APRA expects directors of general insurers to ensure that a high standard of corporate governance is maintained, boards are properly informed and board committees function properly."
 
APRA has disqualified 25 people as a result of its review and assessment of individuals involved with HIH.
 
The Australian Prudential Regulation Authority (APRA) is the prudential regulator of the financial services industry. It oversees banks, credit unions, building societies, general insurance and reinsurance companies, life insurance, friendly societies, and most members of the superannuation industry. APRA is funded largely by the industries that it supervises. It was established on 1 July 1998. APRA currently supervises institutions holding approximately $2.2 trillion in assets for 20 million Australian depositors, policyholders and superannuation fund members.