1. First, it has been correctly recognised that APRAs major power under the Insurance Act 1973 is the appointment of an inspector. This is usually the first step towards liquidation and, rightly, there are some legal protections in the Act to ensure that this power is not used capriciously.

Until recently, APRA did not have solid legal grounds under the Act for exercising that power.

2. Second, there is a perception in some quarters that the earlier appointment of an inspector would somehow have prevented the current situation from arising. The reality is that the problems in HIH go back several years; they did not just happen in the past 6 - 9 months. What did happen in the past month was a reassessment by the company and its auditors of the seriousness of those problems.

Consequently -- and notwithstanding that APRA did not believe it had legal standing to do so -- appointing an inspector three or more months ago may have been better for APRAs image as a tough regulator, but it would not have reduced the problems facing HIH. Indeed, it would almost certainly have acted against the interests of policyholders.

3. Third, while appointing an inspector is APRAs major enforcement weapon, it is not the only action available to it. APRA did act over the past nine months, and it acted, within its powers, in the interests of policyholders.

APRA did not have information suggesting that HIH had a statutory solvency problem. Indeed, on the audited results presented as recently as last September, HIH had close to double the legally required solvency level. Those figures were confirmed again in January. While there was no hard evidence of a breach of solvency, APRA did have concerns about HIH. Consistent with those concerns, APRA required HIH to better understand its balance sheet and business risks. APRA required HIH to implement more rigorous risk management systems. Changes to strengthen internal governance were also discussed.

More importantly, APRA helped facilitate arrangements with Allianz, and subsequently with NRMA and QBE, that strengthened the position of many of HIHs policyholders.

As a result of those arrangements:

• at least one million policyholders have retained current insurance coverage that they would not otherwise have had;
• some $45 million of claims were paid in the first two months of this year that might otherwise have been caught up in the delays of the liquidation process;
• around $1.3 billion worth of outstanding claims are being covered in full and through normal procedures; and
• as a result of QBEs decision last week, around 750,000 travel policies will remain current and all valid past claims will be met.

4. Fourth, APRA is aware of and concerned for the remaining policyholders caught up in the liquidation process. We recognise that even the prospect of a reasonable recovery rate is small comfort for those who need access to those funds now. We will be pursuing all options available through the liquidators and the financial system to assist these people.

For further information contact:

Gloria Peterson
Public Affairs Manager
02 9210 3385 or 0419 250 286