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On March 15 2001 Australias second largest insurance company HIH collapsed and an application for its liquidation was submitted It soon escalated into Australias biggest corporate failure in June after the insurers final tally of losses was estimated to be about 3 billion in Australia and almost 5 billion worldwide very well above the early estimate of 1 billion HIHs demise was mainly due to the criminal and unethical activities that the company directors committed as well as risk management practices and poor decision-making As a result most HIHs creditors policyholders shareholders employees and many other businesses and departments who are innocent victims have been enormously affected In the early 1990s HIH quickly expended business overseas through the Europe and the United States However it did not have the control in place HIH started to reinsure from 1997 and it had been accepting too many risky insurance claims from other insurance companies Thus it did not set aside enough capital to pay out over a number of years to policyholders For example HIH paid couples of hundred million dollars to cover workers compensation in California by raising its premium rates in another countries Meanwhile a wine company in NSW decided to take its money out of the insurance group but HIH had no more capital to cover the cost Furthermore the under-reserved position of the insurance group was greatly exaggerated when HIH bought Rodney Adlers FAI Insurance for 275 million by depressing share price in the late 1998 However it escalated in September 2000 when it sold half of its personal insurance operations to the German insurer Allianz for 325 million including the FAI brands It clearly showed that the company was no longer viable because the amount it had to pay out on claims exceeded the income it receives through premiums and investments Likewise HIH used 400 million to build up trust fund in order to raise the insurance prises
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