Insurance Bankruptcy hits Australian economy

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Sunday, 20 May, 2001, 10:10 GMT 11:10 UK Bankruptcy hits Australian economy

The corporate collapse is snowballing into a political crisis

Australia's Treasurer Peter Costello has warned that the Australian economy could be damaged by the collapse of HIH Insurance. The liquidation of Australia's second biggest insurer is turning into a political crisis, with liabilities far bigger than first expected.

The bankruptcy - Australia's biggest ever corporate failure - could have liabilities of over 3bn Australian dollars (1.6bn US dollars), admitted Mr Costello, rather than initial estimates of A$800m.

The government has set up a fund to help the victims of the debacle, and is investigating the role of the regulator in the affair.

But it has so far resisted calls from the opposition Labour party for a judicial inquiry.

Stranded policy holders

HIH was Australia¿s second biggest general insurer with about 28,000 clients.

Thousands of policyholders are left waiting and wondering who will pay out their claims.

Competing insurance firms have taken over most HIH policies, but are not picking up existing or future claims liabilities.

The federal government has indicated that it may buy out some of the claims - but at a high cost to the taxpayer.

Political feuding

The Australian Securities and Investments Commission has warned former HIH executives not to leave the country while an investigation is underway.

And Mr Costello has said that the government will examine the role of the national regulator in failing to pick up on the warning signs of a collapse.

The opposition Labour Party is piling on the pressure for a full government inquiry, saying that a poll shows this is favoured by three out of four Australians.

The fact that HIH donated large sums of money to the ruling Liberal Party is adding to the political pressure on the government.

The Labour party has also called for an investigation into the role played by political donations in the HIH debacle.

The bankruptcy has been blamed on large losses from overseas operations, including the US and the UK.

http://news.bbc.co.uk/hi/english/business/newsid_1340000/1340727.stm

-- Martin Thompson (mthom1927@aol.com), May 21, 2001


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