Australia to bail out failed insurance company

Treasurer Peter Costello will announce the amount of HIH insurance aid in the Budget next week

In this story: Support in Budget next week Insurance regulator faces criticism RELATED SITES

SYDNEY, Australia (CNN) -- The Australian government will bail out policy holders of the failed insurance company HIH.

Prime Minister John Howard said after a cabinet meeting Monday that the government would "open negotiations" to pay other insurance companies to take over HIH policies.

Howard said the government would make available "substantial resources" for the bailout.

But it will not cover all affected policies; Howard said the focus would be on "genuine hardship" cases.

HIH collapsed on March 15 with debts of at least $400 million (Aust $800 million). Thousands of policy holders were left without cover as a result.

A provisional liquidator's report on the downfall of HIH -- which could prove to be one of Australia's biggest corporate collapses -- is expected in the next two to four weeks.

Some reports suggest the company's liabilities could exceed its assets by up to $2 billion.

Support in Budget next week

Howard said Monday that the level of support would be announced in the Federal Budget, due to be handed down on May 22 by Federal Treasurer Peter Costello.

Market speculation is that the amount will be about $100 million.

Howard said helping other insurance companies take over the HIH policies was preferable to a proposal by the insurance industry that a 1 per cent levy be put on all insurance policies.

Howard also said the corporate regulator, the Australian Securities and Investment Commission (ASIC), would be funded to investigate the failure of HIH.

Insurance regulator faces criticism

There has been strong criticism of the insurance industry regulator, the Australian Prudential Regulation Authority (APRA), for not acting earlier.

The Australian Shareholders' Association said APRA could have intervened to protect policy holders when the HIH share price fell from A$1.05 to A$0.45 in September 2000. This followed its announcement of an $11 million loss in the second half of 1999-2000.

APRA's response was that it did not have any evidence to appoint an inspector earlier than it did.

The Australian Shareholders' Association also said the company's auditors needed to be questioned about their unqualified signing off of the 1999-2000 financial report.

HIH
ASIC
APRA

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