The collapse of HIH Insurance has highlighted the increasing need for a stronger regulatory environment, Fitch Ratings has said.
Last month, the Australian HIH appointed a provisional liquidator, following the suspension of its shares and losses of AUS$800m (£273.7m).
Fitch said lessons needed to be learned from the case, particularly since the collapse had a huge impact on the London Market. HIH has provided 85% of the financial backing for the Lloyd's syndicate Cotesworth. Cotesworth now has six months to find a new source of revenue, and Moody's Investors Service has threatened to review its ratings.
Fitch analyst Michael Herlihy pointed out that HIH's demise was the latest in a growing number of insurer misadventures, including the collapse of New Cap Re and the placing into run-off of Re AC, GIO Re and NRMA Reinsurance.
“The need for a stronger regulatory environment is clear, and the Australian Prudential Regulation Authority has received criticism for its inaction leading up to HIH's eventual collapse,” he said.
Herlihy added that in many cases auditors could also be blamed for not taking sufficient action. They relied too much on estimates from actuaries, which often masked the extent of the problem.