The HIH Royal Commissioner has concluded that the primary reason for the collapse of HIH was its failure to provide properly for future claims, essentially because of mismanagement and an inadequate response to pressures emerging in insurance markets internationally.

Releasing the full report this morning, Treasurer Peter Costello said Commissioner Neville Owen has identified a number of possible breaches of the Corporations Law and the Crimes Act (NSW). “There are 56 matters that Mr Justice Owen has indicated should be referred either to the Australian Securities and Investments Commission (ASIC) or (in a small number of cases) to the NSW Director of Public Prosecutions. The Government is referring these possible breaches to those authorities immediately.”

A taskforce will be established immediately under the direction of ASIC to examine issues in respect of the Corporations Law referrals, and prepare briefs for possible proceedings, Mr Costello said. The Government will also consider appointing a special prosecutor to deal with criminal charges.

The report concludes that the Australian Prudential Regulation Authority (APRA) did not cause the collapse of HIH, but Commissioner Owen notes that “the manner in which APRA exercised its powers and discharged its responsibilities under the Insurance Act fell short of that which the community was entitled to expect…”

The Commissioner has made 61 policy recommendations covering corporate governance and financial reporting, APRA’s governance arrangements, the regulation of general insurance and APRA’s internal processes. Some recommendations seek action by the states and territories.

While the “twin peaks” administrative model of APRA and ASIC will continue, Mr Costello said the Government accepts in-principle the Commissioner’s recommendation to replace APRA’s non-executive board with an executive group or commission. “The executive group would carry the responsibility and be accountable for the operation and performance of APRA; this arrangement would further strengthen Australia’s existing regulatory framework.

“As the commissioner has suggested, the Government wishes to consider his recommendations on these matters in light of the Uhrig Report into Statutory Authorities and Office Holders, which is due to be delivered to the Government in mid-May. Soon after, I expect to be able to introduce legislation into the Parliament to give effect to any changes to the governance arrangements of APRA.”

Copies of the report will be available on the Royal Commission website at http://www.hihroyalcom.gov.au.

We’ll have more news after examining the report.