Some traditional terms used by the insurance industry are “at best, euphemistic, and at worst downright misleading”, says QC Wayne Martin, the Counsel Assisting the HIH Royal Commission.

Speaking at the Insurance Council of Australia's WA conference, he gave as one example the word “reserves”, which he said “carries a connotation to the effect that there is something in the nature of an asset which has been set aside or ‘reserved’ for those liabilities, or at least, that the ‘reserve’ is something positive or beneficial”.

“Thus, when an insurer says that it has “increased its reserves”, there is a tendency for the layman to think it has somehow improved its position. But of course the exact opposite is the case. What has happened is that it has recognised additional liabilities arising from business previously written – those liabilities not previously having been brought to account.”

On the HIH collapse, Mr Martin said observers of Australian commercial history “will no doubt have spotted two features” that have been common to a number of other major Australian commercial disasters: the problem that Australian companies seem to get into when taking their business offshore; and “the ease with which vast sums of money can be lost through inwards reinsurance business”.

“Inwards reinsurance seems to be a very good way of losing a very large sum of money very quickly, as AMP found out when it acquired GIO,” he said. “It is not a business for the uninitiated or faint-hearted.”