The Australian Prudential Regulation Authority (APRA) has announced the disqualification of HIH directors Justin Gardener and Alexander Gorrie from being or acting as directors or senior managers of a general insurer, non-operating holding company or agents of a foreign general insurer.

Mr Gardener was a non-executive director of HIH Insurance from December 1998 to March 2001 and was also a member of the HIH audit committee. From February 2001, he was Chairman of the committee. Mr Gardener was also a member of the HIH board’s human resources committee.

APRA found that in his role as a non-executive director Mr Gardener:

• Failed to disclose to the board that HIH’s auditor (Andersen’s) had assessed HIH as a maximum audit risk;
• Compromised the independence and operation of the audit committee;
• Did not conduct proper internal reviews of the remuneration and performance of directors and senior management;
• Failed to take reasonable steps when a report from Ernst & Young raised serious doubts about HIH’s solvency;
• Failed to make sufficient enquires and obtain sufficient information about the Better Thinking Systems (BTS) transaction (This was an investment by HIH, proposed by Mr Adler who was a shareholder and director of BTS);
• With other board members, failed to take reasonable steps to familiarise himself with a proposed joint venture with Allianz and its financial and business implications;
• As a director, was aware of concerns about provisions and failed to make enquiries or raise concerns about the adequacy and accuracy of information presented to the board about provisions. He also continued to approve outstanding claims provisions and failed to take reasonable steps to ensure an adequate level of provisioning.

Mr Gorrie was an alternate non-executive director from August 1995 to May 1997. He was a non-executive director of HIH from May 1997 to November 1999, when he also became a member of the human resources committee.

APRA found that Mr Gorrie also failed to disclose that Andersen’s had assessed HIH as a maximum audit risk and as a member of the human resources committee did not conduct proper internal reviews of the remuneration and performance of directors and senior management. Other findings were:

• In relation to the acquisition of FAI, Mr Gorrie failed to give adequate consideration to, and raise with the board, the implications of the refusal by Mr Adler to allow HIH to conduct due diligence.
• He was aware of concerns about provisions and failed to make enquiries or raise concerns about the adequacy and accuracy of information presented to the board about provisions. He also failed to consider whether it was appropriate to include a prudential margin for the purposes of assessing HIH’s outstanding claims provisions.
• He failed to ensure that a prospectus issued by HIH properly disclosed the nature of the underwriting arrangements for the transaction.
• Despite being aware of problems with a joint venture insurance underwriting subsidiary in China, he failed to make appropriate inquiries and ensure annual report disclosure of those problems as outlined in board papers.

APRA has disqualified 25 people as a result of its review and assessment of individuals involved with HIH.