Having taken a beating over its lack of action on the HIH case prior to its collapse, APRA has now confirmed that insurance failures could pose a threat to the community’s financial position. APRA Executive General Manager Charles Littrell said that contrary to academic opinion, the Australian experience had shown that “insurance failures do present systemic risk”.

Speaking at the Institute of International Affairs in London yesterday, he said the collapse of HIH and the near-failure of UMP had shown that insurance supervisors “need to watch for companies with large market shares in key sectors”.

Mr Littrell said the industry prior to 2001 was characterised by “an unsatisfactory culture of reluctant regulatory compliance, even by some large entities”.

“In Australia, many insurance companies were run by salesmen who often viewed regulation as something to be avoided.”

Compounding this issue is what he described as “the opaque accounting applied to insurance, weak corporate governance and management and the willingness by some international reinsurers to facilitate transactions that promote regulatory arbitrage, and in the worst cases, regulatory or financial reporting obfuscation”.