Hih Insurance Limited

2734 words 11 pages
Case One — Solutions
HIH Insurance Limited:
Inherent Risk Assessment, Legal Liability, Ethics and Audit Reports

The case can be used either progressively through the course using questions relating to chapters as they are taught or as a consolidating case at the end of the course. Where possible, students should be encouraged to concurrently research information in the press relating to HIH while they undertake the case. Clearly, the points for discussion may change as further information becomes available. As the legal proceedings in the case are still in progress, the suggested discussion points are not intended in any way to comment on or compromise any investigation. All information provided in the case is available in the public
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From a business risk assessment there was an appearance of a regulated industry; however, the effectiveness of this regulator is now being questioned.

HIH did not maintain prudential margins and is reported to have had a 50 per cent chance of not meeting having sufficient fund to meet claims (one in every two years). Instead, HIH was buying re-insurance to cover claims. HIH purchase FAI for what now appears to have been an inflated sum. (Four Corners report) There does not appear to have been a cohesive business strategy. There had been an increase in both issued capital and borrowed funds.

b) List several inherent risk factors effecting HIH at the financial report level and whether they would have contributed to an increase or decrease in the inherent risk assessment.

This question relates to Chapter 7 of the textbook.

• Integrity of management.
 Williams was a dominant executive who hand-picked his personnel and is claimed to have exercised practical and psychological dominance over the board, increasing the inherent risk. On the other hand, his vast experience in the insurance industry would decrease the inherent risk.
 The independence of the non-executive directors (and therefore the role of the audit committee) is being questioned.
 CFO was an ex-audit partner, as were two of the other directors. The directors therefore knew what


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