Encouraging forecast for HIH in New Zealand

By RICHARD BRADDELL

HIH New Zealand policyholders should suffer no adverse effect from the insurance company's Australian parent going into voluntary liquidation.

Michael Vine, an insurance analyst with ratings agency Standard & Poor's in Melbourne, said the New Zealand operation was ring-fenced by a trustee arrangement.

"It's a completely different scenario to what's happening in Australia," he said.

Standard and Poor's has maintained an A-minus credit rating on HIH New Zealand, meaning it is of upper-medium grade quality, while HIH in Australia has been progressively downgraded in recent months to a lowly speculative B, before the announcement on Friday that it was going into liquidation.

Mr Vine said another positive was that A-plus-rated QBE Insurance of Australia had contracted to buy HIH New Zealand in a deal set to be consummated mid-year.

However, the position is less clear for two other HIH operations in New Zealand, CIC Insurance and HIH Workable, which have been downgraded in line with the Australian parent.

HIH Workable was established to compete in the private workplace accident insurance market that lasted only a year before the Government returned workers' compensation to the ACC. Workable now manages remaining long-running claims.

Mr Vine said Workable's premiums had been at good levels and no problems were expected.

He noted that although HIH Australia had chosen voluntary liquidation, it had sufficient reserves to cover its liabilities.

"It still has positive net assets and it is expected the reserves on the balance sheet will meet policyholder obligations."

HIH announced its voluntary liquidation as it foreshadowed half-year losses of $A800 million ($953 million).

Its problems stem from an over-ambitious five-year expansion into Lloyd's and Californian workers' compensation markets at a time of low premiums.