Hih Liquidator To Sue Broker For $400m Over Fai Contract

The Age

Tuesday April 19, 2005

ELISABETH SEXTON, SYDNEY

THE insurance broking firm that negotiated a controversial financial reinsurance contract between Warren Buffett's National Indemnity Co and the collapsed FAI Insurances is a co-defendant in a $400 million damages action, the NSW Supreme Court was told.

Liquidator Tony McGrath is trying to recover losses caused by HIH's ill-fated decision to pay $300 million for FAI in 1998.

Senior Registrar Phillippa Wearne heard yesterday that Mr McGrath, from accounting firm McGrathNicol and Partners, notified insurance broker Guy Carpenter and Co in November 2004 that he intended to sue.

His claim has been filed but has not been formally served.

Guy Carpenter, a subsidiary of US-listed insurance and consulting group Marsh and McLennan, was the agent for a National Indemnity contract that the royal commission into HIH's 2001 collapse found allowed FAI to overstate its 1998 profits and conceal its failure to set aside enough money to meet future policyholder claims. Mr McGrath's barrister, Alan Sullivan, QC, mentioned damages of $400 million during a liquidator's examination of two Guy Carpenter executives yesterday.

Mr Sullivan was cross-examining the former head of Guy Carpenter's Australian operations, Norrie McConochie, and his acting replacement, Paul Allison, about the assets and insurance available to meet any court order if the claim proceeds. Guy Carpenter's lawyer, Catherine Osborne, from Ebsworth and Ebsworth, said outside the court that her client denied any liability to the HIH liquidator and would defend any proceedings.

The court file names as co-defendants General Reinsurance, which directly sold FAI a second financial reinsurance contract found by the royal commission to have boosted FAI's 1998 results, and investment bank Goldman Sachs, which advised FAI that year. Neither the reinsurer nor the bank had any comment yesterday. Both General Re and National Indemnity, whose reinsurance activities are under investigation by regulators here and in the US, are wholly owned subsidiaries of Warren Buffett's Berkshire Hathaway.

© 2005 The Age

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