Heavy Quota Of Quandaries Dog Insurer's Part B
Sydney Morning Herald
Thursday August 19, 1999
It is understood that the manager who had been in charge of actuarial services at GIO's reinsurance division at the end of the 1998 calender year refused to sign or certify the Part B issued as part of the defence to the AMP takeover.
Greg Schneider, who is currently general manager technical services with the GIO, did not wish to speak to the Herald yesterday. His actions are the strongest indication yet that information in the Part B dated December 9 was at the least contestable. It also places big question marks over the extent to which information reflected the financial position of the reinsurance business. The Part B forecast that the 1999 year would see GIO report operating income of $80 million.
This week the new chief executive of the GIO revealed that having added a prudential margin of $225 million the deterioration in the reinsurance business would result in a loss of $759 million this year. If the information given to advisers and independent experts was relied on this certainly goes some way to explaining why the figures contained in the Part B relating to the reinsurance division were so different to the latest view on reality.
This casts some shadow on what the previous chief executive, Nick Steffey, and his board were doing.
It also suggests that the accounts presented before Steffey took on his job may not have been particularly accurate as a reflection of the true state of affairs.
There is also evidence that going back well before Steffey's tenure there had been disagreements between senior actuarial staff and management.
There are suggestions that former GIO actuary Greg Taylor left the company in the early 1990s after a dispute with the way reserves were being set.
Taylor, under this actuarial code of conduct, was unable to confirm any of these findings.
If this information is correct, it will undoubtedly surface in the discovery process which will be undertaken if the AMP is true to its threats to take legal action against the GIO board.
It is undoubtedly plausible that with time the reinsurance losses could have escalated as claims came in.
But the discrepancy is simply too large for time to explain.
There are only two options which can explain this discrepancy.
The first is that the former GIO management may not have known, and hence not revealed the true extent of the losses inside its reinsurance business.
The second explanation is that the new GIO management is being grossly conservative about the extent of the losses.
Given that the public and media are relying on press release it is difficult to assess.
But the revelations of the actions of Schneider certainly suggest that there were potential errors released in the Part B and in the information relied on by the independent expert Grant Samuel and adviser Macquarie Bank.
Meanwhile, the other means of getting to the facts, an inquiry by the Australian Securities and Investment Commission, seems to have been beefed up.
Until now ASIC was taking a peripheral interest in the subject as part of a broader look into statements made during takeover bids.
It is wholly appropriate that ASIC has increased the scope of its inquiry into the AMP takeover bid for GIO.
It is a long time since such a large number of public shareholders were so badly let down by directors of large public companies.
In view of the circumstances, it is clear now that the shareholders were not property informed. AMP shareholders were also victims to a board/management which made strategic errors in bidding for GIO with insufficient financial information which could have been uncovered if the bid had been structured in a friendly way.
Meanwhile, GIO shares have dived in response to the news this week and the minority shareholders are suffering along with the AMP.
This leaves a particularly prickly situation with two of the old-guard GIO directors, Bruce Hogan and Marina Darling, still on the board. This column has already suggested that a showdown between the new GIO board and the two representatives from the former regime is clearly on the cards.
When the controlling shareholder is suing the old GIO board and there are two remaining board members the cocktail spells trouble.
Back at the AMP camp the board must be in the process of deciding on the exit package for its chief executive George Trumbull.
In terms of timing it couldn't be worse for Trumbull.
He has clearly created wealth for AMP but perception is everything and so is timing.
The board may not yet have decided his final package but it is fair to say that for those conspiracy theorists who think that AMP is overplaying the disaster to push the share price of GIO down to pick it up on the cheap, they are underestimating the extent to which the chief executive would like to leave on a high note and a high bonus.
© 1999 Sydney Morning Herald