Rapid Ratings Predicted Downfall of HIH Group
Rapid Ratings Pty Ltd., 488 Queen Street, Level 3, Brisbane, GPO Box 2584
Queensland, Australia. Offices in Auckland & Wellington.
19 June 2002
Rapid Ratings Predicted Downfall of HIH Insurance Group
- Rapid Ratings’ Corporate Credit Rating Service could have predicted the HIH Insurance collapse well before the warning signs were obvious to others Royal Commission told
- Rapid Ratings has just launched a global credit rating service, which was developed and built in New Zealand
- The service anticipates financial distress or failure in advance of other indicators such as share price movements
- Scientific approach using financial data only
- Vast database spanning 25 years with over 200,000 companies from more than a dozen countries and 25 industry categories
- Rapid Ratings is a subsidiary of ASX listed Collection House Limited (CLH)
Rapid Ratings Ltd has told the Australian Royal Commission investigating the demise of HIH Insurance Group that the failure could have been predicted.
Using Corporate Credit Rating Software, launched onto the global public market last week, Rapid Ratings is able to offer the Royal Commission insights into factors that contributed to the failure of HIH Insurance and point to undesirable corporate governance practices within management.
Dr Patrick Caragata Managing Director of Rapid Ratings, a subsidiary of ASX listed Collections House, said the Rapid Ratings service would have predicted the collapse of HIH Insurance Group five years ago using a scientifically-derived Business Early Warning System, ahead of Standard and Poor’s predictions and share price indicators. He has tabled a submission that points to financial distress signs as early as 1996, when HIH was rated as D2 by Rapid Ratings - a category that signifies it was operating at less than 30% of its potential.
Mr Caragata says his analytical approach to the collapse of HIH and hence his submission to the enquiry, is based on two perspectives. “The bankruptcy prediction software that Rapid Ratings has developed offers regulators and the market a scientific basis from which to identify what the early warning signs were. From here the Commission must assess why these warning signs of business failure were ignored.”
Secondly, as the author of the book Business Early Warning Systems: Corporate Governance for the New Millennium (Butterworths NZ, 2000), Mr Caragata’s research indicates that “there are always early warning signs of business failures and people tend to ignore these signs because of false assumptions, poor observation skills and paradigm blindness”.
The Royal Commission, led by Justice Neville Owen, is to report back and recommend changes to the Australian regulatory system by February 2003.
Dr Caragata is a Canadian and New Zealand citizen with a background in resource economics, banking, investment analysis, financial analysis, taxation and software development. He is the author of five books, including Business Early Warning Systems: Corporate Governance for the New Millennium, (Butterworths NZ, 2000). He currently divides his time between Australia and New Zealand.