Burroughs and Australian Prudential Regulation Authority

Administrative Appeals Tribunal

DECISION AND REASONS FOR DECISION [2007] AATA 1960

ADMINISTRATIVE APPEALS TRIBUNAL      )           Nos N2005/183 &

)                  N2006/2532

GENERAL ADMINISTRATIVE  DIVISION		)
Re		STEPHEN BURROUGHS

Applicant

And AUSTRALIAN PRUDENTIAL REGULATION AUTHORITY

Respondent

DECISION

Tribunal The Hon C R Wright QC (Deputy President)

Date16 November 2007  

PlaceSydney

Decision	(i)    N2005/183      Decision under review affirmed
(ii)   N2006/2532     Decision under review affirmed

[Sgd C R Wright]

Deputy President

Insurance industry standards recognise that for a transaction to be accounted for as reinsurance there must be a transfer of risk by the ceding insurer to the reinsurer and there is a general acceptance within the industry that the risk transfer must be "significant", "sufficient" or "material".  Before 1 July 2002 it was necessary for an Australian insurance company's reinsurance arrangements to be approved by APRA or its predecessor the Insurance and Superannuation Commission (ISC).

The GCRA Transactions

9.      The factual matrix within which the applicant's impugned conduct took place is not in serious dispute.  The central issues for consideration in each of the present review proceedings are the applicant's state of mind and awareness of the overall purpose of the activities in which he was participating and his appreciation, both then and now, of the impropriety of those activities.  These issues will go a long way in determining whether or not he was, or is, a fit and proper person to be employed in a senior management position.  I find the relevant events in which the applicant was involved to be as follows.

10.     In December 1997 Wilkie advised the applicant that FAI had "a problem" with its claims reserving position.  He requested the applicant to "investigate whether there is a reinsurance solution to fix it".  The applicant consulted with insurance brokers Willis Faber & Dumas Ltd ("Willis Faber") and through them with two reinsurance companies, Gerling Global Reinsurance Aus P/L ("Gerling") and Hannover Re but without success.  The applicant's understanding of the problem was that FAI had a reserves shortfall of about (A)$67 million in respect of two professional indemnity insurance schemes referred to by the acronyms ALAS and MIPI.  The applicant was insistent in his dealings with Willis Faber (through the agency of Stuart Stow) that the relevant transactions should be '"clean and transparent".

11.     In his email to Wilkie on 15 January 1998 explaining problems with a potential reinsurance solution he said "I don't want to be part of deals unless they are squeaky clean and raise no problems with auditors, ATO and ISC".  In his statement dated 17 January 2006 (referred to during the AAT hearing as "Burrough's First Statement") the applicant said (para 86):

"I understood my role was to obtain a reinsurance solution for the MIPI and ALAS accounts which involved a sufficient transfer of risk which would pass muster with the authorities".

It is appropriate to record that I accept the applicant's evidence as to this.  I am quite satisfied that at this stage of his quest for a solution to FAI's woes…