In Committee on Finance. - The Industrial and Life Assurance Amalgamation Company, Limited, (Acquisition of Shares) Bill, 1947.—Money Resolution.
Thursday, 13 March 1947
Dáil Éireann Debate
That, for the purpose of any Act of the present Session to authorise the Minister for Finance to purchase certain shares of the Industrial and Life Assurance Amalgamation Company, Limited, and to provide for matters connected with the matter aforesaid, it is expedient to authorise,
(1) the advance out of the Central Fund or the growing produce thereof of all moneys from time to time required by the Minister for Finance to pay for any shares of the terminating company purchased by him under such Act; and
(2) the charge on and payment out of the Central Fund or the growing produce thereof of the principal of and interest on any securities issued by the Minister for Finance under such Act and the expenses incurred in connection with the issue of such securities.
Mr. Lemass: As I informed the House on the Second Reading, the purchase of the shares of the British companies participating in the amalgamation, in accordance with the agreement made, will involve the expenditure of £110,697 12s. 0d.
General Mulcahy: I have had certain representations made to me yesterday which I have not been quite able to go into, but I think this is the occasion on which to mention them. It has been pointed out to me that the Industrial and Life Assurance Amalgamation Company was formed in 1939 by the amalgamation of the business in Ireland of five English and four Irish companies: that it was then necessary for each of the participating companies  to give funds to the amalgamating company to cover the liability for their existing policies, and that the amount of the liability of each company was determined according to an actuarial basis contained in the Insurance (Amendment) Act, 1938. It has been represented to me that in order to persuade the English companies to enter the amalgamation this basis of valuation was made extremely favourable to these companies. It meant that each English company handed to the amalgamation company an amount far smaller than the funds which they themselves held in respect of their Irish policies and that they reaped a handsome profit on the transaction. It is to these English companies that the Dáil is now being asked to vote money for the purchase of shares which, it is suggested, are, as far as value goes, of a possibly questionable value. Although the valuation basis was so favourable the four Irish companies did not possess the funds necessary to meet their liabilities and the Government contributed nearly £1,000,000 to make up the deficiency. In spite of this payment, the total funds raised by the amalgamation society were not adequate fully to meet their liability to their policy holders and the staff. That has been represented to me. In order to place the amalgamation company on a really sound basis it is suggested that the Government should have contributed a much larger sum in respect of the Irish companies and that they should have contributed a further sum to increase the funds of the insurance companies to an adequate figure. It is suggested that the funds of the company may be sufficient to meet liabilities to policy holders, but that the staff working for the company are suffering very much in the payment of their salaries and their wages. They claim that they have always been inadequately paid and that at present, when all wage and salary earners are obtaining great increases in their pay to meet the increased cost of living, these employees of a Government-controlled company are being asked to live on their pre-war salaries. It is said that before the war the clerical staff of the company was one of the  most poorly paid in the city. They made application to the Labour Court recently, but the Labour Court refused to make any award in their case. It is said that they are the only employees to whom the court has refused protection of this kind. Since then the company appear to have granted some small increases to the staff, but they are regarded as in no way comparable to the increase in the cost of living.
General Mulcahy: Well, the winding up of my argument will make my argument more clear. I will not be protracted and I think in the interest of the company itself that this is an occasion on which we might——
General Mulcahy: We are asked here to buy from English companies a concern that has certain assets and certain liabilities. We are asked to shoulder the taxpayers of this country with a substantial contingent liability if the policy holders of this company cannot have their policies met.
General Mulcahy: Well, I do not know what we are buying and, if the matter is so obscure as all that, we ought to hear a lot more than what we have heard from the Minister. We are proposing to pay a substantial sum to English part-owners of an Irish assurance company. The Minister regards it as such a valuable property that we are going to pay them 3/- for every one of their 2/- shares. We are buying something, and that something has a certain amount of assets, whatever they are, and a certain amount of liabilities, and we are spending money on it on the understanding that the assets are, and will continue to be, greater, at any rate, than the liabilities. If the liabilities are going to be greater than the assets, we are going to lose not only the money we are giving the Minister power to pay now, but other moneys in the future.
General Mulcahy: I would be very glad to hear the Minister explaining that, but I want to finish my point, and my point is that here you have a company in respect of which we are proposing to pay the English companies a substantial amount of money to clear out and they are not in a position to pay their staffs.
General Mulcahy: Whatever is in this company, we are proposing, through the Minister for Finance, to adopt a certain attitude. It may be the Minister for Finance is turning himself into a director of the company and the position may be reached when we cannot talk about it here or ask any questions about it.
General Mulcahy: I do not know whether the Minister has made the matter any clearer by his intervention; the only thing he has done is, he has shown that there are certain difficulties. So far as I understand it, the Minister is seeking power to pay out State money in order to equip the Minister for Finance to hold as a shareholder in a company that will be controlled to the extent of 72 per cent. or 82 per cent. by the Government. Which is it?
General Mulcahy: What he is going to hold is 90 per cent. in a business that has certain liabilities and certain assets. It has to be carried on, and it is carried on, by a staff. The payment of the staff is a continuing and contingent liability on the company and they have to meet their responsibilities to their policy holders. If the company is not able to pay its staff——
General Mulcahy: If we are setting out to help the Minister to buy an additional substantial interest in a company, we ought to be able to get a broad glance at the balance sheet of the company, and see what their income and expenditure come to annually. Their income annually will come from their policy holders, plus whatever the State gives them, and their outgoings consist of the payments to their policy holders, payments for upkeep, their overhead expenses, and their staffs. If we are to judge by the company's capacity to pay its staff in a suitable way at present, we should not be buying an additional interest in this company.
Mr. Lemass: The Deputy made a number of statements which, I think, should be rectified. So far as the amalgamation agreement made with the British companies is concerned, whether or not it was unduly favourable to these companies, nothing can be done about it now. It was scheduled in the Act of 1938 and approved by the Dáil. It might be no harm to remind the  House that in the case of the British companies it was necessary to conclude an agreement with them. These were companies that were carrying on a profitable business here in accordance with the law and they had agreed to transfer that business to the Industrial and Life Assurance Amalgamation Company on the basis of the terms set out in the document signed and scheduled in the Act passed by the Dáil.
In the case of the Irish companies the position was different. One of the reasons why it was necessary to promote the legislation of 1938 was the precarious financial position of the Irish companies involved in the amalgamation, which threatened not merely to bring Irish insurance business into discredit, but to involve many hundreds of thousands of policy holders in substantial losses. The agreement scheduled in the Act brought in the British companies. The Irish companies were brought in by legislation and the State agreed to make good the deficiency in their assets by subscribing a sum in excess of £1,000,000 to the amalgamation company, so that the amalgamation company would start off with assets corresponding to its liabilities.
There is no basis for the suggestion either that the assets transferred by the British companies were inadequate to cover the liabilities transferred, or that the amalgamation company started off with insufficient assets. The assets transferred by the British companies were in accordance with the agreement and were fully adequate to cover the liabilities. The assets transferred by the Irish companies were insufficient, but the deficiency was made good in full by the contribution from the Exchequer.
The company to which this Bill relates is the amalgamation company. That company is working a closed fund. The servicing of the policies transferred to the company is undertaken on an agency basis by the Irish Assurance Company. We are, by this Bill, empowering the Minister for Finance to acquire a shareholding interest in the amalgamation company. For fear anybody  might be left under the impression, from Deputy Mulcahy's observations, that we are doing more than authorising the issue of £110,000 to buy these shares and placing a contingent liability on the Exchequer, I want to make it quite clear that that is not the case.
These companies are limited liability companies. The liability of the shareholders is limited to their shareholding and there can be no question of a contingent liability on the Exchequer even if a situation arose in which the companies were involved in losses and had insufficient assets to cover their liabilities. There is no immediate prospect that that situation could arise. The Irish Assurance Company is doing a substantial part of the total industrial life business carried on in this country and doing it profitably. The amalgamation company, which is operating the closed fund, has also a very respectable looking balance sheet, and if matters were to proceed as originally contemplated, would ultimately reach a position where it would only have assets and no liabilities on its balance sheet. We may not keep the amalgamation company in existence until that stage is reached. There are obvious advantages and economies to be secured by combining the two companies. That could not have been done up to this because of the fact that the combining of the two companies would have transferred the ownership of the Irish Assurance Company to the British companies which had originally participated in the amalgamation and who, because of their participation in the amalgamation, had become the owners of the majority of the shares of the amalgamation company. At present if the amalgamation company were to be liquidated and its business transferred to the Irish Assurance Company, then it would be the owners of the A shares who would in fact be the owners of the Irish Assurance Company, and they would in the absence of this agreement be mainly the British amalgamating companies. Having bought out the interest of the British offices, the Minister for Finance will control the amalgamation company and through  his control of the amalgamation company will control the Irish Assurance Company. It is, therefore, possible to liquidate the amalgamation company and transfer its business to the Irish Assurance Company without creating a situation under which the principal industrial insurance company in the country would be transferred to outside ownership.
It is necessary to make one thing clear. The value put on the shares of the amalgamation company, 2/- each, was a purely national figure. Any value could have been put on them. These shares do not represent any contribution of capital. There were 2,000,000 tokens created and distributed amongst the amalgamating companies as a means of relating the value of the assets and the goodwill transferred by each of the amalgamating companies in the amalgamation company. We could have called them 10/- shares, £1 shares or £100 shares and it would have meant no difference to the companies. The shares were only a means of determining the relative holding of each of the companies in the amalgamation company. It was decided, in order to keep the value of goodwill at the minimum figure on the company's balance sheet, that the nominal value of the shares should be a low figure. There is no point in relating the nominal value of the shares determined in that manner, to the purchase price to be paid for them. The purchase of the shares at their real value was a matter to be determined by the general position of the company and it is clear that the general position of the company justifies placing upon these shares a higher value than 2/- each. The British companies who own the shares put a very much higher value on them but after a protracted negotiation extending over a number of years, agreement was reached to purchase them at a price of 3/-.
I mentioned in the course of my speech on Second Reading that it was contemplated under the original scheme that these shares would continuously increase in value as the liabilities of the amalgamation company were worked off and the value of  the assets expanded. It was believed at that stage that the value of the shares might rise as high as 15/- each. There have been a number of changes since, changes in the value of money, and many other changes, which affected the operation of insurance companies so that estimates made in 1938 might not relate to present circumstances but it is obvious that the shares in the amalgamation company are worth more than the normal value placed on them originally.
Finally, I want to say this in relation to Deputy Mulcahy's observations concerning matters relating to the staff of the insurance company, that the main aim of the amalgamation was to eliminate a number of flagrant abuses associated with the conduct of industrial life insurance. These flagrant abuses were well known to Deputies and there was a substantial demand from all parts of the House for legislation concerning them. It was believed that by effecting the amalgamation, accomplished in 1938, we could ultimately get rid of abuses and that we could inaugurate a system of administering life insurance business here which would remove the temptation to discreditable practices in the business and also substantially reduce the very high cost of administration which was affecting the value of that type of insurance at the time to the public.
The Irish Assurance Company has not succeeded to the extent that I had hoped in reducing the cost of administration and I certainly do not intend to take any action which would hinder their efforts in that regard. I realise, as the House in 1938 realised, when it placed on the company the obligation to take over all the staffs of the amalgamating companies in this country and employ them, even if it had not sufficient work for them, that we were creating a situation in which for a number of years the company's administration costs would be higher than if that obligation were not placed on the company in the interests of the staff. They could not dispense with the services of an employee of any transferred company except on a basis  of compensation laid down in the Act. They elected to carry over a substantial number of these transferred officers. These officers represent staffs surplus to the company's requirements and the consequence of that position was that the administration costs represent a much higher proportion of the total premium income than should be the case in another insurance business. That situation will rectify itself in time as members of the present staff leave the employment of the company and are not replaced. The aim of the whole legislation was to bring down the cost of administering industrial insurance business from the very high level which it had reached in all companies carrying on that business here before amalgamation. I think I am correct in saying that in some cases the cost of administration was as high as 40 per cent. of the premium income.
Mr. Lemass: It should certainly be possible for the amalgamated company now carrying on this business to bring the cost well below that figure. I know nothing about the condition of the staffs, I have no function in regard to them but the directions given to the company are undoubtedly to get administration costs down to a reasonable proportion of the total premium income. That is done in the interest of policy holders. It is in the interests of policy holders to reduce the expense ratio as low as possible and it is principally with that object that the legislation was brought in.
Mr. D. Morrissey: I find it difficult to follow the Minister's remarks in regard to the shares. He first announced that they were mere tokens, that the value could have been fixed as low as a penny or as high as £100, and that it would make no difference. He now tells us that they are very valuable. If they are mere tokens, if the figure was chosen simply as a notional figure, why have we to add 50 per cent. to it now?
Mr. Lemass: I may explain to the Deputy: we have agreed to purchase these shares at 3/- each because we  think 3/- each is a fair price to pay for them. They would still be worth 3/- each whether their nominal value was 2/- or £200. Three shillings would still be the price to pay for them. There were 2,000,000 shares created that were distributed amongst nine companies in accordance with an agreed scheme, and the number in each case represented the relative value of the assets which each of these companies was transferring. The distribution of the shares as between one company and another had nothing to do with the nominal value. No matter what value was put on them, each company would have got the same number of shares.
Mr. D. Morrissey: That does not get away from the fact that this was a notional figure, that these were merely tokens, that you could have used postage stamps. It was merely a piece of machinery to enable you to set out amongst the various companies their proportion. Personally, I should like very much to have that change from 2/- to 3/- explained a little more fully. I am rather sorry also that the Minister in the course of his explanation did not give a little more information as to the functions that are performed by this amalgamation company. What exactly do they do? If the Minister  had gone into that I think it would be found to have something to do with the servicing of the policies, either directly or through agents.
Mr. D. Morrissey: And, therefore, it has all to do with the staff and with the conditions of the staff because the policies can be serviced only through the services either of the amalgamation company direct or by the Irish Assurance Company as their agents. It seems to me that that is the position and what we want to ask ourselves is, are we in this House justified in voting £110,000, in addition to the £1,000,000 odd which we have already voted? I want to make it quite clear that I was in entire agreement with the voting of that £1,000,000 odd to the insurance companies. It was absolutely essential because, as the Minister has stated, and as was stated at the time the Bill was going through, if the Government of the day had not come to the assistance of the Irish companies at the time, industrial policy holders, and probably other policy holders, would have been blistered. There is no question about that. But we are entitled to ask whether we are justified in buying 90 per cent. of the shares of a company, operating through its own direct agency or acting through an agent appointed by it, in other words, the Irish Insurance Company; whether it is in such a position or its funds are in such a position that it is the one body in this country that can go before a court and say its financial position will not enable it to give anything which the court may feel would be justified. These are questions which are very pertinent and I think quite  relevant to a discussion upon this motion.
It must be understood that if a member of the Government comes before this House and asks the House to give him the power of a Money Resolution, in other words, asks the House to vote any particular sum of money, the House is not only entitled but, in my opinion, is bound to examine and to get information in respect of the company or the purpose for which that money is required, what is going to be spent and whether it is being spent for a useful purpose, whether it is being invested in a sound proposition, or not. So far as I can follow the discussion which followed Deputy Mulcahy's speech, that is merely what was asked of the Minister. The Minister has cleared the position somewhat but I venture to suggest that he has omitted, whether deliberately or not I do not know, to deal with some of the most impertinent—I mean pertinent—points. I suppose that is a slip for which I will be forgiven.
Mr. D. Morrissey: We will have that later on in the day, I am afraid. But, as I say, the Minister has omitted to deal with some of the points which were put and which, in my opinion, should be dealt with and which the Minister, if he is looking under this Resolution for power to invest a sum of £110,000 of the taxpayers' money in the amalgamation company, whatever its functions may be, should answer.
Mr. McCarthy: A point that seems very strange to me in connection with the whole business is that whereas each of these companies, before amalgamation, had important administrative offices in big centres of population, where they carried on a considerable amount of their business, it is now proposed to cut down expenses by amalgamating them in a central depôt in Dublin, with consequent disadvantage to staffs, disturbance of their way of life, and delay in the whole administration of insurance business.
General Mulcahy: I want to help to clear the position. The Minister may be very ingenuous about it but, as I understand him, when we are talking about 3/- we have to forget the 2/- entirely. That 2/- might have been a penny or it might have been sixpence. Is that the position?
General Mulcahy: That is the position the Minister asks us to accept. It is a little bit ingenuous but I want to get clear on it. The next thing is that the Minister, while accepting no responsibility for the running of the company which is doing the agency service for the amalgamation company, rather implies to us that the staff is so large in relation to what the Minister or the company thinks it ought to be, because of the number they took over, that their wages are a bit low.
Mr. Lemass: The Deputy will recollect the discussions we had in 1938. They turned upon the inauguration of an entirely new system of administering industrial life assurance business. Industrial life business was carried on in the past largely on a basis of paying the insurance agent for the new business he succeeded in getting irrespective of the ultimate fate of the policies he inaugurated. It was contemplated that we could eliminate the financial inducement to agents to get people to enter into policies that they could not continue or policies higher than they could afford, by putting them on a salary basis and letting them carry on the administration of the business in much the same way as any other business would be carried on. The reforms which we hoped for were  to follow from the inauguration of a new system of administration, eliminating one that had produced all the abuses to which objection had been held. It was contemplated that that new system of administration would also be less costly and, while I cannot say to what extent the company has progressed in inaugurating the new system, I know that their present system has not represented such a reduction in the cost ratio as we contemplated.
Mr. Lemass: It is true now. Anybody with a bank balance in Great Britain, or shares in Great Britain, can utilise that bank balance or sell his shares for the purpose of paying debts in Great Britain, or anywhere in the sterling area for that matter. There is no attempt to restrict the right to do so and in that sense there is no blocking of sterling.
Mr. McCarthy: Is it not strange that there were four or five administrative officers maintained previously in big cities by these various companies doing remunerative business and that not even one can be maintained now, with the result that the running of this business will be concentrated in one office, that this company will have to enter into competition with other companies still existing and policy holders will have to contend with delay which the policy holders in other companies  maintaining their offices in the various cities will not have to contend with?
Mr. Lemass: I cannot discuss the company's system of administration. The closing down of a number of sepacate offices was, of course, the inevitable consequence of the amalgamation. It was designed to achieve that result, because not only were some companies going bankrupt in the conditions existing, but the whole cost of industrial assurance was made unduly high. The aim of the legislation was to improve the position of the policy holders. It is the policy holders with whom the Government are concerned. It is to increase their security and enable them to get the same assurance cover at a lower cost that the legislation was designed. As to whether the company is making a wise decision or not and whether the administration has improved the position, I can offer no opinion.
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