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.
