Deputy Flynn has been given permission to raise on the Adjournment the subject matter of a Private Notice Question on the Insurance Corporation of Ireland. The Deputy has 20 minutes.
Adjournment Debate. - Insurance Corporation of Ireland.
I should like to take the opportunity of asking you to convey to the Ceann Comhairle my thanks for allowing me to raise this very important matter on the Adjournment, the subject matter of which is the administrator's report of last weekend following the collapse of ICI, the question of the administrator's workload and the results to date of his appointment.
We are asking the Minister for Industry and Commerce if, in view of the very great public concern at the continued escalation of losses as announced by the administrator of the Insurance Corporation of Ireland, which are very many times above the original estimate given by the Government last year, he will state, first, the final figure for the losses of ICI; secondly, how he proposes that they should be financed without recourse to the taxpayer and without imposing further burdens on insurance policy holders, who in recent years have paid large increases in premiums far in excess of the rate of inflation; thirdly, that he will reaffirm the Government's guarantee given in March last year that no financial burden would be placed on either the Exchequer or the taxpayer in support of these losses.
We regard the whole question of the ICI debacle as a major loss of Government credibility. It seems that the Government are either unwilling or unable to assess the damage following the ICI collapse. It is only when one takes a casual look at the Official Report of Dáil Éireann last year, when the matter was discussed on the introduction of the emergency legislation, that one realises how much out of touch the Government were at that time and perhaps still are with the real situation in ICI. I refer to Minister Bruton's statement in the House on 27 March 1985 that it would take the administrator about six weeks to clarify matters in so far as the losses of ICI were concerned. He also said that the 1984 losses would be at least £65 million, resulting in a minimum deficit of £25 million for the year in shareholders' funds. He also stated, at column 700 on the same date, that the losses would be in the region of £50 million and perhaps up to £120 million. However, he was very careful to say that the £120 million was the absolute upper limit and that he did not in any way believe that that would be the most likely figure. How mistaken the Minister was on that occasion.
The Minister for Finance at the time, Deputy Dukes, speaking on 28 March 1985, gave an undertaking that the Government would assess the situation again not later than 31 December 1985. At column 1044 of the Official Report he stated that the Central Bank had considered the problem and decided to provide sufficient funding, in conjunction with the banking system, up to the figure as outlined by Minister Bruton. It is in connection with that sentence that I must ask the Minister for some clarification. On that occasion Minister Dukes stated that the money that would be made available would accommodate only losses up to the maximum figure of £120 million as suggested the previous day by Minister Bruton. Minister Dukes also explained at that time that the Exchequer would not now be involved in funding the administration of ICI.
I now put it to Minister Noonan that if Minister Dukes was accurate on that occasion then surely somebody must have to find the extra money now necessary to meet the additional losses as announced by administrator McCann. Minister Dukes on that occasion also stated that the £70 million, made up of £50 million of soft loans and the £20 million made available by AIB, would provide ample funds for the foreseeable funding requirements of the administrator. I have to put it to the Minister that that £70 million does not meet the needs of the administrator at this time and somebody will have to clarify the source of the extra funding.
My last reference puts the matter in perspective in so far as Minister Bruton was concerned on 27 March 1985, as reported at column 700. He stated then that the administrator would be funded by the compensation fund, Allied Irish Banks, banking and insurance generally and, only as a last resort, the Exchequer. Since the moneys provided at that time do not now meet the requirements of the administrator in funding the losses as announced last weekend, I am of the opinion that it will fall back to Minister Bruton's statement that as a last resort the Exchequer would have to come to the rescue of ICI. Certainly, that would be contrary to his firm guarantee to the country that taxpayers and the Exchequer would not be involved further.
What we heard last weekend is just a further instalment of the shock treatment meted out to the general public in the past few years as far as ICI business is concerned. One must agree that the general public were in some awe at the figure of £340 million for the losses accumulated. They find it extraordinary that these losses could come about in a few short years without somebody knowing what was going on, whether it was the accountancy firms, the involved banks or, more importantly, the monitoring and supervision of the Department that fell down on the job. The general public do not understand how that could come about with all the experts involved over a long number of years.
Does this loss figure of £340 million represent the final and absolute amount that will be involved in ICI losses? Even if all the reinsurers who are talked about were to welch on their contracts, will that figure of £340 million still stand? Is it true to say that that is not yet the realistic final figure as far as ICI losses are concerned? One must bear in mind the administrator's reference to the 1983 accounting figures. He was not satisfied that they represented a true and accurate statement of the financial position of accounts for the year 1983. If that is the case, there is certainly flexibility in the wording as used last weekend, which can only mean that, should it happen that the 1983 figures are proved not to be a true and accurate statement of the financial position at that date, then the £340 million will be breached and perhaps the £500 million spoken of here and in London might yet be the accurate figure.
It can be fairly stated that the general public could be excused for being somewhat doubtful and sceptical about the figures now put forward by the administrator. He was appointed on 15 March 1985 and it has taken him some 15 months to unravel the mess in ICI. The interim report stated quite clearly that the deficit would be perhaps £164 million up to December 1984. Now we are told that the figure is £226 million at end of December 1985. I take it that that latter figure is dependent on the accuracy of the balance sheet of December 1983, on which the administrator cast some doubt when answering questions on the matter last weekend. What is the current involvement of the ICI in insurance underwriting in this country at this time? Have they closed down the London office, which was to a large extent responsible for the major losses inflicted on the insurance industry? Have the binding authorities and contracts been terminated in that London office, or are we still writing contracts in the London office? How much of the total premium being written by the ICI now comes from the London source? Is it ICI's intention to finally close that London office? We all know that ICI had and still have a significant portion of the public liability and the employer liability market in Ireland. The Irish office of ICI was not a major lossmaker at the time of the collapse. I hope we are not penalising those who are taking contracts under PL and EL with the ICI today in the hope that the poor Irish long-suffering employer and businessman is helping to restore the solvency more than he should have to.
The question of reinsurers has again come under very close scrutiny. It is obvious to everybody that many of the reinsurers with which ICI were involved are in a very weak financial position. Are the ICI still using those reinsurers in their business efforts? If they are, we can only presume that there will be very substantial losses many years from now. It is quite laudable for the administrator to chase them through the courts. Perhaps the Minister would indicate to them that there is not much point in chasing them through the courts just to get a pyrrhic victory if they do not have the resources to meet the claims by ICI. A victory in those circumstances would be very poor consolation indeed.
The new auditors of ICI have stated that the deficit will be about £226 million based on the probable financial outcome. I regard that kind of language as being indicative that they are not yet satisfied as to what the final result and losses of ICI will be. Consequently, it must be assumed that they are unable to assess whether the company's provisions have in fact been understated or overstated. The Minister owes it to the general public to finally clear up this matter. Is there still a grey area involved in so far as the final outcome of losses are concerned? The administrator went on record as saying that he is not satisfied with the 1983 accounts. If that is the case, it will take some time to reflect all this in the true financial position. That being the case it can only lead the general public to believe that this is no more than a further interim statement on behalf of the Government's appointed administrator.
In so far as the funding of ICI is concerned, the £100 million that has been made available to it from the compensation fund has been borrowed at a very preferential rate of 2 per cent. Can this position continue when one considers the strains and the demands being made on the compensation funds, not just by the ICI but also by the PMPA, the other lossmaker in so far as insurance is concerned and which was the subject of emergency legislation in this House? What resources has the fund available to it? Who is going to give the guarantee that that fund will be maintained and that continued large injections of cash will be given to these ailing companies? If the guarantee is being provided by the Government there must be some cost to the Exchequer. That is contrary to the guarantee given by both the Minister for Finance and his predecessor in March last year.
It is now stated that the outstanding claims of ICI are in the region of £440 million. I would like to ask the Minister if he is satisfied that the administrator has enough cash flow and investment income to met this kind of demand? If not, where will the extra money come from? Has he a guarantee from the Central Bank and the other financial institutions that they are prepared to continue financing, whether by soft loans or commercial loans, all the necessary moneys that will be needed by the administrator to meet his obligations?
There was no reference last weekend to two very important matters. The Minister, as the guardian of the office which controls, monitors and supervises insurance companies, owes it to the country to answer those two questions this evening. There is no talk about what the administrator's expense and costs will be. It is not adequate for the administrator to say that they are just lumped into the general expenses. For the Minister to say that the administrator's expenses are irrelevant is not satisfactory as the expenditure of such moneys will eventually have to be met by the Exchequer or by the policyholders. The Minister should at least give an indication as to the likely outcome of the administrator's costs and expenses. There should be a costing done on the legal fees that will be involved. Following up reinsurers in international courts and taking court actions against thousands of people is a very expensive process. We are at least entitled to know the legal costs and the administrator's costs. Otherwise it is nonsense coming into this House and asking the Dáil to give permission to appoint administrators under emergency legislation without at least having some control over the cheque book which is being used on our behalf.
We all want to see ICI, as a major insurer, return to solvency. That is very important for business, for commercial interests and for all the policyholders concerned. We support the efforts being taken by the administrator to achieve the desired aim of returning this company to solvency. There must be some accountability to this House following the emergency legislation of March 1985. As of this date, there is no accountability on several crucial issues. The Minister should remove our anxiety in so far as these matters are concerned. The questions of administration costs, legal fees, the final figure, whether there is still a grey area and of whether the guarantee that the Irish taxpayer will be in no way involved in funding the losses of ICI should be addressed. There is major public concern in so far as the whole debacle is concerned. We want the Minister to give a categorical reassurance this evening that we have heard the last miserable statistic in so far as ICI are concerned and that the fears that have been generated by some of the ambiguous terms and phrases used in the weekend press reports do not have any substance.
Limerick East): I am surprised that the Deputy should deem it necessary to raise this issue in these circumstances, given that all the information he has sought was already provided in the Government Information Services statement issued on my behalf on Friday last, 6 June. In that statement, I noted that the audited accounts for the Insurance Corporation of Ireland for the two years to 31 December 1985 showed a deficit of £226 million in the balance sheet at end 1985. The figure is greater than was expected, but it is significantly below that predicted by many financial and political commentators.
The initial estimate mentioned in March 1985 preceded the appointment of the administrator. The figure announced in July 1985 was arrived at by the administrator after a short time within the company and was based on the best accounting, actuarial and legal advice available at that time.
Since then the administrator has had a special project team examining individually all of the policies written by the company both at home and abroad. The findings of this team were examined by independent actuarial and legal experts. The accounts for the two year period to 31 December 1985 prepared by the administrator on foot of those exercises were then subjected to close scrutiny by the auditors. The result is the new deficit figure of £226 million announced by the administrator last Friday.
In my press release last Friday, I acknowledged the current profitable trading position of the company as a result of the steps taken by the administrator and the staff of the company, and the support given to them by the Government. I also stated that the deficit could be carried by the company until, as is noted by the administrator in his report, they attracted new capital following a track record of profitability.
As the House is aware, the Government decision to place the company in administration in 1985 was to avoid a direct and immediate threat to the stability of a leading bank and, by extension, the banking system as a whole and to protect jobs by continuing insurance cover. That decision was subsequently supported by all parties in the House.
The financing arrangements for the administration announced by the Central Bank on 4 October last made it clear that the cost of those arrangements would be borne by the banking sector. In my statement of last Friday I made it clear that, if any further funds were required in the medium term to finance working capital, these would be arranged on the basis of commercial borrowing, the cost of which would be serviced by the company. Accordingly, no cost will fall on the taxpayer either from the earlier arrangements or from any such future arrangement that might be necessary and which would simply be a facility to meet any cash need if and when it arose.
I would now like, for the record, to refer to my statement of 6 June 1986 on the publication of the Insurance Corporation's accounts for the two years to 31 December 1985. In that statement, I mentioned that the report of the administrator published with the accounts indicated that the company are already trading more profitably than originally anticipated. I noted that the audited accounts showed a deficit in the balance sheet at end 1985 of £226 million. This deficit can be carried by the company until, as is noted by the administrator in his report, they attract new capital following a track record of profitability.
I also noted that the balance sheet showed short term deposits and cash totalling £173 million at December 1985, an advance of £100 million having been received from the banking sector in 1985, and stated that if further funds were required in the medium term to finance working capital, these would be arranged on the basis of commercial borrowing, the cost of which would be serviced by the company. I pointed out that no cost would fall on the taxpayer from such an arrangement which would simply be a facility to meet any cash need if and when it arises.
I acknowledged the current profitable trading position of the company as a result of the steps taken by the administrator and staff of the company, and the support given to them by the Government. The Government decision to place the company in administration in 1985 was to avoid a direct and immediate threat to the stability of a leading bank and, by extension, the banking system as a whole, and to protect jobs by continuing insurance cover.
The Insurance Corporation's continued trading should benefit from the generally improved underwriting environment now existing. The combined effects of measures in relation to safety, the drop in inflation which will put a brake on claims costs, and the planned change in the jury system should improve the trading position of insurers generally and so benefit insurance policyholders.
I would now like to summarise the background to the placing of ICI under administration, the reasons for the action taken by the Government, the main developments since March 1985 and the progress of the administration to date. As Deputies are aware, ICI were acquired for a nominal sum from AIB on 15 March 1985 by a company controlled by the Minister for Industry and Commerce. ICI were subsequently on the same day placed under administration by order of the High Court. As Deputy Flynn knows, the administrator when it comes to expenses or costs will be approved by the High Court because he is an officer of the court. The arrangements made by the Government in March 1985 prevented developments that would have been seriously disruptive in both the insurance and banking sectors, and potentially in an even wider national context.
The collapse of ICI would have led to immediate job losses in commerce and in industry, because of lack of insurance cover. The company were the biggest single underwriter in the country of employers liability insurance, accounting for up to 25 per cent including that of many commercial and semi-State bodies. Allowing the company to be liquidated would have removed all cover on policies issued by them, and transferred the Irish underwriting liabilities of the company to the insurance compensation fund, and hence to insurance policyholders, at a cost well in excess of £150 million alone, if the company had been liquidated on the insurance side. In addition, the problems for policyholders of arranging new cover and the ensuing disruption of production would have placed a considerable strain on the economy.
Above all, the fact that ICI were owned by the country's largest bank created gave dangers for the banking sector as well. It was difficult for my predecessor in office to state it in categoric terms but the firm advice of the Central Bank was that it was imperative that ICI should not be put into liquidation, receivership or any form of special administration while in the ownership of AIB. These developments threatened to destabilise the banking sector, the economy generally and, perhaps, even the standing of the national currency.
The Central Bank's advice was that the collapse of ICI would have involved substantial dangers to the banking system since it would have been perceived internationally as a default by Ireland's major bank, which had by then suffered the loss of the £85 million which it had invested in the company. There were also possibilities of these problems leading to a major run on Irish banks and calls on their depositors and customers. It was unlikely that the damage could have been confined to that. This, and the other factors mentioned earlier, could have meant hardship for literally every family in the country.
The prompt and effective action by the Government maintained confidence in the financial and insurance sectors, and in the economy generally. While it was possible at the time these events occurred to spell out in detail the effects of removing from cover 25 per cent of those covered in the country and the consequent loss of jobs, it was not possible at the time for obvious reasons to spell out the threat to the AIB and the banking system generally. We are now in a position to spell it out.
That is accepted.
(Limerick East): All Deputies in this House will realise that the prompt action which was taken by the Government with the support of the Opposition was one of the crucial decisions which was made in the economy in recent years and it protected the banking system from a very serious threat. The initial assessment by the administrator quantified the balance sheet deficit of ICI at £164 million. What he has now produced is £226 million. The auditor's certificate raised no fundamental qualification or reservation about these estimates. If as a result of this balance sheet deficit there is a cash flow problem as the year goes on or into next year, my advice is that the administrator will have no difficulty in raising a loan at a commercial rate to finance any cash flow problem which might arise. In the meantime he has trimmed down the company, as everybody knows and it is in the statements. He has sold off the parts which were trading unprofitably. For example, London is still doing business but the business is down from £200 million, as it was last year, to £10 million in 1986. Therefore, there is a huge drop in the amount of business which is being written in London. As the Deputy knows, other offices have been closed down.
Is the 1983 figure accurate?
(Limerick East): All in all, we have a company that is now trading profitably. There is a balance sheet deficit. If there is a cash flow problem, the administrator and those who advise him and I are confident that he can arrange a facility to take him through any cash flow problems there may be. No demand would be made on the taxpayer.
The Minister has dodged all the questions I asked.
(Limerick East): Consequently, by good action of the Government a very serious crisis has been avoided. We are now in a position——
The Minister has dodged the critical questions.
(Limerick East): We have not dodged the critical questions. We are now in a position to say that the administrator——
The Minister is adding to the doubts by not clearing up the questions.
(Limerick East):——is doing a successful job.
We accept that.
(Limerick East): The auditors are able to sign a £226 million——
What about 1983?
(Limerick East): It is a very satisfactory situation at present.
The Minister has not answered the questions and the doubts still pertain.
The Dáil adjourned at 9 p.m. until 10.30 a.m. on Wednesday, 11 June 1986.