I move: "That the Bill be now read a Second Time."
It is somewhat unusual for a Minister for Finance to introduce an Insurance Bill. However, as the Bill is connected with the restructuring of Irish Life Assurance plc, it is appropriate that I should do so instead of the Minister for Industry and Commerce who has the more general responsibility for insurance matters and the supervision of insurance companies. Nonetheless, an important part of the restructuring will come within the purview of the Minister for Industry and Commerce in his capacity as insurance supervisor. I will return to this point in a moment.
The Bill does not deal with all aspects of the restructuring of the company. It is not necessary that it should do so. The primary function of this legislation is to enable the restructuring to take place and to allow the Minister to fulfil his part in the process.
A new corporate structure will be put in place in order to implement the proposed restructuring of Irish Life. This involves the setting up of a holding company for Irish Life, referred to as Holdco, and the creation of a sister company to which the business of Irish Life will be transferred. Irish Life will eventually be wound up. The Minister and the other shareholders in Irish Life will exchange their shares for an equivalent shareholding in the new parent company, Holdco. There will be provisions in the Articles of Association of the new companies allowing for a more realistic dividend to be paid to shareholders necessary for capital expansion.
The approval of the courts in Ireland and the UK is necessary for the transfer of business of Irish Life of Newco. The courts will have to be satisfied that the rights of existing policyholders are not being diminished and will have before them a detailed scheme for transferring the business, which will be drawn up by the actuary of Irish Life, and reported on by an independent actuary. The object of this scheme will be to ensure that the interests of policyholders are not compromised by the restructuring. The insurance regulatory authorities in the UK and Ireland will also be consulted in the restructuring process.
Before going into detail on the mechanics of the matter and the provisions of this Bill, it is essential to outline the background to the proposed restructuring and the complex issues involved.
Firstly, it is necessary to describe the current position of Irish Life and to look back to the origins of the company. This is important when considering the future of the company after restructuring. Irish Life are of major commercial importance not only in their own right but to the very many people in this country and elsewhere whose savings and pension provisions are under their control.
In the past 20 years Irish Life have grown at very rapid rate and have become the main life assurance company in the State with almost 40 per cent of the market. Total funds and reserves at end-1989 amounted to £4.5 billion. The company operate in Ireland and the UK and have expanded into the US markets.
The Minister for Finance owns 90.25 per cent of the shares of the company. The remaining shares are held by Irish Life's own staff pension fund, 5 per cent and a variety of private shareholders. The present status of Irish Life as a Stateowned company arises from the insolvency of several small life assurance companies in the 'thirties. The Minister for Finance, on behalf of the Government, contributed just over £1 million in 1938 to making good the deficiencies in the funds of the insolvent assurers. The Minister for Finance subsequently acquired a controlling interest in the company now known as Irish Life Assurance plc.
The ownership of the company came about through historical accident. It was not a conscious decision to nationalise life insurance in the State but rather an ad hoc solution to a problem of an insurance insolvency. We have seen such arrangements recently in the insurance field. In both cases, however, the ongoing business of the companies was transferred back to the private sector within a relatively short period.
Irish Life have remained in State hands but have been run with the minimum of State involvement. The company have operated for all intents and purposes as an insurance company like any other. They are not guaranteed by the State in any way and look to their own resources to meet the statutory EC solvency requirements applicable to all life insurers. The company have never had to rely on State funding since their inception.
I find it necessary to underline these facts to assure those who feel that a change in the State's shareholding will in some way affect the security of policyholders. It will not. I say it also to counteract those who might argue that Irish Life are a company controlled by the State whose investment policy can be directed by the State for particular policy reasons. They are not. We are dealing with a financial institution in State ownership which can easily, and, it will be argued, can more readily be run without the need for a majority State holding.
Irish Life have been a remarkable success due to the efforts of their staff, but it is not sufficient to rely on this past success. We must look to the future of the company. The Government believe that the company must develop as an Irish-based international financial services company specialising in long-term insurance and savings. Key elements in achieving this strategy have been the continued development of the Irish and UK business, the acquisition of a US life insurance company and the development of links with other EC life insurers.
There is, however, a crucial impediment to implementing this strategy. Under the present corporate arrangements, profits are largely locked in and cannot be distributed to shareholders. Expansion is, therefore, limited by the level of retained profits and reserves. While a capital injection is not an immediate, or short-term need, access to capital will be vital in the future. The development of new markets takes careful planning. To undertake this expansion, the company must be secure in the knowledge that they can raise the capital as required.
To overcome these difficulties, Irish Life put forward proposals for restructuring which would make it more attractive for investors to provide additional capital. This restructuring would also allow the sale at a realistic price of part of the State holding. The Government agreed in July 1988 that Irish Life should be restructured to facilitate their development as an Irish-based institution in the financial services area.
The Government also decided to appoint a team of consultants to examine the particular proposals put forward by the company and to review the options open to the Government in relation to the State's shareholding in the company after restructuring.
The consultants examined the operations of Irish Life and identified the strategic options available to the company in developing into international markets. The consultants pointed out that Irish Life are competing across a broad spectrum of financial products with other major international insurance companies and the life assurance arms of the domestic banking groups. As quoted companies, many of Irish Life's competitors have access to very substantial resources throughout the entire range of debt and equity markets in order to fund expansion at home and abroad. The consultants confirmed that the company's capacity to do so is limited and that access to equity markets for new capital was a key element of any viable competitive strategy for the company.
Having examined the scheme put forward by Irish Life, the consultants agreed that it represented the best practical solution to the problems outlined above. The consultants put forward a number of options for the State holding in the company. All of these involved the sale of the majority of the State's shares and one option proposed a complete sale of the State's shareholding in the company.
The Government considered the consultants' reports. I met the main union representing the staff of Irish Life and the Irish Congress of Trade Unions. I listened carefully to their views and concerns particularly as regards employment. I had discussions with the chairman and the managing director of the company and received clear assurances on employment. I should point out that Irish Life have consistently expanded their work force in the past ten years and I have every reason to believe that with restructuring they can continue to do so.
Having examined the options for the development of the company, I announced last March that the Government had decided that the restructuring should proceed and that the State's holding should be redused from 90 per cent to 34 per cent through a sale involving a public flotation of the company's shares. This will mean that the State will no longer have majority control but will retain a substantial shareholder interest in the development of the company. This holding will be maintained for the foreseeable future but it will always be open to the Government to consider the size of their holding from time to time in the interests of the company and the wider public interest generally.
This decision represents a fundamental change in the status of the company, a change from State control to a more widely diffused ownership. From a general viewpoint, there is no overriding reason why the State should own a life assurance company. The arguments which are normally used to justify State involvement — i.e. the existence of a natural monopoly, the absence of potential private investment capital, and overriding social and strategic interests — do not apply in this case.
The returns which the State has earned by way of dividends from the company are very small e.g. £440,000 in 1989. A sale of the Minister's shareholding following a capital restructuring will yield a significant capital gain which can be used to benefit the Exchequer. Furthermore, the retention of even a small share of the restructured company can be expected to yield an annual return in dividends which will easily exceed those received from the 90 per cent holding in the present company. Disposal of the Minister's shareholding and the consequential freeing of the company to raise additional private sector share capital will provide the Irish public with an opportunity to invest directly in a successful Irish company.
The Government acknowledge the importance of Irish Life and the investments they control. It is essential that Irish Life should retain their Irish ethos and their local base. To maintain this ethos and to avoid unwelcome takeover of the company, provisions will be included in the memorandum and articles of the new holding company to limit the percentage of shares to be held by any one private shareholder, or consortium of shareholders, to not more than 15 per cent of the total share capital. A special share will be held by the Minister for Finance to enforce this limitation and the arrangement will continue in place for at least five years after floatation. The company are in favour of this arrangement which I believe will be generally welcomed. This special, or golden, share arrangement will reinforce the interest being retained through the 34 per cent holding. As Deputies will know, such special shares are a common feature of sales of State assets in other countries.
I believe that the Government decision in relation to Irish Life is a balanced and reasoned response to the needs of the company. We must build on the strengths of the successful firms here in developing the economy. I am convinced that the plans now being made by Irish Life will not only protect the company's position and that of their staff, but will lay the foundations of continued success and expansion. We will need to reply on the skills and expertise of companies such as Irish Life to ensure that the fullest advantage can be taken of 1992 and the opening up of financial markets in the Community.
I know that the staff of the company wish to participate in and facilitate this success. The union representatives have expressed to me a desire for employee share schemes and I will be anxious to address this aspect in planning the flotation. There are many difficult tasks for both staff and management. It will be important for the company to develop their management skills further to take advantage of the opportunities afforded through flotation. This will be the key role of the new chairman-designate of Holdco, a task which I am confident will be undertaken with efficiency and effectiveness.
The restructuring of the company will be a complex process and, together with the flotation, will take up to 12 months or more to complete. It will involve considerable devotion of resources by the company and within my Department. I will be appointing financial advisers to assist in the sale of the shares on the State's behalf, to plan and carry out all the necessary and detailed preparations for this sale, and to advise on the pricing and method of sale to be employed. For their part, the company will be assisted by advisers on the restructuring and the preparation of the various financial statements and prospectus required from the company in connection with the flotation.
I am hopeful that we will see in 1991 Irish Life successfully launched on this new and dynamic phase of their commercial life. I am hopeful also that the flotation will yield a significant return to the Exchequer. It would be inappropriate for me to speculate on the value that will be realised, for reasons I need not explain. The value of the shares will be ultimately determined by the market conditions at the time of flotation.
I now turn to the particular provisions of the Bill. Although the essential element of the Bill is to enable the Minister to acquire shares in Holdco, the opportunity is also being taken to clarify certain other matters of direct bearing on the restructuring of the company. Section 1 is the usual definitions section and calls for no particular comment.
Section 2 allows the Minister to exchange his shares in Irish Life for shares in the new holding company and to acquire by purchase, capitalisation, issue or otherwise any further share or shares in the holding company. The Minister may hold the shares or dispose off these by sale, exchange or otherwise as he sees fit. If it is necessary to acquire shares at any stage the moneys will be advanced out of the Central Fund. Any dividends and other moneys and the proceeds of the sale of shares of the holding company must be paid into or disposed of for the benefit of the Exchequer. Section 3 provides that the Minister may exercise all their rights attaching to his shares in the holding company including, where applicable, the exercise of those rights by attorney or proxy.
Section 4 deals with the allotment of shares and empowers the Minister to appoint nominees and to transfer shares to such nominees to act on his behalf. The section sets out the rights and duties of nominees and the power of the Minister to issue directions.
Section 5 to 8 deal with matters arising from the transfer of Irish Life's business to their new sister company, Newco. The overall purpose of the sections is to ensure a smooth transition from one operating company to another once the insurance business is transferred by the court order. The new company must be able to continue the normal day-to-day operations of Irish Life without interruption.
Section 5 provides that the court order requiring or approving the transfer of property from Irish Life to Newco or any deed or agreement made under that order need not be registered under the acts relating to the registration of deeds or title or under the Companies Acts. This will remove the need for the title to properties to be re-registered individually.
Section 6 provides that every person who was an employee of Irish Life immediately before the date of transfer of the business from Irish Life to Newco will become an employee of Newco on the same terms and conditions. The section also provides for the transfer of pension and superannuation rights and gives effect to certain changes in pension schemes introduced by Irish Life in 1979 as if those changes had been registered at the time under the Perpetual Funds (Registration) Act, 1933. Existing pensioners of Irish Life will transfer to the new scheme in Newco without any loss of benefits or rights.
Section 7 permits the new company to act in place for Irish Life as trustee, or in any other fiduciary capacity, in regard to any trust, settlement, covenant or agreement that empowers Irish Life Assurance plc to do so. Section 8 grants relief from stamp duty on any agreement, transfer, conveyance, assignment or lease whereby the business is transferred to Newco and provides that stamp duty shall not be charged on the vesting of property in Newco by order of the court. This relief is a common feature of group reconstructions.
Section 9 is new and is of general application to life assurance companies. It will enable a life assurer to hold up to 10 per cent of the shares of their parent company on behalf of their policyholders, provided that the shares in question are listed on a recognised stock exchange. The Minister for Industry and Commerce may vary the percentage by order and impose prudential requirements on life assurers covered by this section.
While Irish Life are not the sole beneficiary of this section, it will be of particular importance to the company. After restructuring and flotation, Holdco will be one of the largest companies listed on the Irish Stock Exchange. Other life assurance companies in the State will be entitled to invest in the shares of Holdco on behalf of their policyholders but, under present law which prevents a subsidiary having shares in its parent, Newco will be unable to do so. This would place Newco at a disadvantage compared with their competitors for investment business in the State. The consultants who advised the Minister on the restructuring of Irish Life recommended that this anomaly should be removed to enhance the value of the company on flotation.
Section 10 provides for the repeal by order of the Insurance Acts dealing with Irish Life Assurance plc. Once the restructuring is completed, Irish Life will be wound up and these Acts will no longer be applicable. Given that the full restructuring can only be put into effect after court approval, the repeals will take place on such dates and to such extent as may be specified in the orders. Section 11 deals with the laying of orders before the Houses of the Oireachtas. The orders will come into effect immediately but may be annulled by either House within 21 sitting days. Section 12 contains the usual citation and commencement provisions. The Act will come into operation on such day or days to be fixed by order of the Minister.
The Oireachtas Joint Committee on Commercial State-sponsored Bodies considered the restructuring and flotation of Irish Life in their comprehensive and detailed report on the company in 1988. I believe that it is fair to say that the committee, generally, listened sympathetically to the case being made by the company for restructuring and flotation. It was clear that all the Members of the committee had a high regard for the company as an example of a successful Irish enterprise and were keenly interested to see that success continue. I feel sure that Deputies here today will express similar sentiments of goodwill toward the company.
I know that the House will be eager to act in the best interests of the company and pass this legislation. I have taken some time to explain the background and need for the changes being proposed. I hope that Deputies will respond in a positive manner.
I recommend the Bill to the House.