The primary purpose of the Bill is to enable the restructuring of Irish Life Assurance plc to take place and to empower the Minister for Finance to become and act as a shareholder in the successor holding company. The Bill is necessary to give effect to the Government's decision that Irish Life should be restructured into an Irish-based international financial services company in the insurance field and that there should be a reduction in the State holding in the company. The Bill does not provide for the carrying out of the restructuring. The mechanics of this process are already provided for in company and insurance law.
The Minister for Industry and Commerce has a general responsibility for insurance matters. In the normal course one would expect that an insurance Bill would be introduced by him. However, given the nature and purpose of the Bill, it is more appropriate that the Minister for Finance should do so. The Minister for Industry and Commerce of course, will have an important role to play in the process, because of his functions as supervisor of the insurance industry.
The proposed restructuring envisages the creation of a holding company for Irish Life, which I shall refer to as Holdco. The Minister, and the other shareholders in Irish Life, will exchange their shares in Irish Life for an equivalent holding in Holdco. Holdco, as the new owners of Irish Life, will arrange for the transfer of the business of Irish Life to a new operating company "Newco". There will be provisions in the articles of association of both new companies allowing for a more realistic dividend payment to shareholders. This will enable Holdco to raise additional capital for the expansion and extension of their group business.
The transfer of business from Irish Life to Newco will require the approval of the courts in Ireland and the United Kingdom under the Assurance Companies Act, 1909. The courts will be presented with a detailed scheme for the transfer of the business, which will be drawn up by the actuary of Irish Life and reported on by an independent actuary. The purpose of this scheme is to establish that the rights of existing policyholders are not diminished under the transfer. The insurance regulatory authorities in the United Kingdom and Ireland must also be consulted beforehand. Details of the scheme will be made available to policyholders. The whole process will be open and all relevant interests will be consulted.
Much of the focus of the debate on this Bill, however, concerns the role of the State as the shareholder. The origins of the company and its current position are, of course, important when considering the future of the State holding. The present ownership structure of Irish Life arises from the insolvency of several small life companies in the 1930s. Those companies came together by agreement and in 1938 the Minister for Finance, on behalf of the Government, contributed £1 million to making good the deficit in the funds. The Minister acquired a substantial minority interest in the resultant company. In 1947 he bought out the other UK shareholders in the company and acquired his controlling interest. The State now holds 90.25 per cent of the shares in the company, and the remainder is held by Irish Life's own staff pension fund 5 per cent and a variety of private shareholders.
The obvious implication from the history of the company is that majority ownership of the company did not come about as a result of a policy decision to nationalise life assurance in the State. It is necessary to say this as we must approach this matter on a practical and pragmatic basis and not on the ideological grounds of the benefits or otherwise of State ownership.
Despite the State's majority holding, Irish Life has been run with the minimum of State involvement. The company has operated in the same way as other life assurance companies. Apart from the initial capital injection in 1938, the company has never received State funding or subsidies, nor has the State provided a guarantee in respect of policyholders' funds.
Irish Life has grown at a very rapid rate in the past 20 years, and is now the main life assurance company in the State with almost 40 per cent of the market. The company has also extended into the UK and US markets, and is actively examining other opportunities for expansion. The premium income of Irish Life in 1989 was £598 million, 83 per cent of this arose from business in the State, 13 per cent from the UK and 4 per cent from the USA. Assets were £4.6 billion of which 30 per cent were invested in gilts and other securities, 41 per cent in equities, 10 per cent in property and 14 per cent in cash and deposits. There were 1,914 employees of the ILAC group, 1,612 in Ireland, 205 in the UK and 97 in the USA. The corresponding figure in 1988 was 1,853. The company's investment income in 1989 was £207 million and its investment reserve £528 million. Both investment income and reserves grew substantially in 1989 by 23 per cent and 40 per cent, respectively.
The future security of policyholders' funds will continue to depend on the company's ability to invest those funds profitably, and its ability to maintain a satisfactory level of reserves in excess of its statutory solvency margin. These solvency requirements are applicable to all life assurance companies and are prescribed by regulations based on EC directives. Irish Life looks to its own reserves to meet the solvency rules.
To date, Irish Life has managed to finance its expansion from its own resources. However, the company cannot continue to rely indefinitely on this mechanism for future expansion and development. The exploitation of new markets takes careful planning and considerable financial commitment. When a company proposes to establish a new business or subsidiary it must have sufficient resources to cushion its liability to its present and future policyholders and to establish a new entity on a similar prudential basis. These resources have to come from somewhere other than policyholders. The obvious sources are investors and retained profits. If the company is to undertake this expansion it must be secure in the knowledge that it can raise the capital necessary when required.
At present, there is a major impediment to the raising of share capital by the company. Under the current corporate arrangements, profits are largely locked in and cannot be distributed to shareholders. The removal of this inhibition is, therefore, critical to the expansion and development of the company. The options in this regard were considered by the company and proposals were put forward by Irish Life for restructuring which would make it more attractive for investors to provide additional capital. These proposals also allowed for the sale at a realistic price of part of the State's shareholding. In July 1988 the Government agreed that Irish Life should be restructured to enable it to develop into an Irish based international financial services firm. It was also decided to appoint consultants to examine the proposals for restructuring put forward by the company. The consultants were asked to examine the options for the State's shareholding after restructuring.
The consultants carried out a detailed examination of the operations of Irish Life, the strategic options available to it, and the restructuring scheme put forward by the company. They found that Irish Life is competing across a broad range of financial markets with a variety of major insurance and other financial companies. Many of its competitors have access to very substantial resources throughout the entire range of debt and equity markets, either directly or through their parent companies. The consultants found that Irish Life's capacity to compete effectively in various markets is restricted by its present capital structure and State ownership. Access to equity markets for new capital would be a key element in any viable competitive strategy. They agreed that the scheme put forward by Irish Life offered the best practical solution to this problem.
The consultants also examined a range of options for the future of the State holding in the company. It was clear from this examination that the optimum benefit to the company and the State under the proposed restructuring would accrue if there was a reduction in the State shareholding in the company. A number of options for the sale of that shareholding were considered. The State's broader strategic interests, arising from the importance of the company as an employer, investor and repository of savings were taken fully into account.
The Government considered the consultants' reports. The main union representing the staff of Irish Life and the Irish Congress of Trade Unions set forth their views and concerns, particularly as regards employment. The Government listened carefully to these and the chairman and the managing director of the company gave clear assurances on employment. Irish Life has consistently expanded its workforce in the past ten years and there is every reason to believe that with restructuring it can continue to do so.
Having examined the options for the development of the company, the Government announced last March that it had decided that the restructuring should proceed and that the State's holding should be reduced 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 holding, 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 its holding from time to time in the interests of the company and the wider public interest generally.
The decision to reduce the State holding represents a fundamental change in the status of the company. From a general viewpoint, there is no overriding reason that 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 — £440,000 in 1989 and £2 million in all in the last five years. A sale of the Minister's shareholding following a capital restructuring will yield a significant sum which can be used in an appropriate way to help ease the burden of the national debt and, therefore, of debt servicing costs. 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. There has been much talk about the benefit to the State of its 90 per cent holding. The plain facts are that the financial return has been small and that the capacity to expand the dividend yield under present structures is very limited indeed. Disposal of part of the Minister's shareholding and the consequential freeing of the company to raise aditional 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 it controls. It is essential that Irish Life should retain its Irish character and its local base. To maintain this 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. The arrangement is of indefinite duration but will continue in place for at least five years after flotation. 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 Senators will know, such special shares are a common feature of sales of State assets in other countries and do not breach EC obligations. We can go into this further during the debate on the Bill.
The Government's 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 in this country in developing the economy. 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 rely 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 am very conscious that a considerable part of Irish Life's success to date has been due to the efforts of their staff. In recognition of this, the question of employee share participation in the flotation will be carefully examined. I know that Senators will welcome such a development.
Hopefully, 1991 will see Irish Life successfully launched on this new and dynamic phase of their commercial life. It is also hoped that the flotation will yield a significant return to the Exchequer. It would be inappropriate to speculate on the value that will be realised. The value of the shares will be ultimately determined by the market conditions at the time of flotation. Advice has, of course, been taken on the likely value of the State holding but I know that the House will appreciate the difficulty in any discussion of avoiding financial speculation on this issue. One must, of necessity, be unusually reticent in this matter and I ask Senators to bear with me in this.
I now turn to the particular provisions of the Bill. While 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. In case there is concern over the names of Holdco and Newco, which I have referred to earlier, let me be clear that there is nothing in this Bill to prevent more appropriate titles being used in the actual business names of the Holding Company or the New Company. I have no doubt that there will be a desire to use the name "Irish Life" which is a valuable asset in itself.
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 of 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 the rights attaching to his shares in the holding company including, where applicable, the exercise of those rights by attorney or proxy. The section also provides for the renunciation by the Minister of the rights of ordinary shares of the company to enable the flotation of the shares by this means, if desirable.
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.
Sections 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 of 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. The exercise of this power will also be subject to certain rules which will apply to companies generally by virtue of proposals in the Companies Bill.
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.
I know that the House will be eager to act in the best interest of the company and pass this legislation. I would hope that we could approach this important matter from a practical viewpoint. There are ideological differences in the approach to the role of the State, but what is more important is the future of Irish Life. I have taken some time to explain the background and need for the changes being proposed and I hope that Senators give this Bill a favourable reception.