Insurance (Miscellaneous Provisions) Bill, 1985: Second Stage.

I move: "That the Bill be now read a Second Time".

The purpose of this Bill is, on the face of it, the relatively simple and straightforward one of statutorily underpinning a holding company formed on behalf of the Minister for Industry, Trade, Commerce and Tourism. However, the Bill also forms part of the basis for the action taken by the Government in the past fortnight to avoid the collapse of a large insurance company. In my contribution to this stage of the Bill, I intend to concentrate on both the general background and the specific circumstances which gave rise to the draft legislation now before the House. I will be commenting on the serious problems of the Insurance Corporation of Ireland which have come to light in recent weeks together with the attendant implications for the Allied Irish Banks Group; the choices open to the Government and the corrective action taken to deal with these particular difficulties; and the arrangements likely to be made to enable the insurance company to be restored to a sound commercial footing.

I propose to start by referring to the position of the Insurance Corporation of Ireland. We are dealing with an established company of almost 50 years standing trading in a market in which they had long experience. In these respects they differed from a newly authorised undertaking or a relatively recent entrant to the non-life insurance market, in which cases the supervisory process applied involves particularly close monitoring of operations over the formative years of the enterprises concerned. By contrast, ICI were a company whose state was satisfactory over a long period of years. The company were trading normally, had a consistent track record of steady profitability and were disclosing a very comfortable surplus of assets over the required solvency margin. Prior to 1984 they had a broadly based board of directors representative of their various shareholding interests; these included American and Dutch insurance interests and other institutional investors, including Allied Irish Banks. Since September 1983 ICI were under the full control and ownership of AIB.

I should explain briefly here the manner in which my Department supervise insurance companies. The Department receive the accounts of insurers annually and undertake detailed analysis of the information supplied in relation to the different classes of insurers' business. The examination undertaken by my Department does not and cannot substitute for the role of statutory auditors. It would be unreasonable to expect that the State should provide resources to double-check on the work done by auditors. My Department's work is, rather, an independent outside test on the information supplied. This is in line with the supervisory practice for insurance internationally.

Arising from the tests applied to ICI my Department began to be concerned about the adequacy of the technical claims reserves set up by the company in relation to its Irish business. During 1983 the Department communicated formally to ICI their concern at this particular aspect of the company's operations. The company indicated in reply that they had learned that they had not made adequate allowance for the development of some very large cases which worsened unexpectedly; they had strengthened reserves to make additional allowance for this type of potential development and they hoped that the provisions would prove adequate.

Notwithstanding the assurances of the company, the Department decided to examine the 1983 accounts of ICI on a priority basis when received. These accounts were duly submitted on 26 June 1984. Based on the 1983 accounts as submitted, ICI held free assets of £56 million, equivalent to a surplus of 124 per cent over and above the statutory solvency margin required.

Following their analysis of these accounts in July 1984, the Department were not satisfied that adequate provision was made in the company's 1983 accounts for outstanding claims on their Irish business. This aspect of the accounting returns was gone into in considerable detail at a meeting between the Department and company representatives on 17 August 1984.

The responses of the ICI representatives at that meeting were considered inadequate by the Department, and the company was requested to provide further detailed information on the outstanding claims provisions struck for Irish business. The Department had already decided to engage a firm of consulting actuaries to undertake an examination of the Irish technical claims reserves of ICI. Discussions between the Department and the firm in question took place during September 1984. The study commenced in early October, and representatives of AIB and ICI were formally advised of this at a meeting with my Department on 14 November 1984.

The purpose of the meeting in November was to discuss the insurance company's results contained in the interim report of the Allied Irish Banks Group for the half year ended 30 September 1984, which were being released at that time. At the meeting in question, it was indicated to my Department that AIB had decided to strengthen the outstanding claims provisions of ICI by £23 million as at 30 June 1984 and that the bank would be taking immediate action to strengthen the capital base of the insurance company arising from this depletion of their free reserves. The specific question of the London branch business of ICI was raised at that meeting also, and the Department were assured that while there were problems with the London branch, corrective measures were being taken to rectify matters; furthermore, there was no under-reserving apparent in the London claims reserves.

In December 1984 the issued share capital of ICI was increased by £40 million, of which £30 million was fully paid up by AIB. Subsequently, in a report dated January 1985 the actuarial firm engaged by my Department confirmed that the reserves of ICI in relation to their Irish business, as strengthened, were adequate.

To a large extent, the above facts speak for themselves. In relation to their supervisory functions, my Department acted quickly and with diligence in recognising the claims reserving problems facing ICI on their Irish business, following which corrective action by way of identifying the shortfall and a substantial injection of fresh capital took place in December 1984. Although not directly within their area of supervisory competence, my Department also raised questions with AIB and ICI representatives in relation to the London branch operations of the insurance company, and received assurances that there was no under-reserving on London business, and, furthermore, that corrective measures to improve the current trading experience of the London branch were being implemented. The Department of Trade and Industry in the United Kingdom had not communicated any concerns to my Department in relation to the UK branch business of ICI. Given this fact and in the light of the reassurances received from AIB and ICI at the meeting in November 1984, my Department had no reason to question matters further at that stage.

I would like to make it clear that I am not imputing any dereliction of supervisory functions on the part of the United Kingdom supervisory authority. Indeed, I understand that the UK branch accounts of ICI for 1983 disclosed a surplus of some £19 million sterling in admissible assets over branch liabilities. Furthermore, the UK branch accounts were not qualified in any respect by the statutory auditors.

It is clear in the relatively short space of time that has elapsed since November 1984, that there were serious problems with the London branch business of ICI in particular, about which the former owners were unaware and which had not come to light at that stage.

New auditors were appointed to ICI in mid-December 1984. Detailed audit work got under way in January 1985 and by early February the auditors realised that there were serious deficiencies in the information systems and database covering the London branch operations of ICI. Once AIB were advised of this, they immediately ordered an accelerated programme by a special investigating team to establish, as far as possible, the true financial position of ICI's London branch.

By the first week of March 1985, the results of this investigation had led AIB to conclude that ICI had very serious problems with their London branch operation. AIB notified both the Central Bank and my Department of the position at separate meetings on Friday, 8 March. By letter dated 15 March 1985 the board of ICI notified me that they had concluded that as at 31 December 1984 the company did not comply with the requirements of the European Communities (Non-Life Insurance) Regulations in a material respect, and that this position still obtained.

Before turning to the ultimate decision reached by the Government in relation to the problems of ICI, I would like to state that I consider that the management of AIB acted promptly and responsibly in bringing the matter to the attention of my Department. I have to say more than this, however. It is almost incomprehensible and more than a little disquieting that it apparently took so long for senior management in both ICI and AIB to begin to realise that there might be fundamental problems with the London branch operations of the insurance company, which after all accounted for about 70 per cent of total business in gross terms. This is even more difficult to understand when one considers that problems had arisen within the head office operations of ICI in Ireland, and corrective measures were taken during 1984. The facts are far from clear even at this stage, and it is difficult to say how much of the London branch's problems arose while AIB were a minority shareholder and how much actually arose during 1984, at which stage ICI were under the full control and ownership of AIB. It is obvious that a serious lack of management control, particularly in relation to the flow of information between London and Dublin, contributed in no small measure to the present problem. If the problem had been spotted and the position established at an earlier date, then the magnitude of the present difficulties would not be as great. The belated realisation that there were problems in London is, therefore, all the more disappointing.

The problem which came to light in ICI was one which called for urgent, firm and decisive action. The Government decided on 15 March 1985 to acquire ICI from the Allied Irish Banks Group for a nominal sum by a company controlled by the Minister for Industry, Trade, Commerce and Tourism. The provisions applying to this holding company, Sealúchais Árachais Teoranta, form the greater part of the Bill now before this House. An administrator was appointed provisionally by the High Court to take over the business of ICI on the evening of 15 March and the High Court confirmed the order for administration at a sitting on Monday last, 25 March. The purpose of the take-over and administration of ICI was to ensure the continuation of the insurance business and the protection of all policyholders.

The Government decision offered the best solution to the problems which arose within ICI and which could have had serious implications for the insurance market generally. Other companies in the market could not readily have absorbed the market share held by ICI, particularly in the critically important employer and public liability classes. Furthermore, it was the view of the Government that it would not be feasible for the parent company, Allied Irish Banks, to undertake the addition financial commitment and other reorganisation measures required to restore ICI to an even keel; the bank could not prudently persist in the attempt to resolve the problems of ICI without the risk of adverse effects on their banking operations.

The placing of the Insurance Corporation of Ireland under administration, and the funding of that operation, are covered by existing legislation, that is the Insurance Act, 1964, and the Insurance (No. 2) Act, 1983. These Acts provide the statutory powers for the appointment of the administrator by the High Court on the petition of the Minister for Industry, Trade, Commerce and Tourism and for the provision of moneys from the insurance compensation fund to enable the administrator to carry on the business of the company as a going concern. I would remind the House that the administrator is appointed by, and carries out his duties under the supervision of the High Court. The insurance compensation fund is administered by the accountant of the High Court under that court's jurisdiction. The entire process of administration, therefore, is under the control of the court.

Pending the completion of the full investigation of the company now being undertaken under the direction of the administrator, it is difficult to say with certainty where the blame lies for the problems facing the company. However, I have already referred to the lack of adequate information systems and of management control, particularly in relation to the London branch of the company. It appears that the information supplied by the London branch to their supervisory authority and to their head office in Dublin did not reflect the true position of the business being transacted in the branch. The investigation now in progress is intended to establish how far the true position differs from the reported position.

The problems which have come to light in this case clearly raise the most serious questions about the role of management, directors, shareholders and of auditors of companies. The chain of responsibility is clear. The primary responsibility for ensuring the satisfactory conduct of company affairs lies with the shareholders and is exercised through the directors and management of the company. The secondary responsibility for the correct presentation of the financial activities and standing of any company rests on the auditors. In the case of the more important financial institutions, such as insurance and banking, the State has a tertiary responsibility. The tertiary responsibility must obviously involve the State, through its various agencies, in laying down certain minimum standards and in assessing the adequacy of the systems and the competence of persons involved in the first and second stages of responsibility. The State's role also involves, in the case of insurance, examination of the information supplied by insurers and auditors as required by statute.

The failings which have been disclosed in the present case confirm the need to proceed quickly with a redefinition of the statutory responsibilities of directors and of auditors. The Government have already approved the provisions to be included in a major reform of companies legislation and drafting has been proceeding apace. I have now directed that those aspects of the full Bill which are of special relevance to the points which I have been making should now be finalised as a matter of urgency.

In addition to the changes in the area of company responsibility, I will also be giving special attention to an assessment of the supervisory role of my own Department. This will involve a full review of the frequency and quality of the information required from insurers, and of the technical capacity of my Department to assess such information. I am particularly concerned that my Department should have access to statistical and actuarial expertise in the examination of accounts and other information supplied by insurers. I might add that the non-life insurance industry in general could also benefit from much greater use of expertise of this type which has tended to date to be concentrated in life assurance companies.

It is not possible at this stage to speak in definitive terms about the precise financial position of ICI. The company audit is in progress and the administrator estimates that it will take at least six weeks to clarify matters. Based on the company's own draft unaudited accounts, it appears that losses in 1984 will amount to at least £65 million, resulting in a minimum deficit of £25 million in the shareholders' funds in the company balance sheet.

At this point, I would like to make it clear that one should be extremely wary of various amounts being bandied about in recent days. Such figures are speculative and some of the orders of magnitude are so astronomical as to be totally unrealistic. Such speculation as there has been about possible losses in the company has not been based on the information derived by those who have examined the company's affairs. This information, from those who have been in the company, is the only sound basis on which any decisions can be made.

While I have stressed that the information available is not definitive, I must say that on the basis of all the facts known at present there are no grounds for believing that the losses incurred fall outside the range of £50 million to £120 million. I have to stress that I mention £120 million as the known upper limit of losses and not in any circumstances as the most likely figure. There is no information known to the Government which would place the losses outside these parameters and all of the Government's actions are based on these figures which I have stressed are the only reliable information available.

As has already been made clear, any financial assistance required by the administrator will be provided by means of the insurance compensation fund. Until such time as the exact financial position of ICI is verified, it is pointless to speak other than in general terms about the likely funding requirements. For the purposes of the administration of ICI, the compensation fund will be financed on a broad basis by a number of special arrangements involving Allied Irish Banks, the banking and insurance sectors generally, and if necessary, and only as a last resort, the Exchequer.

I do not think that it would be productive to enter into speculation now as to the exact distribution of the burden between the different sources of financing until the precise extent of the burden is known. Any measures to be introduced, involving levies on the banking and insurance sectors, will of course have to be debated and approved in this House.

An important focus in this debate will be on the contribution by Allied Irish Banks to the rescue of ICI. As the owner of ICI they should, in the normal course, meet the entire cost. In fact they are contributing as follows. First, writing off their total acquisition cost of ICI, resulting in a loss of £86 million. Second, a major share of any damages arising out of legal proceedings against the former auditors of ICI to go to the State. Third, interest subsidies of £6 million on a £50 million loan over three years. Fourth, an additional interest free loan of £20 million, worth almost £3 million per year at current interest rates. Fifth, the purchase price of £2½ million paid for Credit Finance Bank which they had "sold" with ICI for £5. Sixth, the sale of a 20 per cent shareholding in the profitable and healthy Insurance Corporation Life, also for £5. Seventh, the biggest share in any bank levy that may be imposed.

I would explain that the interest free loan of £20 million which AIB have placed with the Central Bank as stakeholder is in respect of the contingent liability undertaken by the State in respect of a guarantee to the Institute of London Underwriters. This is provided for in section 14 of the Bill. In the event of any liability arising in excess of designated reserves, the amount involved will be deducted from the £20 million before the balance is repaid to AIB. This is the additional contribution by the bank to which reference was made over the past weekend; it is worth, as I have said, £3 million per year at current interest rates.

The amount which should be paid by AIB is, of course, open to debate. The Central Bank, whose job it is to assure the soundness of our banking system, were involved in the discussions leading to the decision to rescue ICI. Their strong view, as a regulator of the banking industry, was that the contribution by the bank that I have already outlined was the limit of what AIB could prudently be expected to make at this time. The Central Bank were also most anxious that there should be certainty about AIB's liabilities, as uncertainty would be damaging to the bank and to the financial system generally. The Government and this House must give due weight to the advice of the Central Bank who have been charged by both Houses of the Oireachtas with the responsibility of ensuring the soundness of the banking system.

Let me remind the House that if AIB had never bought ICI, the problems we now face would still be there. All of ICI's losses would ultimately have to be met from the Irish headquarters of ICI. This would inevitably have led to the crash of the company. But, in those circumstances, there would have been no recourse to any bank for help. No preferential loans and no bank levies would then have been available. Instead, we would have been faced with the even more stark choice of either the collapse of an insurance company covering up to a quarter of the workers in the country for employers liability or the insurance sector and the Government, alone and without any help from the banking sector, having to resolve the entire problem. This did not happen, and it is at this stage only a hypothetical situation. But it is a very enlightening hypothesis.

Let me return now to the actual circumstances of the present case, and the choice faced by the Government two weeks ago. If the Insurance Corporation of Ireland, a wholly owned subsidiary of Allied Irish Banks, had gone into liquidation this would have had consequences for the bank itself as well. A bank itself is borrowing money all the time. The terms on which banks can borrow depend critically on their standing as a bank who will, in all cases, be able to repay these loans. They get much better terms than ordinary companies because they have this standing. If a wholly owned subsidiary of the bank collapsed, the terms on which the bank could then borrow would immediately be affected. If this happened all of those who borrowed from the bank would also suffer. I believe that we have rescued not the shareholders of the AIB, but their customers, the public at large, and the policyholders of the ICI.

AIB remain a strong financial institution, despite the heavy losses which they incurred on the ICI fiasco. The AIB board have announced that they will maintain their dividend despite the losses. While I personally regard this as a somewhat insensitive announcement, highlighting the bank's much greater concern for shareholders than for the policyholders with the ICI, or for the general public, I am advised that a cut in dividend would be taken in the stock markets here and abroad as a signal — in this case false — that the underlying strength of the AIB was somehow damaged.

Confidence of this kind is very important in international financial circles. As a country which borrows substantially abroad, it is vital that our financial institutions be seen to be strong. The continuing uncertainty as to the bank's potential liabilities and the resultant speculation would have held many dangers for the bank. Other proposed solutions involving meetings of financial institutions generally or an extraordinary general meeting of the bank would have lacked the confidentiality and the speed necessary for an effective rescue. This ruled out some other solutions to the problem which might otherwise have been attractive.

Turning to the arrangements for financing the rescue of ICI, there are a number of general points which have to be made. I understand that the company have good liquidity at present and that the need for a substantial cash injection is not foreseen in the immediate future. It should be made clear that the losses will not all have to be made good in any one year. Finance will be required according as claims fall due to be paid over a period. The administrator will use his commerical judgment as to how to obtain the best return for the company from the assets available to him.

The commitments of contributions from Allied Irish Banks which have already been received will go a considerable distance towards financing the rescue. It is the intention that the insurance and banking sectors should make a substantial contribution to the cost of the rescue also. The precise form and extent of this contribution will be settled when a firmer indication of the size and incidence of the losses have been established.

The idea that companies in sectors such as banking and insurance should contribute to saving the deposits and policies of failed companies is not a novel one. It is normal in the case of rescues of financial institutions elsewhere that other companies in the same sector contribute to keeping particular businesses going where their failure would cause dramatic damage in the particular financial market generally.

The insurance sector as it stands faces substantial underwriting losses in a number of classes, not least the employers and public liability classes in which ICI have a 25 per cent market share. The cost of insurance cover and the problem of availability of cover at an economic price in some cases have been matters of serious concern to me for some time past. This is obviously an aspect which has to be considered in the context of a possible further levy on insurance. The higher the cost the greater is the prospect of people taking the risk of doing without insurance cover. The Government have been conscious of this danger in planning their response to the crisis in ICI. In order to deal with the cost of insurance premia, the Government have decided to modify the right of access to decisions by jury on the extent of damages for personal injuries. The Minister of Justice will be bringing detailed proposals before the Government on the matter.

While dealing with this matter I should also refer to some reckless statements which have been made in the past fortnight to the effect that ICI was not the only insurer which is in trouble at present. I have to say quite categorically that statements of this type should not be made unless there is very sound evidence for them and, so far as I am aware, there is no such evidence. I trust that in debating this matter Deputies will take a responsible attitude and will not cause any doubts to be raised which might further damage confidence in this important sector of the economy.

I know that others in the banking sector and in the insurance sector feel that it is unfair that they should have to pay the penalty for failures by other members of the same sector. They will claim that this is almost a reward for imprudence. While I can understand this sense of grievance, I would say to the financial institutions in question that they must understand that the taxpayer who is not even in the same sector would have an even greater sense of grievance at having to pay the cost. The sector as a whole must benefit from the existence of some form of mutual assistance, hence in this case of necessity it is right to turn to the banking and insurance sectors for a contribution. Although it is too early yet to give any guarantee on this point——

Can I have the remainder of the Minister's script?

——given that the cost of meeting the claims will be spread out, it is the Government's objective to ensure that if at all possible the ordinary taxpayer does not have to pay anything towards the cost of this rescue.

Can I have the remainder of the Minister's script?


I have said on numerous occasions that it is not the function of the Chair either to provide or see that scripts are provided.

Finally, I know that Deputies will be concerned that AIB should continue to help in the longer term. In this regard the position will be reviewed in the light of the audit and of the claims experienced as they emerge over time. We will have to assess the situation again not later than 31 December 1985, and AIB have agreed that, should the emerging position be deemed to warrant it, they are prepared to extend the term of the £50 million subsidised loan facility for a further period not exceeding two years. This further arrangement takes account of the uncertainties that are inherent in insurance affairs.

I must say at the outset that on this side of the House we find the speech which has just been delivered by the Minister pathetically inadequate. The legislation which was published late yesterday told us absolutely nothing about this situation and how it was to be dealt with. The Minister's speech today was eagerly awaited both in this House and outside it and, indeed, at home and abroad, to give an outline of the situation and how the Government propose to deal with it. The speech we have just heard from the Minister is not the authoritative authentic statement by the Government which the situation urgently calls for. We find the speech in many aspects vague and indefinite to the point of being insulting to this House. For instance, on the key, crucial issue of the financing of the losses of the ICI there is nothing but vague, indefinite statements by the Minister. He talks about it being unproductive to speculate about the contributions that different sectors will make to making up these losses. This House wants to know precisely how these losses are going to be made good. It is simply not good enough for the Minister, after everybody has waited for 12 days to hear from him, to come into this House this morning and tell us in effect that he is not going to give us any information about this key, central matter and that he does not intend to speculate on it.

What are we to make of a Minister who in a speech dealing with such a serious, far-reaching situation, enters into a hypothetical situation? He spent some time telling us what might have happened if AIB had not taken over ICI. Of what importance is that? AIB took over the ICI, and that situation resulting from that takeover and from the operation of the ICI confronts us today as a stark reality. It is absolutely ludicrous for a Minister charged with the serious responsibility that the Minister has in this matter to indulge in flights of hypothetical fancy.

When we come to the extent of the losses with which we are confronted and have to deal with, again a crucial factor in this, there is a vagueness which borders on the irresponsible. We are told that the losses are somewhere between £50 million and £120 million. Is the Minister seriously asking this House to accept that sort of parameter? The loss is somewhere between £50 million and £120 million. These are astronomical figures and it is not good enough to ask the House and the public to accept such a range in a matter of this sort.

The Minister's reference to jury actions and changes in that regard is typical of the approach of the Government to matters of fundamental importance. Is that any way to do business? People have been talking for a considerable time about a need for a change in that area and for taking certain responsibilities away from juries, but nothing has happened. Now in the middle of a crisis we get this ad hoc statement from the Minister that something is going to be done about it. That is no way to run a country and conduct its affairs, to throw in the middle of a pathetic attempt to deal with this critical and crucial situationa a suggestion of that sort. Whereas many of us might welcome it, it is not something to be pitched in here as a makeweight in a critical and dangerous situation.

The story of the collapse of the ICI, the second largest insurance corporation in this State and a major subsidiary of the largest bank in the country, and the Government's handling of this matter have been from the beginning and still are confused and confusing. The announcement came as a major shock on the Friday before last, late in the evening after most businesses and financial institutions had closed. It was, of course, immediately hailed as the biggest financial disaster in the history of the State. Allied Irish Banks is one of the two principal pillars on which the Irish commercial banking system rests and the fact that one of its subsidaries could collapse is, naturally, of very great concern to everyone.

A stunned country was informed that the Government had intervened and taken the Insurance Corporation of Ireland out of the hands of AIB, had taken responsibility for its future and presumably for its debts, present and potential. The clear implication was that this extraordinary step had been taken to ensure that one of the important pillars of our banking system would not be damaged in its credit or standing by having to stay with a potentially disastrous situation in the Insurance Corporation of Ireland. As the principal Opposition party, we immediately took a definite, responsible attitude and indicated that as the Government had said they were acting in the national interest we would, in order to avoid a crisis of conscience, make it clear that we would take the Government at their word and offer whatever parliamentary support was necessary to overcome the difficulty and protect the financial institutions of the State and the country's creditworthiness.

After the initial dramatic announcement the situation developed along curious lines. In the absence of any authoritative statement from the Government, the AIB's version of the situation was the one that came across to the public. Statements by the bank caused a great deal of public concern, resentment and anger. There was an unfortunate hint of smugness in the stance adopted by the bank. They were at pains to indicate that despite any blunder they may have made they had now ensured that the State was assuming responsibility for whatever losses would arise. Having written off their original investment they no longer had any exposure and were in a position to carry on happily, pay a full dividend to their shareholders and have everything right in two years time or so.

In the absence of any clear authentic statement from the Government this naturally caused a major public outcry. The public got the impression that once again the banks would be allowed to get away with the cream while the State, and ultimately the taxpayer, would be left to pay for the bank's mistakes and make good any losses involved. For a long week rumour reigned supreme. The Government stayed silent. Estimates of the extent of the losses of ICI ranged from £50 million to astronomical sums. We were blandly assured by the Government that legislation was taking time to prepare because the situation was complex and complicated. We now find that it is not complex and could have been prepared by a skilled draftsman in one afternoon if he or she had been given instructions.

I want to make it clear that we on this side of the House did not, after the first indication given to us by the Government, have any additional information which was not available to the general public or any Deputy in the House. We are confronted in this debate with the difficulty of trying to make up our minds and take decisions on the basis of a very inadequate presentation of the case by the Minister, a very scanty outline of the facts and certainly with no clear indication of how the matter will be dealt with from here on.

Since this crisis broke, we on this side have tried to achieve three objectives. First of all, we wanted to protect the security and status of the financial institutions of the State, both public and private. Secondly, we wanted to protect the interests of the taxpayers and ensure that the taxpayers were not compelled, directly or indirectly, to assume responsibility and pay the bill for something which was not of their making and for which they had no responsibility. Thirdly, we wanted to press for a full investigation, review and assessment of the insurance industry and to try to have whatever action was needed taken to put that industry on a sound footing capable of serving our community, providing the protection necessary and eliminating, once and for all, any further possibility of more of these disastrous developments with which we are confronted here.

On the first objective, we recognised clearly that it was our responsibility to handle this situation with care, restraint and prudence. We saw that an insensitive political response on our part might jeopardise the position even further. It was an obviously sensitive situation in which confidence was a key factor. This party is there to serve the best interests of the nation whether we are in Opposition or in Government. We intend always to discharge that responsibility.

I claim that we have discharged it and will continue to discharge it in this situation. We refrained from saying many of the things we would have wished to say and which we would normally say in a political situation of this kind. Our experience told us that the world of finance is a fragile one, suspicious, volatile and prone to rumour and speculation, where incautious words can do great damage. We had all these things in mind in our reaction to the position. The financial world is one where trust and confidence are everything. It is important that the world at large should see whatever else can be said about politics in this country the Oireachtas was prepared, where necessary, to give any support needed when the Government could indicate that it was taking action in the national interest.

We were also very clear in our minds that this situation would not involve the taxpayer. The private financial sector is the strongest, most privileged and prosperous sector in the entire economy. It earns large profits, has access to vast resources, has adequate reserves and has a very special legally protected position. If a mistake is made involving major losses, then those losses could and should be borne by that private financial sector and not by the taxpayer. It would be an absurdity, an unacceptable injustice and totally ridiculous if the general public, the great majority of whom have never benefited one iota from banking profits and many of whom have had very unhappy experiences at the hands of bankers, were asked to step in and take up an additional burden because of someone else's mistakes — mistakes made in this very specially privileged sector of our economy. The taxpayer, God knows, is already heavily burdened. At this time the Irish taxpayer is carrying a burden of taxation which is unprecedented in the history of the State. Anyone who suggests that the taxpayer — and I use the present tense advisedly — is going to be responsible now or in the future for any element of this situation will come up against this party in a very real way.

The third aspect of this situation with which we concerned ourselves, our third objective, was to ensure the best interests of the industry itself. Nobody in the Government or in the public service can attempt to suggest that this development came out of a clear blue sky, that it was totally unheralded and could not have been suspected or anticipated. There were many warnings and many references from many different directions that all was not fully safe and well in the insurance world. The specialist magazines had contained many articles, some of them now, it transpires retrospectively, very accurate articles, about the dangers inherent in the situation.

In particular after the collapse of the PMPA everyone in the industry and especially in the Government service should have been alert to the danger inherent in the situation. It was raised here at the time the PMPA legislation was brought in. Questions were asked subsequently if there was any further danger and if all the other institutions were safe and secure. I am afraid that, in that regard, there has been a serious lapse of duty by the Government and by the agencies of the Government responsible. It is not long since in this House the Minister of State at the Department of Industry, Trade, Commerce and Tourism, Deputy Collins, was asked by my colleague, Deputy Flynn, about the situation. I quote from the record one of a number of answers which he gave on that occasion:

I emphatically refute the suggestion that there is a crisis in the industry. There is not. As a former Minister in the Department it is somewhat irresponsible for the Deputy to put down this question and to pursue it in the manner in which he has done. Not only is there not a crisis, but my Department are not aware of any insurer intending to pull out of the market.

That was a statement by the Minister specifically responsible for this area not much more than a month ago. There are many other incidents and instances which I could quote which clearly indicate that this Government and the Ministers responsible did not discharge the responsibility which rested on them in regard to this very important area. I maintain that Deputy Collins was misleading the House when he gave that information. In particular he was misleading the House because he should have known of the activities which the Minister has outlined in his statement which were going on in regard to the insurance business and the insurance companies. If he did not know, he should have known. If he did know, he was deliberately misleading the House when he gave those sort of answers. Deputy Collins as the Minister responsible and his senior Minister should examine their respective positions in regard to this matter.

Recently my attention was drawn to another item of information which apparently has now become public knowledge. Some months ago the Insurance Corporation of Ireland were struck off the list of approved insurance corporations in London because of the way they were conducting their business. I do not know whether that information is correct but, if it is, it adds to the very substantial accumulation of evidence that all has not been well in the insurance world, certainly since the collapse of the PMPA and the legislation passed at that time. That collapse was not given the attention it should have been given by the Government in regard to its repercussions on the rest of the industry and there has been a serious lapse of duty by the Government and their responsible Ministers in supervising and monitoring the insurance world over the past year or two.

It is difficult to understand the purpose of this legislation that we have before us today and why it has been introduced. I cannot see that this Bill serves any purpose. I cannot understand why it took 12 days to prepare it and bring it before us. We were told it was very complex and that it would need great care and time. Apart from two relatively minor aspects of it, this Bill does nothing but set out standard stereotyped routine procedures for the governing of a semi-State body. Sections 1 to 13 are standard. You could take them out of practically any Act governing the establishment of a semi-State body, dealing with the appointment of directors and chairmen and how the business should be conducted.

Two other matters are dealt with in the legislation. One is the statement in regard to the guarantee of £20 million which the Government are now undertaking in relation to certain underwriters in London. It is doubtful that any legislation was needed to deal with that matter. It is a curious matter nevertheless. Apparently the arrangements in regard to this guarantee to the London underwriters and the position of Allied Irish were decided on Friday, 15 March when this whole matter came to light but were not disclosed for some purpose. The Minister has not told us why they were not disclosed. It appears that the position is that Allied Irish Banks had guaranteed these underwriters to the extent of £20 million and the Government are now stepping into the shoes of Allied Irish Banks and taking over responsibility for that guarantee.

In return, apparently Allied Irish Banks are going to put £20 million free of interest on deposit somewhere under the control of the Government. Whereas the liability of the Government for the guarantee is spelled out in this legislation, there is nothing in the Bill about Allied Irish Banks' contribution of £20 million. Presumably that has been covered in some other agreement or contract. That is not in the legislation and it is typical of the manner in which this whole matter has been dealt with that the Government's liability is spelt out in the legislation but the Allied Irish Banks' contribution is not.

Again, we assume that what will happen is that if the guarantee is called upon by these underwriters, the £20 million now being deposited by Allied Irish Banks can be called upon by the Government to make up the loss involved in meeting that guarantee, but that is not in the legislation. We want to know more from the Minister about exactly how that will operate. Can we take it for definite that the £20 million for which the Government are now voluntarily assuming responsibility in the form of a guarantee will be exactly pari passu met from the Allied Irish Banks' £20 million which will be deposited? If that is so, we must also ask why that is not written into the legislation?

The other factor in the Bill which is apart from the normal routine provisions about the establishment of State companies is a minor change with regard to the insurance compensation fund. This fund will now have competing claims made upon it from two different administrators. As far as we can see, this provision is simply to deal with that situation and the priority between the demands.

Apart from those two matters — the Government £20 million guarantee and this technical change in regard to the insurance compensation fund — there is not another single thing of any significance whatsoever in this legislation. Why then did we wait 12 days for it? Could this matter not have been dealt with immediately after the St. Patrick's Day weekend by a simple statement in this House by the Minister and a reasonable debate and all the speculation and rumours dampened down and, it is hoped, ended? There is something here which does not add up. Is it that the Government were seriously considering some major complex legislation from which they now have backed away, bringing in this comparatively innocuous legislation instead? The Government should tell us the truth in this regard. This is a situation in which, to use the insurance term, we should have uberrima fides. We have given the Government support on the basis of trust and they should be fully forthcoming with us in this House and with the public. They cannot persuade me, or any other reasonable person, that it took them 12 days to prepare that non-important, non-essential, non-complex, non-complicated legislation which we have before us now. What is the position? I want the Minister to deal with the matter when he comes to reply to this debate.

The nub of this whole matter is the size of the losses which have been incurred by the Insurance Corporation of Ireland to date and which potentially are going to arise in the future and how those losses are going to be made good. There is really nothing in this legislation, or in what the Minister has said, to deal with the matter to our satisfaction and, I am certain, to the satisfaction of the general public and of the many deeply concerned and interested financial institutions. As I have already pointed out the Minister can do no better than tell us that in his judgment and estimation and it is still not definitive — the range is somewhere between £50 million and £120 million. After 12 days, at least, of rigorous and expert examination of the situation, I think we are entitled to better than that. The Minister and the House are very well aware of the fact that there have been and are persistent reports that the losses are of a far greater extent than has been indicated here by the Minister.

On this side of the House we are prepared to take the Government's view and word on this matter. That is our duty and responsibility. Vague though the Minister is we on this side of the House at this stage have no alternative but to accept his estimate of the situation and, presumably, to accept that the ultimate, outside potential losses are £120 million. But the Minister and we all must be aware that there are these other rumours. We must acknowledge that they are there. I did not see the programme "Today Tonight" last night but on that very helpful programme, there was an alleged financial expert — mind you, the quality of financial experts around these days is a very dubious matter — from the city of London who gave a clear implication that since the takeover we could look forward to liabilities somewhere in the region of £500 million. I am not accepting that and I am going along with the Minister's statement of what he believes the liabilities to be, but we must have regard to the fact that these other estimates are there.

There is an aspect of this which has to be taken into account also. Whatever the extent of the liabilities and the potential losses before the Government stepped in, there is a danger, now that the Government are seen to be standing behind and responsible for the Insurance Corporation of Ireland, that the situation could be exacerbated by others not accepting the responsibility and liabilities which they would otherwise undertake. Further, the Government have a responsibility to this House and to the public to tell us precisely and exactly about what they know of the extent of these losses. There is an aspect which we must have regard to. If, as has been suggested, the best figure that the Minister can settle on is £65 million — that is the figure he gave in his speech here today — then we must ask very definite and specific questions. Is it seriously suggested that Allied Irish Banks would walk away from a situation in which the total outstanding potential liability was only another £65 million?


Hear, hear.

I find that difficult to accept. If there were only £50 million or £65 million involved, why had we all the drama, the burning of the midnight oil, the shock to our financial system, the risk of our creditworthiness, the Government's intervention, ripples around the financial exchanges of the world? Does anyone suggest that a major bank, like Allied Irish — with the reserves they have, with the financial expertise they have at their disposal — would write off an investment of £80 million, damage their reputation and standing and walk away from a situation if there were only another £65 million to be found and to be made up? If that is so, I believe that there was gross panic, over-reaction by the Government and that the matter could have been dealt with in a totally different and separate way. But one way or another we have a difficult situation to comprehend. If there were only another £65 million or thereabouts to be found——

Might I just clarify that for the Deputy. If the Deputy looks again at my speech he will see that the figure of £65 million is mentioned in respect of losses in 1984, that it does not refer to the prospective losses which I said were within a range of £50 million to £120 million. Therefore, we are talking about different things.

I have discussed this carefully with the advisers whom the Minister kindly placed at our disposal yesterday. I have been assured by them that the losses of 1984 constitute the real kernel of this matter, that it is the losses of 1984 that form the substance of the problem. If the losses of £65 million are the sum total of the losses of 1984 then my argument is that it was over-reaction and panic for the Government to intervene and not to leave Allied Irish — with the standing, the reputation they have, the reserve, the financial expertise — to deal with this situation as an ordinary banking crisis difficulty.

Again I must accuse the Minister of not being definite and specific with us in regard to this matter. But whatever way one looks at it, if it is £65 million only, then I believe the Government intervened unnecessarily and in a panic fashion. If the figure is far greater, if these astronomical figures that are being talked about in London and elsewhere are true, then the Government are not giving this House the full extent of the situation. One way or another there is a serious difficulty that must be faced whatever interpretation we put on the situation.

I find it very difficult to come to a calm, balanced assessment of exactly what we are dealing with here. For the moment I have to take it that what the Government are telling us is correct and that the losses are now reasonably well established along the lines they have indicated. If that is so, then I have to accuse the Government of a panic, over-reaction, of intervening on the evening of Friday, 15 March, unnecessarily and dramatically. I seriously wonder if we had, on that occasion, another of these sudden outbursts by the Taoiseach, another unpredictable, panic type of reaction to a situation to which he did not give sufficient, careful attention or judgment before taking the action he did.

This is a major, crucial question — the exact extent of these losses and what way they will have to be met. The Minister has been totally unsatisfactory in so far as he has dealt with the manner in which these losses will be made good. There is nothing in this legislation, no indication of powers or methods of mobilising resources to deal with the situation. There is nothing in the Minister's remarks to tell us. Rather he tells us that it would be idle and unproductive speculation to be endeavouring to find out what contribution different people are going to make.

How can we decide now how this situation will be dealt with? As far as we can see at present the situation is being placed within the ambit of the insurance corporation fund. That fund can command an income from the 2 per cent levy of only approximately £10 million annually. It is already clear that it is not in a position at present to cope with the PMPA situation never mind take on an additional liability. Can the Government tell us what is the position in regard to the insurance compensation fund? Will they be called upon to meet these new liabilities whatever their extent? If so, from whence will they get the funds, because it is no good talking about the £50 million that Allied Irish Banks are going to put into the compensation fund; that is only a loan and will have to be made good. How will the insurance compensation fund be expected to cope with this additional burden of liabilities of somewhere between £50 million and £120 million at least? We are entitled to that information and the Government are obliged to tell us and the general public. We must suspect that, somewhere along the line, that insurance compensation fund will have resort to the Irish taxpayer for additional resources to deal with this situation. If that is so the Government must tell us, because the £10 million annual income will not go anywhere near making up the figure needed for these losses. Therefore the Exchequer must either borrow and add to our national debt — and the cost of financing that national debt — by giving this insurance compensation fund the additional resources or else it will have to impose a direct tax on the taxpayer to meet that situation. We are entitled to know exactly what role the insurance compensation fund will play in this matter.

I believe that the Government can be accused of fudging this matter, of putting it away into the future, of not facing the reality that is there, the reality of these losses that have to be met, not telling this House today precisely what mechanics, what methods they will use to meet these liabilities when they are going to have to be met. The only way in which that insurance compensation fund can get anything like the measure of resources which will be required will be by way of resort to the Exchequer and ultimately, to the taxpayer.

I want to have a look at the Allied Irish Banks' situation in this regard. Some play has been made of the fact that Allied Irish Banks are giving a soft loan to the Government, to the insurance compensation fund and therefore incurring a loss of somewhere in the region of £6 million as a result. I do not think that stands up or that is a real argument. It is the business of a bank to lend money, to create credit to lend that money and to earn profits on the interest it makes on lending the money. If Allied Irish Banks could lend those £50 million to some other borrower at the full rate of interest, then certainly they are foregoing somewhere in the region of £6 million by lending it to the insurance compensation fund. But if, as we all know, Allied Irish and all other banks at present are seriously under-lent and cannot find legitimate and valid borrowers from the resources at their disposal, then what Allied Irish Banks are doing is lending the insurance compensation fund £50 million that they could not lend to anybody else and are at absolutely no loss in making that available to the insurance compensation fund. Neither will they be at any loss in so far as the £20 million guarantee is concerned because somewhere in their accounting systems they will already have made provision for that outstanding amount to the underwriters in London.

I have suggested already another way of dealing with this situation, I wish to make it clear that I made this suggestion about a package for the financial institutions under the guidance of the Central Bank before I learned of the recent situation in regard to a bank in Canada which collapsed. I am sure every Member of the House has become familiar with that situation. I shall outline some of the salient factors in regard to the rescue operation which in that case was conducted under the auspices of the Canadian Government in respect of the bank that had encountered difficulties. A sizeable sum of money was involved. I shall outline some of the key and important elements of the package brought forward by the Canadian Government to deal with that situation which was similar to the one we are dealing with here, though admittedly the Canadian Government were dealing directly with a bank whereas we are dealing only with the subsidiary of a bank. However, the difference in practical and realistic terms is not great. In that case the agreement required that the Canadian commercial bank, that is the bank that was in trouble, to pay 50 per cent of its future pre-tax profits to the support group until such time as the members would be paid in full. The remaining 50 per cent was to be retained by the bank and no common or preferred share dividends were to be paid until the repayment programme had been completed. In other words, in that situation the Canadian Government or some of their agencies arranged for a number of financial institutions to come together, prepare a salvage package and put it into operation on the lines I have outlined.

I have suggested that our Central Bank should have intervened in somewhat the same way in our situation, though when I was making that suggestion I was not aware that the Canadian package had been put into operation. If, in the case of AIB, there was only confidence involved, all that was needed was a package that would be prepared by the Central Bank and backed up by the Government.

If there is only £65 million involved and if we consider that AIB have written off already £80 million of their investment and provided £70 million by way of loans to the Government through the ICI fund and otherwise, is it not reasonable to expect that a package along the lines I have indicated could have been put together, that if the AIB faced up to the situation and if the Government had not intervened except in a helpful background way, the bank could have maintained their investment of £80 million, written down perhaps prudently from their reserves, and put the £70 million now available for loans into ICI and managed the ICI out of their present difficult situation? Is there anything wrong with that scenario? If the figures we are being given are correct, the matter could have been dealt with within the existing structures of the AIB but with some backup package of support from the Central Bank and the other financial institutions in this country.

I agree with the Minister that none of us should attempt to talk down AIB. It would not be in the interest of anyone to do so. The AIB are a good sound financial institution. The bank has served the country well for many years. It has been associated closely with the agricultural industry. Though from time to time we may all have had complaints as to the way in which individual cases were dealt with, by and large any reasonable person would accept that, as financial institutions go, AIB has served the community well and has performed well. If they have made a major blunder — and I think we can all accept that is the case — we must accept that but we must place it in the context of the century of service that AIB has rendered to the community.

However, they must not be allowed walk away from the situation as if nothing had happened. As I have endeavoured to prove, what they are supposed to be doing now is not of any significant cost to them as a financial institution. I trust that within their internal mechanisms and procedures they will deal with the blunder as it should be dealt with. That is a matter for themselves; but it is not a matter for them that the Government, acting in the interest of AIB, should endeavour to take away from them the implications of their mistake and place them elsewhere, and certainly not on the shoulders of the Irish taxpayer.

My colleagues and I are anxious to handle this matter as responsibly and as maturely as possible, but we are not satisfied with the way the Government have handled it. From the best assessment we can make it seems to us that there was an unnecessary panic Government intervention and that we are now faced with the worst of all possible worlds. Because the Government are involved in the situation it may become worse rather than better. I am making it clear to the Government and to everybody else in the House that we on this side are determined that the Irish taxpayer is not, directly or indirectly or by way of any obscure mechanism to be rendered responsible in any way for the outcome of this affair. The taxpayer has no responsibility for the matter and would not have benefited one whit if the acquisition of the ICI by AIB had proved a complete commercial and profitable success. In such circumstances nobody would have come here with a piece of legislation seeking to provide that those profits would be applied to the benefit of the Irish taxpayer or to the benefit of the Exchequer.

If that is so it is entirely justified, equitable and fair that the financial institutions concerned in some way or other — I hope in a sensible and rational way — should accept full responsibility and full liability for these losses. Because as of now it has seemed to us that the ultimate outcome of what the Government are proposing will be to place the major part or some part of the burden of this debacle on the shoulders of the taxpayers we are opposing this legislation. We believe that by accepting this legislation we would start a process that ultimately would end up in the taxpayers carrying the burden for this debacle and we are not prepared to do that. We are opposing this Bill and we will vote against it on that basis.

We ask the Government to think again about this matter and to consider the alternative we are suggesting and which has been adopted by their counterparts in Canada, namely, a financial package under the guidance and leadership of the Central Bank and other financial institutions that would cope with the situation and deal with it satisfactorily. If the Government do that we are quite prepared to discuss the matter with them and to be of any assistance we can. However, as of now we are not happy with the Government's handling of the situation. We are not happy they have given us all the information we require or that they have been clear and specific as to how the losses will be made up. We see clearly that, unless some other mechanism is provided, ultimately they will fall back on the Irish taxpayer and, for that reason, we have to reject the legislation put forward by the Government.

I should like to put the matter before the House in a somewhat broader political, but not party political, setting. The disaster of the management of ICI, and the control over it which AIB did not exercise effectively, is on a scale which we usually associate with the public sector. It is a public-sector-size disaster; and the political consequences of this shipwreck in the long run is that a powerful weapon has been delivered free into the hands of people who believe in and who advocate the spread of State involvement in the economy. These people oppose any move to take out of the State sector enterprises that should never have been in it, or which should not be in it any longer, and they oppose even the more benign form of the proposed National Development Corporation. These people have been given for nothing a most powerful weapon with which to beat the private sector, and for the next five years no one will be able, with the same confidence as before, to point at the State and semi-State millstones we have around our neck without the ICI mess being thrown back in his teeth.

Although this may surprise the House, I agreed with a great deal of what Deputy Haughey said; but I did not hear him make the point that much of the anger of people in business is due to the fact that they feel they have been let down, that the private sector as a whole has been let down by this collapse, and that a free kick has been given to the crazy Left. That is what lies at the root of much of the resentment felt outside this House, quite apart from the ordinary resentment of taxpayers who feel they may be stuck with the bill for this disaster.

In the early part of his speech the Minister naturally concentrated on the control mechanism exercised by his Department, and he spoke about the mechanism that this Bill represents. Perhaps the Minister may say a little more on the subject when he winds up the debate. I should like to hear him say what other courses might have been open to him, and why the Government and he chose not to pursue them. For example, if the ICI had been an ordinary company with no large bank behind it, if it had been owned by a variety of medium to small and a few large shareholders and it had simply folded up, it would have left uncovered a large number of insured people, particularly the insurance that has to be taken out for employees, and it might have threatened immediately employment and put businesses and jobs at risk. I should like the Minister to contradict me if I am wrong, but would it not have been possible in such a case to have legislation as a matter of urgency to enable the risks to be spread among the other insurance companies which are now left uncovered by the collapse of the ICI? In other words, I am talking about transferring compulsorily in the short term — naturally with the obligation of making good a loss if it arose — the policies that have now become worthless as long as the name of ICI is stamped on them.

Having taken the course it has, the State should resolve that the ICI under its new name — Sealúchais Árachais Teoranta — is not going to be a new passenger on the semi-State ship with an indefinite ticket over the horizon. I say that, having just this moment received a document from the union which represents a large number of the employees of Sealúchais Árachais Teoranta. It is a concern that should be wound down by the ordinary process of not renewing policies as they fall due. No one wants this new company on board. Insurance is the last thing the State should get into. In this instance it is being forced into insurance, but it should not prolong its involvement.

If there were no other options open to the Government than to take over ICI merely because it was owned by a large and prestigious bank, if the mere size and, therefore, the vulnerability and the horrific dimensions of a crash if anything went wrong, is behind the act of the Government, then it is time the State made a list of the enterprises — many in the financial sector and others not in that sector — that because of their sheer scale cannot be allowed to go to the wall without serious public consequences. What is happening here is the application of an inarticulate proposition which apparently the Government and the Opposition are willing to accept, although naturally with difference of emphasis and approach, and that is that in the private sector we can reach a scale such that when a collapse has serious public consequences the taxpayer must stand in and take up the burden. Until we have such a list and until the Government makes such a survey of the area of private sector which they effectively underwrite, we will not know the extent of the State's real exposure. This is one collapse of a company which in world terms is only a midget, but that collapse here involves sums of money which are enough to throw out by a couple of points such a thing as a national three year plan. What would happen if we had a few such collapses, not necessarily in the financial sector? Suppose there are more businesses which simply have to be kept going for social purposes or for economic reasons. We should look very seriously at what the state has taken on because the State is now the tacit insurer of these businesses. Not only it is tacit insurer but it is an insurer which is drawing no premiums. It is insuring businesses from which it has never received a penny by way of premium, and it is not operating with the benefit of the pool, which is at the centre of the whole insurance conception.

The public feeling about this matter is of a degree of unanimity that I can never remember about anything else. Deputy Haughey said a while ago that his party had behaved responsibly about this, and that they had not shot off their mouths and so on. That is so. They let a week or ten days go by without saying anything much. In that time they sniffed the air, as any politician would do, and the feedback they got was the same as the feed back every Fine Gael and Labour Deputy got, which is that the people did not want to carry the can for this disaster.

I do not wish to belabour the people in AIB or in the ICI needlessly — they are flesh and blood and I suppose experience the humiliation of being cast down from their position of public respect to a position where they are a hissing and a byword. I feel sorry for them as individuals, but I cannot sympathise with their apparent approach to this. The private sector are supposed to be the people who know most about public relations, but in this they have done a ludicrously bad public relations job. They have built up a constituency against them which is virtually 100 per cent of the people. I am not talking just about PAYE taxpayers and people who contribute to the economy through indirect taxation; I am talking about everybody in the business sector, where the feeling is just as strong. Not a single voice has been raised in favour of the State taking on its shoulders a featherweight of the burden or the taxpayer being asked to contribute. I never remember anything like the same unanimity from the people that are the target of Deputy Mac Giolla's scorn, the business lunch community, from them down to the fellows who are lucky to have any lunch. That unanimity must be reflected here.

That is not a matter of simply uttering a convenient and popular political sentiment. The taxpayer cannot be asked in the long run to carry this burden, although I accept that when we have a disaster with public consequences it may be the State in the short term that must provide the rescue operation; but the State should make certain that in the long run the State is indemnified for the cost of that rescue. I noticed that at the end of the Minister's speech he said:

Although it is too early yet to give any guarantees on this point, given that the cost of meeting claims will be spread out, it is the Government's objective to ensure that, if at all possible, the ordinary taxpayer does not have to pay anything towards the cost of this rescue.

Not only is it the Government's objective, but it is the objective of every single member of Fine Gael and the objective of every single member of the Labour Party and of the Fianna Fáil Party. No doubt I am going as far as even Deputy Mac Giolla would go in saying this. The Minister is in the unusual situation of having the House 100 per cent behind him in his determination to ensure that the ordinary taxpayer does not have to pay anything towards the cost of this rescue. I did not say that merely to give a sounding-chamber of a resonance to a common, perhaps uninstructed, but popular public sentiment.

I would have thought that it would be in the interests of the public sector to make sure that that does not happen. I would not talk about a matter of pride in dealing with business men who must make ends meet and keep the show on the road, but I would have said that there was a certain esprit de corps among the private sector, which is what explains the fury of many of the ones I have met in the last few days. It would be in their interest to make sure that a taxpayer is not asked to pay for this rescue. Surely they cannot let it be said about them by Deputy Mac Giolla and his party — I do not mean that to sound offensive to the Deputy — and by people who would like to see the back of a lot of them, who would like to abolish the private sector, that they ran away from the situation and allowed the taxpayer, who perhaps never has a pound note to invest, to pay for the rescue. It should be a matter of expediency and not merely pride or esprit de corps with the private sector to see to it that privately owned institutions, whose managers are never tired of lecturing the public sector about their whiplash methods, to make sure that they themselves do not become a burden on the ordinary taxpayer. Many of the people involved will no doubt be shareholders in Allied Irish Banks, and they should bring their moral force to bear on that bank to make sure that the Minister's objective is fulfilled.

One of the dimensions of humiliation for the people who have led us into this situation will be the recollection of the easy sarcasm which they poured on the public sector in years gone by. In the anguish which they must be experiencing, if they are human at all, they must be thinking that it would have been better for them to have foreborne this or that crack at the expense of NET or Irish Shipping. It should be therefore a matter of policy for the private sector to make sure that no one can say that the ordinary taxpayers were asked to pick up the bill while the shareholders in the bank underwent only marginal injury.

It may seem tough that AIB shareholders should have to bear the burden of this mess. It is tough, but, as Deputy Haughey said, if the ICI had turned out to be enormously profitable no one would have begrudged the AIB shareholders the offspin of that success, and a Minister would not have rushed in here to confiscate the profits. There would not have been a long debate, large-scale excitement, extended "Today Tonight" programmes and so on in order to confiscate the profits made by that subsidiary. Therefore, the people who stood to make those profits must expect, the way that any investor must expect, to be called on to bear the burden of the loss.

I am not overlooking the human dimension. I am sure there are many AIB shareholders who perhaps, have no other means, but that is another day's work. If there are good reasons for adding AIB shareholders to a list of social welfare recipients, or having a special fund to try to help people whose world falls to pieces through a debacle of this kind, I would not oppose them. Let us by all means exercise charity towards everybody; but the principle ought not to be departed from that people who invest in something out of which they hope to make perhaps a profit must live with the risk that perhaps they are going to lose everything. That must intensify their vigilance towards their own management. That is what the whole thing is about. If that restraint is taken away, what compulsion is there on any financial institution, or any other kind of institution, in the future, once it gets to a scale which will compel the Government to bail it out, to apply ordinary business prudence or management? What constraint is there on their shareholders to make sure that that is done?

I am not a financial expert but I would like the Minister to say more about the question of diverting or confiscating some proportion — I do not think 50 per cent would be a feasible figure to mention here — of the accruing profits of the AIB over so many years as may be necessary to pay off its liability. I can see that, to do that is going to have a depressing effect on the value of AIB shares. If a potential shareholder knows that before profits are distributed, or anything else like that, the bank is going to be called on to pay back a large lump of money to the State in respect of this disaster, it obviously will have a depressing effect on the bank's shares, perhaps only temporarily. However, we should not forget that the State has already done that to the banks and, in my opinion, has done it in a rather questionable way ever since the introduction of the bank levy.

What I have against the bank levy does not matter here, but I find it a somewhat arbitrary system of taxation. It does not seem to operate on any clear principle. Some kind of principle has to underlie all taxation, but the bank levy does not seem to operate on any principle except that the banks seem to have the money and seem to be able to pay it. That does not say that there are not other people in the country who might not be leviable on the same principle; but it is not applied to them. I am not happy with the system of a bank levy. However, I only mention it because the system has been in place for a few years and, presumably, it must have had some impact on the value of bank shares because a shareholder, or prospective shareholder, must have known that there would be that much less money available for distribution at the end of the year. Would it have made that catastrophic a difference were the Government to say that they are going to top the levy up, not for banks that were innocent, but in the case of AIB? In that case it would be based on a certain principle — namely, topping up the levy — in order to recover the mess their management at one or two removes had made the taxpayer, in the short term, disgorge. Would it have been feasible to insist on a share issue by the AIB — it would, of course, have diluted the value of the remaining shares — to the State, an issue to the State of a slice of the bank? That would have diluted the value of the shares of other people and have cost them money in another way. Perhaps it would have been a preferable way from the shareholders point of view.

I do not know whether those possibilities would be feasible but I say to the Minister — I believe all Members will say the same if they get the chance — that in one shape or form, whether by one or other of those methods or a combination of them or by some other similar method, no other solution to the problem will in the long run be acceptable. Everybody accepts that when the lifeboat or ambulance goes out, the patient or the struggling person in the sea is not asked to produce out of their hind pocket the cost of the run; but the cost has to be met somehow later. While the State will in the first instance have to put money up front, it will be acceptable to the taxpayer only if he has the clearest of understandings that this is a temporary arrangement which will be fully reimbursed to him.

Any objection from the AIB based on the idea that they are being made to suffer in a way that no outside party would have been had the ICI been owned by an ordinary set of shareholders can be met by a battery of arguments from the Government. Firstly, to exact compensation or a contribution from the AIB in this way could be seen as a retrospective collection from the AIB of the premiums which, down the years, they should have been paying the State that was tacitly insuring it, but were never asked to pay. It could be plausibly and fairly presented in that way. Secondly, it could be seen as a penalty of a sort, not far away from penalties which insurance companies apply anyway, for the slack management, the slack control, which permitted this crisis to arise. Thirdly, it could be said that under this system of making the AIB repay this over a course of years, at least while the value of shares in the short term is depressed or the dividend of shareholders is cut in the short term, in the long term they will still have a slice of a very valid, sound, important and well deserving institution such as the AIB is. In other words, they will not have been ruined by the disappearance, the diminution in value of their shares to that of a piece of paper. That is what would have happened had the entire institution collapsed. That is what happens to any institution that collapses. People may be left with a few pence in the pound. The State, by taking the action it has taken, is fire-proofing these same shareholders against the devaluation of their shares to bits of paper. There may be more arguments that occur to better financial brains than mine, but these are arguments I would put forward in support of why the AIB should not complain at being asked to make good this loss.

The temper and atmosphere of the debate would be inimical to my saying something about motor insurance and the question of the adjudication on claims by juries, and I will leave that to another occasion.

The legislation now proposed is a totally inadequate response to the solution of the ICI problem and simply gives an open ended legislative instrument to the Government to take on unlimited liability for the losses of ICI and makes the taxpayers liable for all present and future losses of the insurance company. From which ever point of view one looks at it, whether the losses are great or small, this legislation is unsatisfactory.

Should the liabilities be at the low figure the legislation is unnecessary and the country and the bank should have been spared the enormous trauma, dislocation and international loss of credibility. Existing legislation with the appointment of the Administrator under the 1983 Act, together with a simple amendment to that Act was more than adequate to deal with the collapse. The £50 million soft loan offered by the AIB together with the selling off of the Credit Finance Bank and the lucrative ICI Life Company, estimated at £40 million to £50 million was more than adequate to meet the losses. If the Administrator was not satisfied with some of the reinsurance arrangements of ICI they could have been renegotiated. Unsatisfactory business could have been terminated if not renewed and if thought desirable the London office which is responsible for 95 per cent of our problem today could have been run down, outstanding claims met and ICI would end up a very limited collapse which could have been handled either internally by AIB or else by the Administrator with the help of AIB, the Government, the Central Bank and insurers generally. So much if the liabilities are on or about the £50 million mark already suggested.

If the figures are the upper limit of the Minister's suggestion or the catastrophic figures being rumoured around the world then this legislation places a millstone around the necks of the community. The £50 million going into the compensation fund, whether with soft interest rates or not, has to be repaid and this has to be done by the taxpayer, either by direct or indirect taxation. If the burden is £200 million then the compensation fund is the legal vehicle to be used and the present situation of the fund is totally inadequate to take on board any demand without Government intervention. The fund has already been borrowed from heavily to accommodate the PMPA demands. The fund's income is £10 million per annum raised by the 2 per cent levy on all insurance policies. That ceiling is not to be raised. Its borrowings are to be guaranteed by the State and the Minister will be using his powers under section 5 of the 1964 Insurance Act to pump money into the fund to service its requirements. All these moneys will come from Exchequer financing arrangements which mean budgetary provisions for the foreseeable future. This blank cheque type legislation is poor law and has to be resisted.

On both counts, either with a light or heavy liability outcome we are opposed to the legislation. We are satisfied that our response to the ICI collapse has been exemplary in that we have been responsible and persistent in our attitude to protect the AIB, the financial institutions and the national interest. This has been and still is our primary concern. Others, on the Government side, have acted in a less than honourable way in this regard. We are highly critical of the supervisory authority under the control of the Minister for Industry, Trade, Commerce and Tourism and we condemn his ineffective monitoring of insurance generally. We believe there is a continuing crisis in general insurance and we demand action to rectify a potentially disastrous situation. We want the ICI life company position clarified and we demand that this valuable asset be used to benefit the State. We will not tolerate any private deal to sell it off at undervaluation. We believe it to be worth £40 million to £50 million and it should be of major assistance in lessening the liability of the ICI collapse.

The Bill in itself has no substance except specifically to empower the Minister to guarantee payments due by ICI under guarantees given to the Institute of London Underwriters. While the aggregate limit placed on this guarantee is £20 million we believe there will be no call up on these guarantees. Section 16 of the Bill simply gives security to those who would be lending moneys to the compensation fund and allows payments that have been approved by the High Court to be arranged in such a way as to have regard to the solvency of the compensation fund. However, the Bill conceals a much more harsh reality for the taxpayer and it is for this reason that we must oppose the legislation.

One of the most serious consequences of the AIB-ICI crisis is the instability that now exists in the public perception of our financial institutions. The safety and security of the banking system was always recognised by the public as the one immovable object in the economic life of the country. Irrespective of the uncertainty in budgetary or economic activity, nothing dramatic was ever expected from our banking system. Risk taking was always regarded as a non-banking activity and individuals felt secure that their investments and banking arrangements were free from uncertainty.

With banks reaching saturation in their traditional markets they have in recent times expanded their activities through diversification into non-banking areas and it was inevitable that they would be exposed to more commercial risks. The imponderable is how a major inter- national bank with such exclusive and selective advice available to it could have been misled to the extent of taking on board an insurance company which in a short time threatened its own continuation in banking business. Whoever did the calculation on which the board of the AIB made its take-over bid has much to answer for. In fairness to the AIB it had to rely on the quality of information being made available to it and when the chief executive officer of AIB announced that its new acquisition would be a profit maker in two years, everybody felt relieved that ICI were in safe hands and would be a money spinner for investors and shareholders alike. However, non-life insurance is a risky business worldwide with an entirely different set of procedures from banking — procedures which bankers are normally unaccustomed to and, for that reason, greater caution should have been exercised before taking on responsibility for insurance. International assessors gave AIB a "bum steer" but because of the uncertainty of underwriting in insurance, a more prudent avenue to follow would have been an independent scrutiny of the practices and indebtedness of ICI.

Reliance by the Government and the Minister on company statements and audits paid for by the company themselves is not a suitable means of monitoring by a supervisory body. In an area of business where the State has to act as the final guarantor, such as insurance and finance houses, then the present mechanism of company statements and audits will have to be supplemented by Department or independent assessors. A dozen people, one of them a financial accountant in the commerce office of the Department dealing with insurance, is hardly a staffing complement capable of monitoring £2 billion worth of non-life business annually and the affairs of some 62 institutions writing insurance generally.

The ICI reserving policy was not in accordance with the rules and this message alone should have alerted the cautious. It has to be concluded that there was mis-management of the ICI and worse, that they were allowed to continue to break the rules despite signals and warnings from Dáil Éireann and commentators at home and abroad. ICI were doomed whether AIB was its parent or not. In fact, the emergency legislation of 1983 was going to have to be applied sooner or later in the national interest.

It was the clear understanding of all the consequences of the crisis that prompted the very responsible attitude of the Leader of Fianna Fáil, Deputy Haughey, and the Fianna Fáil Party to the initial announcement. The quality of that response taken in a non-party way when political advantage was subordinated to the national interest is an indication of the hallmark of quality in Fianna Fáil leadership and national concern. National stability has been maintained and must continue to be protected in this debate. A balanced view must be expressed so as to maintain confidence in our financial institutions and so prevent a poor situation becoming a national crisis.

It would be naive for anybody to suggest that there is not widespread disbelief in the community at the whole sequence of events that lead up to Friday, 15 March. That disbelief has now turned to anxiety as to who should pay the debt. Taxpayers and those who pay for services provided by banks and insurance companies should not have to bear the total cost. Not understanding the niceties of financial trading the consumers principal concern now is how much will it cost and who will pay. There is an obligation on the Government to devise a rescue that will be fair and will be seen to be fair and to take into account the liability fall-out which must of necessity last for a number of years. It may be too much to expect that the taxpayer will be spared any cost, but the commercial private sector which in good times makes handsome profits and envious growth margins should be generous in bad times especially in the circumstances of this collapse.

There are many ways that banking could show a genuine concern for this unfortunate happening, in providing finance which would help develop the economy in areas where cash was always in short supply. I mention one area as an example of what could be done. The AIB have always been involved in export credit finance and export credit insurance and these areas have always been short of funding. A willing bank could increase the funds available, reduce the risk and promote lesser charges and the effects on exporters, job creation and new markets for our exports would be significant and go some way to restore the public faith and confidence in our financial institutions.

It is for the Minister to outline the various alternatives and options that were available to the Government in dealing with this crisis, but there is still the question to be answered, if, in fact, the Central Bank Act of 1942, under section 6, could have been applied to deal with the matter. The Central Bank have the function and duty of taking such steps as the bank deem necessary, appropriate and advisable to safeguard the integrity of the currency and in the interest of the people as a whole. There is no doubt that this problem could have and still might affect the situation of currency in the country and so this Bank Act of 1942 can be an appropriate vehicle for dealing with this matter. Did the Minister request the Central Bank to advise on what they thought appropriate and, if so, what was the response? Or was it the other way round, the Minister responding to the Central Bank demand? Without causing the deep financial trauma which has rocked the financial institutions of the State, could the Central Bank together with all registered banks, institutions, finance houses and insurance interests, not come to a collective response to save the national image and free the taxpayer from penalty?

We pointed to the recent rescue of the Canadian Commercial Bank as a means that might have been considered in dealing with the present crisis. This bank had been threatened with bankruptcy because of bad loans to the troubled US oil rig industry. The rescue operation negotiated is understood to leave the bank in a strong position of solvency. The rescue package was put together using an insurance corporation, the Alberta Government, the Federal Government, banking groups generally and the agreement requires the Canadian Commercial Bank to pay 50 per cent of their future pre-tax profits to the support group until their members are paid in full. We offer this as a suggestion as to how other countries deal with the rescue of banks and insurance companies. Perhaps a closer look at the international rescue pattern might have indicated a better way of dealing with the ICI crisis than that which is now offered by the Minister.

Following the PMPA crisis, surely the prudent thing for the Minister and supervisory authority to do was to make a searching inquiry into the state of health of all other non-life insurers. Surely the Minister was alerted to the lack of effectiveness of the monitoring regime in his Department and the need for an overall review of insurance legislation. The red flag was up but nobody heeded the warning and the result is dire consequences for the Government, the bank, ICI, financial institutions, insurance companies and the unfortunate taxpayer.

However the rescue load is spread, it is the inevitability that the ordinary hard-pressed taxpayer will be asked to carry the cost whether by direct or indirect tax, increased premiums, charges or levies if this legislation is forced into law. The financial experts of the State have let down the citizens of this State, have put a question mark on the professionalism and competence of those who control our financial destiny and show an Achilles heel where none should exist.

In the national interest, the State must be in a position to provide the framework of cover to protect our financial institutions and international credibility and creditability. The same latitude was not available for the thousands of business closures that have taken place over the past few years resulting in one-fifth of our workforce being unemployed. The Minister for Industry, Trade, Commerce and Tourism is responsible, in accordance with the European Communities Non-Life Insurance Regulations, 1976, for supervision of the overall solvency of the entire business of any insurance undertaking with its head office in Ireland, and in collaboration with other supervisory authorities for the business done at any branches of such head office in their territories. This was confirmed no later than 30 January by the Minister of State, Deputy Collins, when he, as supervisory authority in charge of the insurance industry, stated that he had an obligation to ensure that all companies licensed by him were viable. That is stated at column 1037 of the Official Report for 30 January 1985. On the same date, the Minister also said that the Irish insurance business was basically sound. He went on to say that he refuted any suggestion that there was a crisis in the insurance industry. He topped off his remarks on that occasion by saying that not only was there no crisis in the insurance industry, but that the Department were not aware of any insurer intending to pull out of the market.

It is the primary responsibility of the Minister, as supervisory authority, to make sure that solvency is maintained in insurance companies. The Minister has a special role in relation to the insurance industry in so far as general price control is concerned, together with the specific functions laid down under the Insurance Acts, 1909 to 1982 and the EC legislation concerning authorisation of insurers and monitoring of their operations to ensure maintenance of solvency. No one can carry on insurance business without an insurance licence and this licence details specific classes that may be catered for and also sets out the minimum capital requirement necessary before business can be undertaken. Before granting the licence the supervisory authority has to be satisfied with the scheme of operation, as outlined by the operator. Detailed annual returns are made of the operations business and these returns include the gross and net underwriting revenue account, the premium and re-insurance analysis, the claim settlements analysis and the assets analysis. These details together with the balance sheets and profit and loss account form the basis for the detailed scrutiny which the supervisory authority are supposed to monitor on an annual basis.

Every undertaking is obliged to create and maintain in Ireland technical reserves corresponding to the underwriting liabilities in this country and also to maintain an adequate solvency margin. The administration rules prescribe the nature and spread of assets held for the purpose of reserves and solvency. It is clearly understood that the insurers must always be in a position to meet their liabilities. If an undertaking falls below the required regulation then it is the duty of the supervisory authority and the Minister to demand that the reserves be restored to an acceptable level, and this to be undertaken within a specified minimum period.

In so far as the solvency requirements are concerned they dictate the minimum level of capital and retained reserves. Insurance companies generally have substantial funds available for investment. They invest these moneys in Government stocks and property which produce an income and these, together with the provisions for outstanding claims make up the technical reserves of the insurance company. The importance of these reserves cannot be overstated as they are needed to meet the outstanding claims reserves — claims made but not settled, claims incurred but not reported — estimated cost of claims that have happened, but not reported, and the unearned premium reserve — premiums received in advance of period of risk.

In addition a company is required to maintain a minimum solvency margin so as to provide permanent protection against increases in liability or a decrease in assets. The EC solvency margin stands at 17 per cent of annual premium income.

Debate adjourned.
Sitting suspended at 1.30 p.m. and resumed at 2.30 p.m.