FINANCE—PUBLIC AND PRIVATE.
_LIFE ASSURANCE AND INVESTMENT.
[To THE EDITOR OE THE " SPECTATOR."] SIR,—In considering the investment position, and indeed it might almost be said the general financial outlook, it may be doubted whether sufficient attention is given to the great part played by our Insurance Companies. Their influence upon the financial well-being of the country ' is, however, enormous, and it might be said that just as, the huge deposits of our banks, running as they do into some few thousand millions, represent the liquid resources of the country available for financing trade and other activities, so the great resources of our Insurance offices minister in a very special degree to the investment fund of the country, and even in some degree to its financial activities. Regarded collectively, they are certainly the largest investors in the country, and the4 supremacy in that respect is likely to be all the more marked in the future on account of the tendency on the part of the banks to forsake the long-term investments for the short- dated securities. In fact, the experience of the past few years has shown the inadvisability of banks, with their heavy liability on short-term deposits, embarking any large proportion of their funds in long-dated stocks. In the ease of the Insurance Companies, however, the position is quite different ; and while they, in common with the banks, have suffered, of course, from the deprecia- tion in investment holdings, the inconvenience has been of an entirely different kind to that experienced by the banks. Moreover, although the " with-profits " policy- . holders have no doubt witnessed a shrinkage in bonuses as a result of the untoward conditions, there is every probability of compensation ere long through the oppor- tunities afforded to the Insurance Companies for investing new premiums at highly remunerative rates. Some idea of the huge resources represented by Insurance interests as a whole may be gathered from the fact that the total funds of British Life Assurance and Industrial Insurance offices actually established within the United Kingdom now amounts to not far short of five hundred millions.
During recent years Life Assurance has grown enor- mously, and the combined premiums of old and new policies may be said to have reached a fair proportion of the unexpended income of the nation. The manner in which these various funds are utilized must inevitably, therefore, • exercise a powerful effect on investments and investment values, and even tend to affect social and economic developments as a whole. One institution alone is understood to have sold during its last financial year something like 21 millions of Stock Exchange -securities ; and so important was the influence on the destination of assurance funds during the war that support of the offices was officially sought in the matter of investing a definite proportion of their available resources in Government loans.
It is, in fact, somewhat open to question whether this important aspect of Insurance business—namely, the investment of its funds—is sufficiently appreciated by the companies themselves, because, while the actuarial side of insurance and its relation to risks has been brought to a high pitch of perfection, the employment of funds seems for the most part to have been governed by considerations of safety (which, of course, is the first essential), but with less keenness to secure the maximum amount of revenue and profit consistent with such safety than might have been expected. Latterly, however, there has been a tendency on the part of some of the more important Insurance Companies, at all events, to add- to their entourage men who may be regarded as experts in the matter of investments, just as the insurance actuary is the expert and specialist in Life Assurance in relation to the risks entailed.
It must not be forgotten that there is one aspect of Life Assurance which has a very practical interest to the ordinary investor—namely, the question whether the ordinary individual fares better in personally selecting the whole of his investments, or whether he may not often be well advised in making substantial investments through the medium of the endowment policy. If, for example, the position of a man who, say, twenty years ago invested a sum of one- thousand pounds- in Consols is contrasted with that of the person who took out an endowment assurance for that amount in -a Life Office, it is easy to see how greatly the latter benefited by avoid- ing the effect of the huge fall which occurred in the market value of securities. Moreover, in addition 'to having had the protective- insurance policy throughout .the period in case of death, he is now in the advantageous,position of receiving the capital sum at a moment when it can be invested to great advantage.
On this principle it might of course be urged that, whereas it was good business twenty years ago, when investments were comparatively high and-yields were low, to take out an endowment policy in preference to making direct investments, the reverse conditions apply to-day, when securities stand at about the lowest point on record. That, however, 'does not necessarily follow ; and while no . doubt the investor to-day would be inclined to embark some part of his resources in direct investment, hoping for an early appreciation in capital value, a good case might be made for the claims of an endowment policy with profits. In- the first place, there is the reason- able likelihood of the period proving a profitable one for the Insurance Companies, with their large funds available for investment, by reason of the high yields offered. In the second place, the chances of an early appreciation in the Investment markets seem likely to be affected by the world-wide demands for capital and the number and extent of Government loan maturities. In the third place, the high Income Tax and its relation to the abatements made by the Inland Revenue in favour of holders of Insurance policies .has to be borne in mind; while in the fourth place there is the circumstance of the protective character of the policies in case of death before the time period, has elapsed. In fact, we should imagine that, while a good many cautious investors may be inclined to take advantage of the present low level of gilt-edged securities to invest some portion of surplus resources, they would be inclined to vary the procedure by also applying some portion to investment through insurance— that is, of course, always presupposing them to be qualified for first-class life premium rates.
In some quarters we observe that the idea is held that our Life Assurance Companies might indulge in what Mr. Runciman described some years ago in copnexion with banking as a " more venturesome policy." In other words, it is suggested that they might take an even more direct part in directly financing industrial enterprises, and might even take a hand in the housing problem. In the soundest quarters, however, this view is not very cordially endorsed, where it is felt that not only are the Insurance offices justified in adhering to their former procedure as regards investments, but that, as I have already indicated, any departure should be unnecessary by reason of the ample opportunities offered to them for lucrative investment in gilt-edged securities. Moreover, it must be remembered that, indirectly, Life Assurance does minister to industrial undertakings and even to the requirements of the prospective house-owner. When it becomes a question of an individual financing an operation through a loan, the medium of the Life policy as security where the advance is obtained either from the Insurance Company itself or from a bank is well recognized. Indeed, not a few holders of Life Assurance policies have found during these times of stress their value as a means for obtaining temporary loans, while they have also discovered that their treatment by the Insurance Companies, sometimes by the terms of the contract and sometimes by consideration, has been of a thoroughly generous character.
Whether, in. view of the great opportunities stretching out in front of the Life Assurance Companies, there should have been any necessity for, the recent tendency on the part of so many concerns towards enlarging their scale of operations by affiliation with companies engaged in Insurance risks other than Life must be left for the Insurance expert to determine. No doubt in many instances it has been a case of improving the value of the property from the shareholders' point of view; and if only by reason of the strict regulations controlling the funds of the Life offices, there is no reason to suppose that policy-holders' interests have suffered in any way. Indeed, in some cases they may even have been improved. At the same time, just as the City has mingled feelings with regard to the banking interests of the country being concentrated in very few hands, so it would be a matter for regret in many quarters if the consolidation of Insurance interests were to go very much farther. Already the magnitude of capital controlled by comparatively few institutions is such that it is difficult to think that the interests of the country as a whole would be served by a further narrowing of the circle.—I am, Sir, yours faithfully, ONLOOKER. The City, January 19th.
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