Reactions of War Loan Conversion on Insurance
WAR LOAN conversion sharply emphasizes the difference between life assurance and the commercial forms of insurance. Fire, accident and marine insurance reserves must be kept liquid ready to meet any catastrophic loss. The major consideration guiding their investment is immediate realizability. Unpleasant though the drastic cut in the rate of interest may be, especially during a period of shrinking funds, no hesitation was felt in accepting the Government's offer to convert in regard to reserves of this kind invested in National War Lean. If conversion has the hoped-for effect of expediting a recovery or business, the reduction in the amount of interest receivable would be quickly compensated in two ways. Increased business should produce increased underwriting profit. It also implies an automatic increase in reserves, and the larger volume of reserves should more than counterbalance the loss from the smaller rate of interest.
Opposite considerations apply to life assurance. In the investment of life - funds.' the interest Tate is all important, the degree of realizability being of no moment. The Chancellor's proposals placed the life offices in a quandary. When they were first announced the price of the old al- per cent. Conversion Loan, which to all intents and purposes is equal to converted War Loan, was several points below 99. The question for the life offices, therefore, was whether, consistently with their duty as trustees for the moneys of the policyholders, they could consent to accept a 34* per cent, stock at 99 when, by asking for repayment,- they could purchase a similar stock much cheaper. The gap between the two quotations has since been considerably shortened, relieving those responsible for the administration, of life funds if their legal liability for any breach of trust in converting.
Previous page
