28 SEPTEMBER 1974, Page 26

Skinflint's City Diary

Following some remarks in The Spectator last week, about endowment insurance policies, a reader has written to say that he has a problem which needs an answer, He reveals that he has a With Profits Endowment Life Policy with the Prudential Assurance Company. Their Reading Office have confirmed that he started in June, 1969, and pays a premium of £870.30 each year for the next twenty years, and the sum assured is £15,000, plus bonuses. He has been struggling to make the payments for the last five long years, but has at last been forced to ask the value if he surrenders his policy. To his surprise the company will only give him £4,409.10 against total annual premiums that he has already paid them of £4,641.92.

This reader goes on to admit that a reason for undertaking this commitment was that he had expected the Prudential to give sympathetic consideration to any mortgage application he might make for his house or for the expansion of his small business. He also had the feeling that if and when his company was floated on the Stock Exchange, the investment department of ' the Prudential might take a small block of shares, naturally on their merits as a firm investment from the

merchant bank underwriting the issue. His problem now is to decide whether to cancel his policy, which would give him £4,409 capital, yielding in gilt-edged at 16 per cent £705 a year in perpetuity. He could add to this £870 that he is at present paying in premium, giving him a total extra income of £1,575 should he now cancel his policy. Well, there it is. If life protection is necessary, there are cheaper ways to get the same cover.

Friends in the City tell me that the Prudential's property department have not been keen on small • mortgages for industrial property development, but have preferred to lend to large developers, such as Ronald Lyon, Stern Estate, and the fringe banks. No doubt they are reviewing this investment policy, which has not had the effect of spreading the flow of premiums or the risk as it should. The same friends tell me that the Prudential have not been buying shares in small public companies for several years, but have in fact been parcelling up bundles of shares that they have had in such businesses and exchanging them for the paper in various investment trusts and conglomerates. Again, this policy needs careful reviewing.

I am not going to give the reader my advice, though I should do.