INSURANCE SHARES AS AN INVESTMENT
register-abroad -and -still carry on;' the more- so since the bulk of the profits derived in trading come from abroad, competition in .the United Kingdom being so fierce that insurance in view of its benefits is extremely cheap. It is not generally known that the old Russian companies, whose ramifications before the War extended world-wide, despite the upheaval in Russia, have been able to re- start through their former Continental and American branches. Yet the home organizations have been entirely destroyed by the Bolsheviks.
The leading British offices financially are very stable and their resources sound. No clearer evidence of this can be found than their ability to pay promptly in 1906 some £13,000,000 as the result of the San Francisco catastrophe. During the War the companies undoubtedly made large sums of money, which was used in setting up substantial reserves in all departments, and in addition general reserve funds were greatly strengthened. It will be re- membered, too, that the companies throughout the War a constituted with the banks the backbone for taking up and absorbing War Loans of all description, and in conse- quence a very heavy capital depreciation in 1919 had to be faced in respect of these holdings, large sums having to be allocated to reserve ; but although such depreciation has now almost entirely disappeared, the sums so allocated for depreciation have in very few eases been written back, thus creating a sound and most useful " hidden reserve." The past year for Fire and General business has been very favourable, whilst the 1922 marine account, closed this year, is expected to show better results than was at first anticipated, and large increases in new life business have generally been reported.
In some cases the yield per cent. is small compared with even trustee securities, but experience has proved that, year in and year out, dividends and capital appreciatiOn increase, and it is very seldom that one of the leading company's shares sold can be repurchased other than at a higher price. Over and above the security of capital there is a certain speculative element caused by proba- bilities of amalgamation or absorption by one company of another ; this tendency following the example of the big banks has been increasing, and usually brings most remunerative profits ; for instance, the Royal Exchange Assurance Corporation recently absorbed the State Assurance Company on the basis of £1 Royal Exchange Stock and £5 12s. cash for each " State " ES share £1 paid.
Since Royal Exchange Stock to-day- is £700 as against £580 (approximately) it will be seen that shareholders in the " State " not only have a considerable profit which will doubtless further increase, but in addition they have been relieved of their uncalled liability of £7 per share.
It would not be surprising-if, during the current year, further amalgamations between other companies mate- rialized with equally satisfactory results. The object of such amalgamations is to cut organization expenses and competition, and to extend business and consolidate and strengthen financial resources, which object has been achieved in most transactions.
Finally, the following figures may bring home the pos- sibilities of insurance shares from the investors' point of view, having regard to the fact that 1924 has been a good year, the results of which will shortly be issued with a probable increase in dividends of some of the leading companies.
The value of the shares of seventy-nine well-known insurance offices amounted, in January, 1914, in the aggregate to £90,266,787, and the value of these shares at the end of January, 1925, amounted to £213,114,555, that is an increase in value of 136 per cent. This increase has been a gradual one over the period, and it is extremely doubtful whether any other large investment group has shown such good results. In conclusion,-it might be of interest to explain that the majority of the leading companies pay dividends out of the income from invested funds, leaving trading profits, to accumulate and strengthen the reserves, which in turn produce additional revenue out of which future dividends can be increased. This is one of the factors 'which has, added to the financial reputation of the British insurance companies, and enabled them to secure the premier position all over the wand. INSURANCE shares have in recent years attracted the investor, and of all " markets. " they have been the most consistent movers in the upward tendency.
The reasons briefly are that investors realize the very sound financial position of the leading Companies, and, further, not only have they provided substantial capital appreciation, but also progressive dividends. Insurance shares have one drawback, similar to bank shares, and that is the uncalled liability which attaches in most cases, though experience has proved that such liability is not likely to occur in a well-managed office ; in fact, in recent years; it has been the practice to capi- talize part reserve funds in order to relieve shareholders of part of. this liability. In former years investors in insurance shares were of a limited class, but having regard to the two main considera- tions of investing—i.e., capital appreciation and constant. and progressive dividends as stated above—this class of share has proved so remunerative that a much wider interest is now being shown in this market and prices have consistently risen.
The great advantage of insurance and assurance is, that as the leading companies operate all over the world, political and labour troubles do not seriously influence their operations, and through widespread organization the fluctuation in exchange and a bad experience in ohe part of the world is averaged over the whole.
Insurance is so complicated that prospects of nationali- zation are remote, apart from the fact that the companies pay an enormous-sum annually in taxation. direct and in-, direct, and in addition provide -a steady and increasing, amount of " invisible export." Even if nationalizations was contemplated: -it would 'be easv -for. the :companies to
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