AMPLE RESERVE FUNDS

NZ Truth, Issue 1301, 20 November 1930, Page 19

AMPLE RESERVE FUNDS

:: y St^^d*k§urance Company's l]ntemal ', Strength Grows LOSS RATIO INCREASE The accounts of the Standard Insurance Co., Ltd., disclose a considerable drop m insurance profits for the past year* and gen' erally an unfavorable underwriting situation;

THE- .crucial' ■ figures 'are-' as follows: — UnderPre- writing miums. Losses, Exes, profit. £ £" £ £ 1926 . . 219,509 104,037 85,350 . 30,122 1927 . . 292,719 . 159,671 91,056 42,092 1928 .. 297,024 181,900 93,154 21,970 1929 . . 335,472 211,692 94,079 29,701 1930 ..283,027 181,679 86,258 15,090 Both the loss and the expense ratios are moving unfavorably, as below: — ..,_'' Loss ratio % Expense ratio -% 1926 .. 47.4 38.9 1927 ... 54.5 31.1 1928 .'. 61.2 31.4 1929 .. 63.1 28.0 1930 ... 64.2 ' 30.5 A scrutiny of premium income shows the normal curve of New Zealand business at, the present time;, a gradual rise up to' 1929, and A sharp fall last year. After a , big jump from 1928 to 1929, premium income has taken an even bigger jump down to the lowest point recorded since 1926,. being £52,445 less than 1929, Ayhich.'year, one of abnormal premium income, was also one of abnormal losses. The loss, ratio has climbed-, in the five years at , a rate and to a point that is rather alarming, while ,the expense ratio, which fell markedly m 1927 and again m 1929, rose by 2.5 per cent., showing that business was difficult to write.. Net premium income for 1930 shows a drop bf nearly 100 per cent, from last year, being lower at £15,090 by £14,611 from the 1929 figure of £29,701., While 'premiums for 1930 are less than m the previous year by £52,445. losses wer.e,lower by £30,013, and expenses by /£7821 (including £2000 depreciation). Fire insurance always makes a bad showing m depressed times, because lower property' arid mei'chandise values reduce premiums, hard times raise the expense ratio, and arson is more prevalent. Investment income has m a measure redressed the balance and stabilised the situation. Total profit has moved as below: — Security deprn. Under- Invest- .reserve writing ment adjust- Total profit. income,etc. ments. profit. 1926 .. 30,122 20,738 394- 51,254 1927 . : 42,092 22,879 310 65,281 1928 .. 21,970 24,357 —26 46,300 1929 .. 29,701 25,770-' 99. 55,570 1930 .. 15,090 26,736 —28 41,798 It is thus seen that investment income is showing a steady upward movement, but that aggregate profits, owing, to the vicissitudes of the underwriting side, are subject to consider--able fluctuation. Profits have been allocated as follows over the past five years: — Div. Div. . To To staff amount rate ' reserve funds £ , - % . £ - £ 1926 . . 25,000 16 2/3 26,254 — 1927 .. 25,000 16 2/3 40,281 . — . 1928 .. 25,000 12% 21,300 — 1929 .. 25,000 12% ■ 27,070 3,500 1930 .. 25,000 12% 14,998 1,800 This dividend policy is most sound and commendable. The directors have paid a steady figure of £25,000 per annum over the period, and strengthened the reserve situation consistently. The company, has built up great internal strength, and its. reserves are not only extraordinarily large, but more than ample guarantee for policy-holders and general stability. . The reserve situation is as : below for the last 1 three years, £50,000 of reserve having been: capitalized In 1927:—

-.•.;■•--.- 1928 .1929 1930 •■:: yy:- ■ '■■■■-:. vv£ -,- .£■- yy £ ' General reserve 170,000 180,000 205,000 Unexpired risks 127,000 142,000 128,000 Security deprn. 17,806 17,905 17,877 Taxation- . . 15,000 15,000 15.000 Pjrofit and loss 17,147 19,119 23.144' Total.. .. 346,953 374,024 389,021 Notwithstanding the unfavorable underwriting position, internal strength is growing all the time,, owing to the stabilising effect of the heavy and growing investment income. Since 1919 a sum of £150,000, equivalent to 12/6: per share, has been transferred to capital, leaving uncalled capital of £800,000 (£4 per share). This uncalled capital ia, of course, a further guarantee to policy-holders, but existing guarantees are ample, and it seems to be unnecessary ancl to serve no useful or necessary purpose. Against net premium income of £283,027 m 1930, there were paid capital at £200,000, and reserves of £389,---021, total shareholders' funds of £589,---021. This gives a ratio of 208 per cent., whereas the standard minimum ratio is 150 per cent., so that the underwriting capital situation is amply strong. The assets position is very good, as below: — . 1928 1929 1930 £ £ ''■".£' Premises .. 112,032 119,410 119,908 Mortgages .. 35,870 31,735 31,610 Debentures . . 95,027 95,050 ' 90,097 Govt, loans . . 277,750 304,540 . 313,340 Cash items .. 96,967 111,046 107,425 This is a sound and well-balanced body of assets. Mortgage holdings arenot heavy, and this is a desirable feature m these days of sinking values. Government loans are undoubtedly on the whole the best form of investment as regards security' and liquidity. It means that finance is bound up with national prosperity m the countries of investment, but onthe v?hole this is a desirable thing. The wide investment of insurance and savings bank funds m Government loans is the best political safeguard against repudiation that could possibly be devised. The cash items show a high degree of liquidity. This, concern is m its present strong position because of sound and able management and policy, coupled with the' steady rate of investment income, which makes -dividends independent of fluctuations iri the underwriting.position, and provides a strong and liquid backing ,for underwriting liabilities. Tbe company is very sound, and recommended as a long period investment. At market price, howr ever, the return is only 4J4 per cent., so that the. market somewhat over-values- the shares, having m mind no doubt the prospect of further capital appreciation. 1 With increased taxation and hard' times raising the expense ratio, ? and depression also increasing the Jloss ratio, the prospects of capital appreciation are not. as rosy as before, but the shares can be recommended for permanent investment, though the market is not active. "Fiat Lux " Replies "A: J." (Christchurch): We have no information about this concern. Can you send balance-sheets and other documents? "Windy*: (Kai Valley): We think the prospects of this concern are, m a, long view, not unsatisfactory: It depends on management and the prevailing economic situation. "Debenture" (Timaru): We have a poor, opinion of this concern, and do not regard its prospects as promising. _