OTHER PEOPLE’S MONEY

Sun (Auckland), Volume 1, Issue 68, 11 June 1927, Page 16

OTHER PEOPLE’S MONEY

INSURANCE SHARES THREE GOLDEN STOCKS

By

PERTINAX.

One of the most satisfactory features of New Zealand company finance is the excellent position of each of our three native insurance companies. The high prices of their shares lead the investor to seek that one of them which in his opinion has the likeliest prospect of paying something more than a dividend, within a reasonable space of time. Since each of these stocks yields a return, at present market values, in the neighbourhood of 4 per cent., it is obvious that their chief interest lies in the expectation of something in the nature of a bonus. And since history always repeats itself, the future possibilities of each of these companies may well be governed by the past performances of their respective directorates. Hence the following table, in which the recent histories of the Xew Zealand, the South British and the National Insurance Campanies are compared in some detail, indicates what they have done in the past by way of bonus issues, and therefore gives evidence of what they may be expected to do in the future.

Each of the three may now be discussed a little more fully. 1. —The National Insurance Co.

This is a Dunedin company, which makes it hardly necessary to say anything further. It is smallish, conservative and “as sound as the Bank.” However, the amounts added to re?rves have been decreasing slowly over the last eight years, which is one of the penalties of conservatism, and at the recent rate it will take the Board about three more years to fill its stocking to the level of 1923, when their first bonus since 1916 and second since the formation of the company was awarded to the surprised shareholders. There has been little effort to find new business, but a change in policy is foreshadowed by recent transactions whereby freeholds were bought in Wellington and Adelaide and the Brisbane premises were remodelled. Last year the premium increase was very small, while the underwriting profits decreased noticeably. However, the present market price is rather below the net assets value of the shares, which makes them a good purchase. 2.—The New Zealand Insurance Co. In 1919 this company reconstructed its capital into 1,500,000 shares of £1 each paid to Bs, and since then the board has authorised bonus payments of 2s per share in 1919, 1923 and 1925, bringing them to their present level of 14s paid. Apart from a further access of caution on the part of the board, there seems little reason why this action should not be repeated in the present year. Last year the income from investments paid all but £7,«60 of the total dividend, but in the case of the National, its investment income fell short of the dividend total by only £l5O, while the South British dividend was entirely covered from those sources, with about'£s,ooo to spare. The underwriting profit for the year ending May, 1926, fell by £50,000. This was attributed to (a) keen competition resulting in reduced premium rates, (b) increase of about lh per cent, in the expense rate, (c) increase in losses and (d) cost of New York fire reinsurance. The latter business has now been discontinued. The burden of these ills evidently fell more heavily upon this company than on the South British, but the board has no very serious

worries. The only aspects of these bonus payments which possess any drawback are that they reduce the ratio of reserves to paid-up capital, and that the dividend payment does not move up on a par with the increased market value of the shares. This gives an approximate comparison of results, assuming that the same amount is added to reserves in 1926-7 as in 1925-6, that another 2s bonus is given, and that the dividend suffers the usual reduction per cent. Paid-up Div. Total. Reserves, capital, rate. div. per cent. 1926 .. £1,050,000 11.9 £125,000 £1,139,267 1927 . . £1,200,000 10 £120,000 £1,062,000 Unless the board can show something better than that, which would make the paid-up capital considerably exceed the reserves, they will probably defer the next 2s bonus for another year or so. 3.—The South British Insurance Co. If the position of the other two companies were described as excellent, that of the South British could be called superlative. As far as either dividend or bonus is concerned the board can do almost anything it likes, but may equally well do nothing at all. The directors of this company combine an almost American ability to get business, with an almost Dunedin determination to stick to the profits. Last year there was quite a reckless air about their addition of an entire penny to the dividend, making it 2s 2d per share. The board escaped most of the evils

which were lamented by the Xew Zealand directors, and its premium income was the best to date, while underwriting profits rose instead of falling and the total profits were only a trifle below the record of 1920. Additions to reserves had been surpassed on only two other occasions, and at the end of the present year the management may be expected to disclose reserves of more than twice the amount of paid-up capital. In 1923 the company took over the business of the Eastern United Assurance Corporation, of the Straits Settlements, and charged that concern a premium of £34,000 on 31,640 shares for the privilege of amalgamation. This is probably one of the chief sources of fat underwriting Business. Since it is 5A years since the shareholders received a bonus of 5s per share, expectation has been getting gradually higher, and the following comparison shows the effect of a 5s bonus at the end of the present year, assuming that reserves go up to an amount similar to last year’s figures, the dividend rate being slightly decreased: — Paid-up Div. Total. Reserves, capital, rate. div. per cent. 1926 .. £773,730 14.4 £111,761 £1,432,713 1927 .. £1,031,640 12.5 £128,955 £1,300,000 Some months ago the shares of this company and those of the New Zealand rose considerably on rumours of amalgamation, but the purchase of a city freehold and a projected building scheme on the part of the South Bri-. tish directors appear to have definitely ended any further movement in that direction for some time to come. The total outlay may be estimated at about £150,000 and that may provide a further excuse for some alteration in the capital account. Possibly the most interesting portion of the South British balance sheet is the left-hand side, containing as it does such liabilities as “sinking funds of leaseholds” £16,678. Bills payable and “sundry open accounts” £222,070, and “investment fluctuation fund” £99,978, which latter item is rather more thsin ten times the allowance made by the Xew Zealand Insurance directors. The balance sheet shows the shares to be worth 44s 6d in net assets, but one may be pardoned for thinking that they are worth rather more.

Comparative Position of insurance New Zealand. Companies. £1 Shares. South British. £1 Shares. National. £5 Shares. Nominal capital £1,500,000 £2,000,000 £2,000,000 Issued capital 1,500,000 1,031,640 1,000,000 Paid-up capital 1,050,000 773,730 300,000 Last capitalisation of reserves .. 2s a share in 5s a share in 10s a share in 1925, amount1921, .amount1923, amounting to ing to ing to 150,000 250,000 100,000 Reserves at date of last bonus . . 205,650 1,054,124 500,605 Reserves at end last financial year 1,139,267 1,432,714 448,296 Added to reserves in 1926 .. .. 73,617 120,270 16,660 Amount paid up per share .. .. 14s 15s 30s Net assets per share 29s 2d 44s 6d £3 15s (Including- reserve for unexpired risks at rate per share of .. 7s Id 9s 6d 7s 8d) Dividend rate 11.9 p.c. 14.3 p.c. 10.8 p.c. Change in underwriting profit for Decrease of Increase of Decrease of 1926 -4,350 Excess of reserves over paid-up capital S9,267 65S,9S7 148,296 Surplus of assets over liabilities 2,252,000 2,262,000 y 76S.000 Amount of last dividend 125,000 111,761 32,500 Income from interest on investments, rents, etc 121,959 117,490 32,350 Accounts made up to May 31 Aug. 31 • Sept. 30 And submitted in August October November