Evening star., 1934-01-07

To be sure, State laws govern the types
Of securities in which insurance COM
panies may invest their funds, but SO
sweeping we're the effects of the stressed
years that securities so gilded that they
were considerable use an old phrase
as safe as the Bank of England de-
preciated in value. in some cases, all
most to the vanishing point. That such
a situation was beyond control of the
insurance companies themselves and
not the result of bad investment judg-
ment is emphasized by the fact that
the criterion mentioned, the solid Bank
OF England itself, got in such attenuated
shape that England was forced of the
gold standard as early as 1881.
Ordinarily securities issued by States
of the American Union or local divi-
sions, such as cities and counties, are re-
garded as Of the highest class and
constitute legal reserve investments for
insurance companies. In the past three
years, however, there have been de-
faults on these very kinds of bonds in
20 states. When the very highest class
of railroad and industrial bonds are
unable to meet their interest payments,
when securities which have been re-
garded as absolutely safe succumb to
a general deValuation. the only recourse
of great trustee bodies like insurance
companies is the exercise of the highest
type of skill in picking and choosing
among the investments remaining.
Situation Improves Steadily.
Land mortgages, especially farm
mortgages, have been favored types of
investment for insurance companies.
State laws allow such loans, provided
they are based on conservative va!ua-
tions and are made for only a frac-
ton ofifull worth. But even such care
ful calculations are upset when tens OF
thousands of farmers and other prop
erty owners are unable to meet their
interest. There have been such wide
spread foreclosures that the insurance
companies now are probably the largest
landlords in the United States.
Insurance policies nearly always carry
loan provisions, enabling the insured
person to borrow after he had paid.
given number Of premiums In the dis
tressed years many thousands of per-
sons availed themselves of this privi-
lege. Others accepted the cash sur
render value of their policies. The
total paid out in loans and cash sur
renders from 1880 to 1888, inclusive,
was $5,796, 100000. Adding all other.
claims the insurance companies dis
bursed total Of $l2, ,497, ,000. 900 in the
period.
The insurance companies will likely
emerge from the depression stronger
than ever before, because during its
course they were able to acquire many
bargains in the shape of legal invest
ments which were greatly deprecated
in market price. With the rise in quo
tations which has occurred since last
Spring. this effect has already proved
noticeable. For example, the assets Of
the legal reserve companies at the end
of 1882 amounted to $50. .754, 100000.
while at the end Of 1888 they were
estimated to have risen to s21, ,l35 ,O00,-
900. As the upturn continues there
will be further appreciation, the process
always having the effect Of providing
enhanced security TO policy holders.
The New York Trust Co., which ham
dies vast amount Of insurance COM
pany business, in commenting on the
showing made by the companies dur
ing the hard years declares that they
have emerged in so sound condition
that nothing but continuously unbal-
anced Federal budget and tinkering
with the currency in such a manner
as to bring about unbridled imitation
can shake them.