Evening star., 1936-09-18

1eT6I1Ce.
But there is
lot Of important - ~
information here
and plenty of facts in such documents,
for instance, as the annual proceed
tngs Of the Association of Life In
surance Presidents, SO that, if the
reader will indulge me the liberty of
describing hypothetical conversation,
! will present here what the Presi-
dent of the United States might have
asked and what the life insurance
presidents might have replied II this
were not political year.
@. Are life insurance companies
safe?
A. Absolutely.
@. Are they well administered?
Investment Troubles.
A. With all due modesty, we think
they are the best administered finan-
cial investment institutions in the
world
@. What are your troubles, then?
A. We cannot find suitable invest
ments that will yield us enough re-
turn to keep up the earnings that
we ought to have. The money we
take in from permiums must be kept
constantly invested.
@. But you can buy Government
bonds. can't you?
A. Yes, but we already have too
large a proportion of them.
@. What is the proportion?
A. We now have 14.5 per cent Of all
our assets invested in securities Of
the Federal Government alone.
@. Is this high?
A. Yes, it is the highest in our
history. In 1884. for instance, 1t was
just above per cent. BY December,
1885, 1t had gone up to II per cent.
and now the latest figures shows 14.5
per cent Of all our assets in Federal
Securities.
Much Cash Idle.
@. What about your idle cash?
A. That. too, is the highest we have
ever had. We now have and have
had since last December about $780,
100000 in cash.
@. What's wrong about that?
A. We must earn a certain return
on our money If policyholders are to
be given insurance at a reasonable
cost. If we cannot invest our money
for an adequate return, it raises the
cost of insurance. We have frankly
stated on more than one occasion
that, if the low interest rate program
instituted by the Government keeps
I'D and if business and industry hesi-
tate to float new securities in which
we can invest, there will have to be
o reduction in dividend payments to
policyholders.
@. This would not, of course, in
elude the companies that do not have
Q participation in earnings by policy
holders?
A. No. but on new policies they,
too, would have to raise their preml-
ums to the policyholders.
@. You mean to tell me that the
cost of life insurance generally may
be going up?
A. Yes, and that's why the public
ought to buy now. so to speak. For,
no matter what comes, life insurance
policies are absolutely the best form
Of investment, and the cost is still
reasonable.
Safe IL Imitation Comes.
@. But what about the proceeds Of
life insurance? Are they safe?
A. That's something for the policy
holder to worry about. If the present
trend in Government budgets con-
tinues, and we have imitation, it means
that the widows and recipients of
paid-up insurance will not be able to
buy as much out of dollar for their
necessities as they can today.
@. Do you mean that, even If inf1a-
tion comes, your companies will be
safe?
A. Absolutely, for we are just like
banks. We pay out in exactly the
same unit of currency-the dollar
as we take in. The purchasing power
of that dollar, however, is something
that we have nothing to do with.
@. Have you reduced dividend pay
knents as whole in recent years?
A. Yes, for various reasons, our
dividend disbursements have been
going down, partly due to defaults in
in various mortgages and other Sc
curities and partly due to the reduced
earnings of our investments and our
inability to get suitable investments
ct a higher rate of return.
@. What do the figures show?
Downward Trend Shown.
A. Well, the spectator company,
which publishes insurance trade jour-
mails, shows that the trend has been
downward. Dividends rose steadily
from 1925 and reached q peak in
1881, dropped q little in 1882, but were
still above the 1890 figure. Then in
1888, 1884 and 1885 the dividend pay
ments to policyholders dropped stead
ily to $424,255,553 for the year 1885.
This is a drop of $l3s,000.000 from
the year 1882.
@. Besides your unused cash would
you say that much of the money you
have invested in Government securi-
ties is in short-term securities at very
low interest?
A. Yes. The portfolios Of different
companies vary, but perhaps so per
cent, or about $l,4s2. 100000. is in
short-term or medium-term Federal
Government securities earning very
low rate of interest.
Q. Then, If you can't invest your
money in more remunerative invest
ments, you must ultimately reduce
your dividends, and this raises the
cost of insurance to future policy
holders and to present policyholders
who depend on their dividends to
cut the annual cost of their premi-
}, ums? a
Q. That Is right. and viii be the case