Evening star., 1936-05-13
INSURANCE FIRMS
SEE INCOMES LAG
Declining Interest Rates
and Bond Refundings
Create Problem.
BY CHARLES F. SPEARE.
Special Dispatch 10 The star.

NEW YORK, May 13.-As the
largest investors in this country. the
life insurance companies, through
their financial advisers, have a diff
cult problem to face in these days
of declining interest rates. when the
choicest securities in their portfolios
are being refunded to the advantage
of the borrower. The effect of this
has been shown in the smaller divi-
dends declared by these companies
for the year 1895.
With one large life insurance COM
pany its investments made last year
yielded an average of 285 per cent,
compared with an average of 337
per cent in the previous fve-year
period. With another bonds that
were called or matured carried an
average yield of $50 per cent and
were partially replaced with one group
of new securities giving an average
of 2.87 per cent. Additional bonds
were bought returning 247 per cent,
resulting in a yield on all new pur-
chases of 255 per cent. This tells
the story for practically all of the
life companies.
More United States Bonds Held.
One of the factors responsible for
the decline in the average yield of
life insurance investments is the in
creased purchases by them of United
States Treasury obligations. Com
mitments in these have been rapidly
expanding, so that at the end of
1885 the seven largest companies held
an aggregate of l,750,O00,0O0 or di-
rect and guaranteed Treasury loans,
or about S per cent of the total Gov
ernment debt.
While this is relatively small in
vestment, compared with that of the
banks of the Country, it represents q
striking change in the investment di-
rection of life insurance funds. At
the same time it has been improving
investment quality, it has cut average
earnings.
The life insurance companies of the
United States. at the end of 1885. held
in their portfolios s2,502 100000 of
United States Treasury loans. repre-
senting III per cent of their total
assets, against AZ per cent at the END
of 1888.
Initiation Talk Ignored.
1t IS an interesting fact that, in
spite of the constant discussion of
currency initiation and the possible
effect of this on life insurance in
vestmentS and on the 100000
policyholders, there has been a steady
rise not only in the dollar value OF
life insurance company holdings OF
Treasury loans but in the proportion
these bear to their total investments
Analyzing the character of life in
surance ownership in Treasury loans
it will be found that quite opposite
policies had been pursued by the
financial advisers of companies OF
about the same rank The division
exists In the matter of long or short
| Treasury maturities.
This resembles a similar situation
existing among the larger nationa
banks and trust companies. For in.
stance, one life company has its en-
tire investment in Governments in
long maturities and in guaranteed
issues. Another has go per cent ir
long bonds, about 80 per cent in short
and the remainder in Federal Farm
Mortgage Corp. and Home Owners
Loan Corp. bonds
A third has adopted an absolute
long-term policy for a total invest
ment in Treasury issues exceeding
$500, 100000. A fourth has an 80 pei
cent ownership in long direct anc
guaranteed Treasures. while a fifth
has about balanced its investment ir
"Governments" between moderately
long and short maturities.
(Copyright. 1850