Evening star., 1939-12-31

BANK ana insurance
Shares Advance 10
Higher Levels
Dividend Payers Score
observation-disclosures
Price Coins
BY Cambridse Associates.
Not the least of 1899 surprises
was that two of the most conserva-
tive, income-producing groups Of
common stocks turned In a record of
performance far ahead of the aver
age industrial issue. And this in
the face of a boom in heavy in
dustry matching the levels of 1929.
Bank stocks ended the year % per
cent higher than at the beginning,
and insurance stocks per cent
higher, while industrials declined
nearly S per cent.
Bank earnings in most cases &C
tually declined, continuing the trend
of recent years. The declines con-
tinued moderate. however. and were
directly traceable to further lower
ing of interest rates. In Septem.
ber. it appeared that the year would
end with banks showing substantial
losses in market value of United
States Government bonds, but a
sharp recovery took place in No
vember and December. Not that
such paper losses would have been
embarrassing, for conservative in
stitutions have been setting up re-
serves against the huge security
profits of recent years to meet just
such a contingency.
Commercial Loans Up.
The Nations banks have work to
do. Commercial loans are now ap-
preaching the highs of 1887; mig
gardly by comparison with the huge
total of excess reserves. these loans
are nonetheless comforting. and
give the banks a reason for exis-
tence, which has been singularly
lacking since the great depression.
A new type of loan has gained pro-
minence this year: the so-called
term loan. This usually natures
in serial installments and may run
for as long as 10 years. The interest
rate is more attractive than for the
ordinary extension of credit.
Sometimes corporation will
negotiate with bank and an in
surance company for a term loan
running for an even longer period,
the insurance company taking the
longer maturities to meet its higher
income requirements. Insurance
companies are not so much in
terested in lquidity as the demand
for ready cash Is hardly ever ex-
cessive. Banks, on the other hand,
must always be prepared to satisfy
the demands of an unpredictable
number Of depositors at one and
the same time.
Ready for Contingencies.
Government portfolios are still
prominent in banks balance sheets,
in some cases ranging up to 40 per
cent of total assets. Maturities,
however, have been shortened, and
the average bank stands to lose
very little from a possible reversal
in the trend of interest rates, after
reserves are taken into account.
Insurance companies have been
experiencing an improvement in
business and are expected to con-
tinue to do so. With conditions all
over the world as unsettled as they
are today, business men and indi-
viduals are more acutely conscious
of the risks we take and their poten-
tial cost. And insurance companies
are quick to develop coverages to suit
individual needs. Underwriting, both
in the casualty and fire divisions,
has been generally profitable for
number of years, and the universal
practice of ploughing these earnings
back into the business has increased
the total of investment portfolios,
and consequently, of investment in
come.
Casualty Business Grows.
Nearly all the major fire insurance
companies are now affiliated with a
casualty company or are contem-
plating such move. The casualty
business has passed its infancy, and
while it is still admittedly subject
to miscalculations, the losses have
been uniform for number of years.
The field of casualty insurance has
been expanding rapidly for a num-
ber of years, and is the only sector
of the business where vigorous
growth is possible. It Is felt that
the stability of fire insurance COM
pany and the growth characteristics
of a casualty company make for
healthy union.
Ocean marine coverage is concen-
trated in relatively few hands in
this country as it is specialized
business. Income Of the ocean ma
rine departments will undoubtedly
register a large increase. whether or
not domestic shipping is fully util-
lied. Rates are, of course, higher,
and many foreign shipping interests
will insure American companies. AS
to profits, the record in the World
War was decidedly profitable. Ocean
marine insurance and war risk in
surance are separate and distinct,
and should not be confused.
Portfolios Conservative.
Most insurance companies, both in
the fire and the casualty fields, are
now invested in an unusually con-
servative list of securities. The in
vestment record of the business Is
such that careful attention should
probably be paid to this fact by the
ordinary investor. The prevailing
attitude seems to be that better buy
ing opportunities are ahead both for
hiph-Rrade bonds and for common