FACTS FOR INVESTORS.

Auckland Star, Volume LXIII, Issue 252, 24 October 1932, Page 4

FACTS FOR INVESTORS.

SOUTH BRITISH INSURANCE. EARNINGS FALL STILL LOWER. FINANCIAL STRENGTH UNIMPAIRED. "Insurance is a veritable barometer, not merely of the state of trade and commerce, but of social conditions generally." This was the statement of Mr. E. R. N. Russell, chairman of directors of the South British Insurance Company, in the course of his address to shareholders at the last annual meetinc. It was made to explain the fall in premium income disclosed in the 1931 accounts. The accuracy of the comparison has been confirmed in the interim. The financial year, which closed on Autust 31, lias marked a further downward movement in the world's economic level, and the fact ia reflected in the company's accounts. The South British Company is essentially a New Zealand enterprise, with Auckland as its headquarters, and Auckland citizens as its controlling authority, but ite operations are world-wkl" and must be viewed in conjunction with the conditions ruling in many diverse countries. Unfortunately, the economic cataclysm which set in towards the close of 1930, ■has spared no country. No matter what territory is considered certain geneial principles are effective. Lower prices mean reduced cover on land and sea. Stagnant trade means fewer shipments. Less demand for goods means fewer hands employed, which in turn means lower wage sheets for workers' compensation insurance. When these circumstances are borne in mind it is not surprising that the underwriting surplus for last year was the smallest realised during the past decade. ' Past Years Compared. The following table shows the chief items of expenditure and income over a term of years, together with the amount of reserves at the close of each yearly period:— Underwriting Interest _ „ Year. Surplus. Earned. Dividend. Reserves. £ £ £ £ 1923 80,270 95,311 90,268 1,120,531 1024 81,770 103,113 98,800 1,213,310 1925. 85,820 111,092 107,403 1,312,444 1920 82,171 117,490 111,701 1,432,713 1927 83,380 120,750 110,000 1,553,088 1928 80,970 120.150 124,057 1,443,304 1929 90,771 134,340 133,253 1,543,943 1930 70,221 140,870 137,552 1,597,427 1931 75,389 137,054 137,552 1,003,121 1932 00,255 132,908 137,552 1,079,423

Not only are underwriting results lower but there is a reduction in the amount received from interest and from rents. This requires little explanation. A large part of the company's liquid assets is invested in Australian and New Zealand Government securities, and both of these governments have reduced the rate of interest on public issues. In the case of Commonwealth stock the reduction was 22Vi per cent. The South British took up a quarter of a million's -worth of the Commonwealth conversion loan last year. Rents have fallen everywhere in sympathy with all property values. The company lias, for a lengthy period, given effect to the policy of limiting its payments' to shareholders to the amount received as interest and rents. It will be noted that on the present occasion the dividend recommended, will slightly exceed interest earnings, but this need not be taken as an indication that _ the directors have discarded the traditional policy. They probably take the view that as these are exceptional times, they are justified in making a liberal distribution at just when it will be most appreciated. The bulk of the underwriting surplus will still be set aside, and it only means a delay in making the next bonus allocation, which, in the ordinary course of events, will become available as soon as reserves reach a sum which, in the opinion of the directors, is more than sufficient to cope with all conceivable emergencies. Insurance Results. Coming to the purely underwriting operations of the company the following record is obtained: — Premium Losses. Income. Year. £ £ Ratio. 1923 ... 401,940 866,388 56.78 1924 ... 480,668 879,799 55.66 1925 ... 496,709 905,917 54.83 1926 ... 521,003 939,533 55.45 1927 ... 617,562 1,046,753 58.99 1928 ... 628,559 1,038,048 60.55 1929 ... 641,843 1,051,842 60.99 1930 ... 617,069 991,647 62.22 1931 ... 566,942 847,718 66.87 1932 ... 470,290 804,634 58.45 The most notable feature in the latest figures is the sharp and welcome reduction in the loss ratio, which was unusually high for the previous twelve months. It may be assumed that since the slump began the _ management has exercised especial caution in the acceptance of risks, and, while a policy of conservatism. in this respect business hard to get, and hard to retain, it is apparently being justified by results. Premium income is at the lowest point recorded during the present decade. Provision Against Losses. Consideration of the profit and loss account should be read in conjunction witn the position of the accounts which make provision for losses as well as the investment fluctuation fund. These show the following variations over the last four years:— Investment Unexpired Reserve Fluctuation Risks. for losses. Fund. * £ £ £ 1929 . 526.000 195.747 108 - 2 ;>l 1930 . 526.000 208,152 1?8,497 1931 . 450.000 19u,747 1932 . 450,000 167,503 2u0,000 The investment fluctuation fund is unaltered, and in view of the marked appreciation that has taken place during the last six months in Australian and New Zealand securities the account is doubtless quite high enough. Reserve for losses outstanding is an amount that can be assessed with approximate certainty, and the reduction is in accord with the general position. In regard to unexpired risks the directors have publicly stated that it is their policy to keep these at half the amount of the premium income for the year. Had this course been followed for the year ended August 31, 1931, the underwriting surplus would have shown £30,000 better, and for the latest period the margin over the 50 per cent ratio exceeds £47,000. Details of expenditure and total revenue are shown below: — Expenditure. Revenue. Tear. £ £ Ratio. 1923 294,178 961.R99 30.09 1924 308.362 982.912 31.27 1925 313.382 1,017.099 30.81 1926 318.358 1.057.023 30.10 1927 311.800 1.167.534 26.61 19-8 322.513 1,164.198 27.70 1 r V 317.589 1.186.189 26.77 l«.mO 304.357 1.132.516 26.87 1931 281.387 985.372 28.55 1032 271.059 937.5! 2 29.23 j With sharply falling income it was inevitable that the expense ratio would rise. South British interests are scattered in diverse countries —some of them foreign— ! and it is of the utmost importance that a 3 staff of skilled and trustworthy officials > shall be available at all times. It is , particularly needful in the present difficult period that there shall be no slackening of enterprise or of trained supervision at any point, and this, in turn, precludes the possibility of overhead being reduced in proportion to lessened earnings.

The Assets. Leaving the profit and loss account and coming to the balance-sheet, the following table shows the principal changes in assets during the past year:— 1031. ,1932. £ £ Company's premises . 549,905 513,529 Loans on mortgage . . 30,053 41,185 Stocks, debentures and shares SSG,OSI 590,028 Muiicipal and Harbour Board debents. 440,809 443,347 Government stocks . . 1,149,134 1,152,244 Cash in banks, deposits and short-dated investments, and Bills of Exchange in transitu 155,425 240,293 Balance at branches and agencies 141,307 113,842 Sundry debtors and bills receivable ... 81,018 80,182 Total 3,145,852 3,180,050 Of assets totalling over £3,100,000, about £2,600,000 are invested in liquid securities, so that policy holders are protected to a degree that should satisfy the most'exacting. 11l view of the present critical condition of finances in most countries, it would be well if the South British and similar organisations were to revert to a custom that existed for many years, and show in their balance-sheets where their securities arc: located. The latest accounts show oyer £2,000,000 in liquid assets, comprising stocks and other securities with no indication us to where any of these are held. The shareholders are entitled to this information. Trustee Business. With the annual accounts is included a statement of the business carried on by the Guardian Trust and Executors Company. This shows the amount of credit of estates under administration £0,344,150, in addition to which the company holds debenture trust totalling over £4,000,000. Particulars of the assets set against these liabilities are given, but there is no indication as to whether the company is an assistance or a hindrance to headquarters. However, the directors report "a steady and progressive" rate of increased business, and it may be confidently assumed that in the administration of over £10,000,000 worth of property some profits are available to help swell the general receipts of the South British. Investors. The market very properly wrote down insurance scrip from the high levels that were ruling jn the days when bonuses could be predicted as forthcoming at regular intervals with almost mathematical certainty. However, a keen demand again set in a few months back, and to-day the shares are selling at £2 17/t) for the fully-paid £1 scrip. This shows a return to the present purchaser, based on the current dividend rate of approximately 4% per cent per annum.