Tax rise takes $900,000 from C.U. bonuses

Press, 12 April 1978, Page 14

Tax rise takes $900,000 from C.U. bonuses

PA Wellingtonj The increase in life companies’ income tax from 18c in the dollar to 30c on the value of declared bonuses resulted in policy-holders being deprived of $900,000 ir bonuses, said the chairman of Commercial Union Assurance (Mr Peter Scott) in a statement. The company had been hard put to maintain bonus levels m the face of the 66 per cent increase in income tax, he said. “A major factor in its ability to do so has been the increase in earning rates which resulted in a better return from investments and this, to a certain extent, offset the higher income tax.” The company has changed its balance date from September 30 to December 31 to bring it in line with C.U.’s world-wide activities. Because of this pol-icy-holders whose policies have their annual renewal between September and December last will receive two bonuses and those whose renewal falls in the remaining months, one. For the September 30 year, policy-holders will receive bonuses totalling $18.7M and an additional $4.7M has been allocated for

the SeptembenDecember quarter. During the 15-month period to December 31 earnings on the company’s; investments in the life fund averaged 8.62 per cent a year, compared with 7.97 per cent for the 12 months to September, 1976. New sums assured totalled S2I7M and new annual premiums S3M for the 15month period. Non-life activities had an over-all underwriting loss of $945,000, mainly as the result of big fires and the, December, 1976 floods in Lower Hutt and Wellington. “This involved the company in gross losses of $370,000, but I believe they show the important role played by the insurance industry,” said Mr Scott. “While there continues to be uninformed criticism of the part played by insurers generally, I am certain our many satisfied clients will support my comments. “Insurers must achieve underwriting profits in order to maintain their margin of solvency and to ensure they have the ability to meet their contractual liabilities. “To achieve an adequate solvency margin it is necessary to charge a premium commensurate with the risk,

but these are rapidly increasing in money terms. “All too often critics of increased premiums overlook, the escalation in values during the period of the cover resulting from high inflation. “While C.U.’s solvency is well above any minimum requirement it concerns me to see insurers reporting underwriting losses. “The premiums charged must not only be adequate to cover claims, but leave a margin for dividends and enable the insurer to increase his financial base in order to cover increasing liabilities,” said Mr Scott. The chairman restated his remarks of his 1976 report in which he described the position of the insurance public having to meet nearly three-quarters of the cost of maintaining fire brigades as “iniquitous.” “The insurance industry contributes 72.5 per cent of the cost of maintaining fire services. These costs should be spread over the whole community, not only just those who insure. “This is more than a service to protect insured property and therefore should be a national responsibility,” said Mr Scott.