OTHER PEOPLE’S MONEY

Greymouth Evening Star, 25 June 1927, Page 10

OTHER PEOPLE’S MONEY

■ ■ ■■■ — INSURANCE SHARES. THREE GOLDEN STOCKS. One of the most satisfactory features of New Zealand company finance is the excellent position of each of our three native insurance companies. The high prices of their shares lead the investor to seek that one of them which in his opinion has the likeliest prospect of paying something more than a dividend with a reasonable space of time. Since, each of these stocks yields a return, at present market values, in the neighbourhood of 4 per cent., it is obvious that their chief interest lies in the expectation of something in the nature of a bonus. And since history always repeats itself, the future possibilities of each of these companies may well bo governed by the past performances of their respective directorates. Hence the following table, in which the recent histories of the New Zealand, the South British and the National Insurance Companies are compared in some detail, indicates what they have done in the past by way of bonus issues, and therefore gives evidence of what they may be expected to do in the future.

Each of the three may now be discussed a little more fully. I.—The National Insurance Co. This is a. Dunedin company, which makes it hardly necessary to say anything further. It is smallish, conservative and “as sound as the Bank.” However, the amounts added to reserves have been decreasing slowly over the last eight years, which is one of the penalties of conservatism, and at the recent rate it. will take the Board about three more years to till its stocking to the level of 1923, when their first bonus since 1916 and second since the formation of the company was awarded to the surprised shareholders. There has been little efloi t to find new business, but a change inpolicy is foreshadowed by recent transactions whereby freeholds were bought in Wellington and Adelaide and the Brisbane premises were remodelled. Last yeai-s the premium increase was very small, while the underwriting profits decreased noticeably. However, the present market price is rather below the net assets value of the shares, which makes them a good purchase.

2. The New Zealand Insurance Co. In 1919 this company reconstructed its capital into 1,500,000 shares of £1 each paid to 8/- and since then the board has authorised bonus payments of 2/- per share in 1919, 1923 and 1925, bringing them to their present level of 147- paid. Apart from a further access of caution on the part of the board, there seems little reason why this action should not be repeated in the present year. Last year the income from investments paid all but £7,760 of the total dividend, but in the’ case of the National, its investment income fell short of the dividend total bv only £l5O, while the South British dividend was entirely covered from those sources, with about £5,000 to spare. The under-writing profit for the year ending May, 1926, fell by £50,000. This was attributed to (a) keen competition resulting in reduced premium rates, (b) increase of about 11 per cent, in the expense rate, (c) increase in losses and (d) cost of New York fire reinsurance. The latter business has now been discontinued. The burden of these ills evidently fell more heavily upon this company than on the South British, but the board has no very serious worries. The only aspects of these bonus payments which possess any drawback are that

they reduce the ratio of reserves to paid-up capital, and that the dividend , payment does not move up on a* par with the increased market value of the shares. This gives an approximate comparison of results, assuming that the same amount is added to reserves in 1926-7 as in 1925-6, that another 2/- bonus is given, and that the dividend suffers the usual reduction per cent. Paid-up Div. Total. .IteservcH capital, rate. div. percent. 192(1 ... £1,05(1,(100 'll.ll £125,000 £1,139.207 1927 .1:1,200,000 10 £1211,00(1 £1,062,00(1 Unless the board can show something better than that, which would make the paid-up capital considerably exceed the reserves, they will probably defer the next 2/- bonus- for another year or so. 3,—The South British Insurance Co. If the position of the other two companies were described as excellent, that of the South-British could be called superlative. As far its either dividend or bonus is concerned the board can do almost anything it likes, but may equally well do nothing at all. The directors of this company combine an almost American ability to get business, with an almost Dunedin determination to stick to the profits. Last year there was quite a reckless

air about their addition of an entire penny to the dividend, making it 2/2 per share. The board escaped most of the evils which were lamented by the New Zealand directors, and its premium income was the best to date, while underwriting profits rose instead of falling and the total profits were only a trifle below the record of 192(1. Additions to reserves had been surpassed ou only two other occasions, and ;it. the end of the present year the management may be expected to disclose reserves of more than twice the amount of paid-up capital. In 1923 the company took over the business of the Eastern United Assurance Corporation, oi the Straits Settlements, and charged that concern ;i premium of £34,000 ou 31,640 shares for the privilege of amalgamation. This probably one of the chief sources of fat underwriting business. Since it is 51 years since the shareholders received a bonus of 5/- per share, expectation has been getting gradually higher, and the following comparison shows the effect of a 5/- bonus at the end of the present year, assuming that reserves go up to an amount similar to last year’s figures, the dividend rate being slightly decreased: — I’aid-up Div. Total. .Kcrierves capital, rate. div. per cent. 1926 ... £773,730. 11.4 £111.761 £1,432,713 1927 ...£1,031,64(1 12.5 £128,955 £1,300,000 Some months ago the shares of this company and those of the New Zealand rose considerably on rumours of amalgamation, but the purchase of a city freehold and a. projected building scheme on the part of the South British directors appear to have definitely ended any further movement in that direction for some time to come. The total outlay may be estimated at about £150,000 and that may provide a further excuse for some alteration in ths capital account.

Possibly the most interesting portion of the South British balance sheet is the left-hand side, containing as it does such liabilities as “sinking funds of leaseholds” £16,678. Bills payable and “sundry open accounts” £222,070, and “investment fluctuation fund” £99,978, which latter item is rather more than ten times the allowance made by the New Zealand Insurance directors. The balance sheet shows the shares to be worth 44/6 in net assets, but one may be pardoned for thinking that they are worth rather more.

Comparative Position of Insurance Companies. New Zealand S. British National. £5 Shares £1 Shares. r £J. Shares. Nominal Capital £1,500,006 £2,000,000 £2,000,000 Issued capital 1,500,000 1.031,610 1.000,000 Paid-up capital 1,050,000 773,730 • 300,000 Last capitalisation of reserves 2s a share in 5s a share in 10s a share in 1925, amount1921, amount1923, amounting to ing to ing to 150,000 250,000 100,000 Reserve at date of last Points 205,650 1,054.124 500,605 Reserves at end last financial year 1,139.267 1,132.714 448,29.6 Added to reserves in 1926 73.617 120,270 16,660 Amount paid up per share 14s 15s . 30s Net assets per share 29s 2d 44s (id £3 15s (Including- reserve for unexpired risks at rate per share of 7s Id 9s (id ,7s 8d) Dividend rate 11.9 p.c. 14.3 p.e. 10.8 p.C. Change in underwriting profit for Decrease of Increase ol Decrease oi 1926 50.120 4,350 15,100 Excess of reserves over paid-up capital... 89.267 658,987 148,296 Surplus of assets over liabilities 2,252.000 2,262.000 768,000 Amount of last dividend 125,000 111,761 32,500 Income 1 to.*h in (crest on investments* ments, rents, etc. 121.959 117,490 > 32,350 Accounts made up to May 31 Aug. 31 Sept. 30 And submitted in August October November