INSURANCE COMPANIES

Nelson Evening Mail, Volume LXIV, 25 June 1931, Page 10

INSURANCE COMPANIES

FUTURE BONUSES AFFECTED

The determination of tlie life offices, remarks the “Sydney Morning Herald,” to consent to the proposed reduction of interest oil public debt provided tlie whole of tlie reconstruction plan is cavil cal out brings into voluntary acceptance of tlie plan the class of financial institutions holding the largest.amount of public securities. The decision will be of tlie greatest assistance to the Governments in carrying through the whole plan. The life offices were wise in making acceptance provisional on the plan as a whole being carried out. Governments fastened so eagerly on to the proposal to reduce interest by 22g per cent., and discussed so many different plans for bringing this reduction about that there was arising a fear that among some of the Governments the desire was to escape from the compulsion of making tlie 20 per cent, reduction in other adjustable Government expenditure. Even now it is not certain whether the New South Wales Ministry does not intend to confine its reductions to higher-paid officers of the State, and so defeat the plan. Australian assets of life offices amounted on OOtli June, 1930, to £134,593,978, and this amount included £70,578,790 of Government and municipal securities, £34,032,357 of loans on mortgage, and £13,804,243 of loans on life policies. A reduction to . 4 per cent, in the interest on Government loans would cause a material reduction in the surpluses of life offices, and so a material reduction in the yearly bonuses, and still heavier would be the reductions in surpluses, and so in bonuses, if all other interest earned were reduced by 22i per cent. Bonuses declared in the past would not .be affected. They would be payable on maturity in tlie amount already declared. It is future bonuses which would be so much reduced.

The surplus out of which the bonus is paid arises from two sources: (1) From the favourable mortality experience, and (2) from the interest earned on funds. The interest earned last year was up to £5 14s per cent. A reduction to 4 per cent .would probably reduce future bonuses by at least 25 per cent.