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Assurance Companies

Volume 152: debated on Tuesday 4 April 1922

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I beg to move,

"That leave be given to bring in a Bill to amend the Assurance Companies Act, 1909, with respect to the information supplied by such companies in the annual accounts with regard to investments."
At a meeting of creditors of the City Equitable Insurance Company yesterday the statement of the Official Receiver made it clear that the main cause of the failure of the company has been the im- proper investment of its funds. The object of the Bill which I am asking leave now to introduce is to make it less easy, or as impossible as it can be made by legislation, that such a thing should occur again. Insurance companies, as the House knows, always have a certain amount of funds to invest. They obtain their premiums directly they take their risks, but the claims which are due on their funds eventually do not come in for possibly 12 months or, in the case of marine insurance companies, for two or three years or possibly longer. It therefore devolves on the directors of insurance companies to invest those funds in such a way that there may be as little capital depreciation as possible, and that the investments may be easily realised when the time comes for paying their claims.

Parliament has already recognised that insurance companies are in a different position from ordinary industrial companies. An ordinary industrial company is really responsible to its shareholders, and to its shareholders alone. A man who gives credit to an ordinary industrial company has the remedy, if his debt is not paid, of suing it. If he hears rumours that the company is in a bad way he can immediately take steps to recover whatever is due to him. But in the case of an insurance company the policyholder has no remedy whatever. He has paid his premiums, but he has no rights whatever until the day comes when he can make his claim on the company to have it settled, and until then he can do nothing, no matter how the company may be going, and no matter what rumours may be in circulation concerning it. So Parliament recognised the particular position of insurance companies, and by the Assurance Companies Act of 1909 laid down that every insurance company should publish every year, first, a revenue account set out in the form prescribed in the Schedule to the Act; second, a profit and loss account, also in a form prescribed in the Schedule to the Act; and, finally, a balance sheet, also in the form prescribed by the Act. But the assets there are grouped under certain headings, and there is no necessity to show the details under each heading. If the City Equitable had been obliged to give details of its investments under each heading it would never have come to grief as it did.

In this morning's paper we see that the Official Receiver told the creditors yesterday that the miscellaneous securities of the company were £733,600. He said that there was no market for many of the latter, and that they would show a diminution of several hundred thousand pounds. Some details were given to the creditors yesterday. The directors of the City Equitable had invested money in a ranch in Brazil. They had gradually put money into it since 1919; it is clear too that a great deal of the money under miscellaneous securities has been invested in shares of industrial companies which the Chairman of the City Equitable and his firm promoted, and it is known that some of those securities, for which the City Equitable paid £l per share, have dropped to 2s. or 3s. per share. I want in passing to call attention to the fact that in the annual accounts of one of our big insurance companies they have not merely given the revenue account and the profit and loss account, and the balance sheet required by the Statute, but at the end of the annual report they have a number of pages setting out in full detail the whole of their investments, so that shareholders and others can see at once what has been done with the money which was available for investment. The directors say in their report:
"In view of the failure of certain insurance offices established in recent years, the directors decided this year to publish a detailed list of the company's investments, and that is included in the present account."
What this company has done voluntarily I am asking by my small Bill that every insurance company should be compelled to do. I do not think it necessary that we should ask for details under every head. For example, every insurance company lends money to its own policy holders on the security of the policies within the surrender value. That is a matter between the insurance company and the policy holders, and there is no necessity to ask for those details to be given, and they are excluded from this Bill, and there may be one or two other cases in which similar allowance should be made. I am told that the large insur-

Division No. 74.]

AYES.

[3.54 p.m.

Adair, Rear-Admiral Thomas B. S.Archer-Shee, Lieut.-Colonel MartinAstor, Viscountess
Addison, Rt. Hon. Dr. ChristopherArmitage, RobertAtkey, A. R.
Agg-Gardner, Sir James TynteArmstrong, Henry BruceBagley, Captain E. Ashton
Amery, Leopold C. M. S.Ashley, Colonel Wilfrid W.Baird, Sir John Lawrence

ance companies in this country are opposing this Bill. I cannot understand how a large insurance company, well conducted, can in any way oppose it. The more details the companies give the better they show their position; the more the directors show that by wise and discreet investments they have the money safe for the benefit of policy holders and shareholders, the more they will attract business and deflect it from those the investment of whose funds is not so good. British insurance companies have a reputation which is world-wide. When we go abroad we are proud of their position among the traders of the world. If our insurance companies were compelled by Statute to state all their investments, it would make the position of the companies in this country even stronger than it is to-day, and would prevent a repetition of the terrible catastrophe of the City Equitable Company.

Question put, and agreed to.

Bill ordered to be brought in by Mr. Holmes, Lieut.-Colonel Assheton Pownall, Lieut.-Colonel Bell, Mr. Walter Smith, Mr. Kenyon, Mr. Gould, Mr. Wallace, Colonel Penry Williams, Colonel Roundell, and Mr. William Graham.

Assurance Companies Bill

"to amend the Assurance Companies Act, 1909, with respect to the information supplied by such companies in the annual accounts with regard to investments," presented accordingly, and read the First time; to be read a Second time upon Tuesday next, and to be printed. [Bill 82.]