Bank Rate And Its Minor Effect On Insurance Companies. Insurance Companies And Geographical Distribution

Indeed, it is questionable whether the yield from the Insurance Companies, by their skilful handling of these investments, may not prove in time as steady, safe, and stable a revenue as from their insurance business proper. It ought at least to form a reserve for the greater calamities to which they are subject. A drawback to the advantages of any scheme of investment lies in the fact that their securities, in the event of any great drafts being made on them suddenly, or on their term having run out, are liable to forced sales on unpropitious markets and to the difficulty of finding at the moment other investments equally good to replace them; but this difficulty a geographical distribution may be trusted to reduce to a minimum. As to the risks, which appertain both to Banks and Insurance Companies from unpaid-up Capital, terrible as these risks are, and common as is the practice of our English Banks and Insurance Companies in running them, they may be said to be incidental rather to the proper business of these concerns than natural risks inherent in them, and could be altered by legislation to-morrow.

Relative Safety Of Banks And Insurance Companies. The Future Of Insurance Company Investments

To sum up, then, these various considerations of relative advantages and risks, we may say, perhaps, that up to the present day Banks have a higher natural safety, stability, and yield, than Insurance Companies, owing to the greater closeness with which they lie to their money basis at every stage of their transactions, to the greater reliability with which the Law of Probabilities can be applied to them, and to the shorter time in which their cash assets are out of their immediate tangible possession. But in spite of all this, it is still an open question whether in the future the freedom which Insurance Companies enjoy in the range and choice of their investments, but which is denied to the Banks, may not result in incomes from that source alone so much larger than those of the Banks (and, under the auspices of the new science of the Geographical Distribution of Capital, equally safe) as to form a second line of reserve, as it were, which will more than cover the greater unavoidable risks to which the Insurance Companies must always be exposed. But if this be not enough to transfer the balance of advantage to the Insurance Companies, it will probably be made up by the lessening of risk due to the greater field covered by them in the future, to their greater combination for the sharing of risks, and to the progressive perfecting of the tables of chances on which the Law of Probabilities will be able to work. From all of which complication of considerations, the reader will see how difficult it is to determine scientifically the relative status for the future of Banks and Insurance Companies respectively. At the present time it is probable that Banks, in Great Britain at least, are the more steady, safe, and reliable investments of the two.