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RECORD   AKD   GUIDB





December 18, 1920





railroads, the trolley lines, the public buildings, the telephones,
the water supply, the sewerage systems; it is the poor and the
people of moderate means whose savings are Invested in these
enterprises. The insurance companies' investments belong to
these in a mass.

After referring to the importance and necessity of insurance
companies making loans on policies and pointing out that the
thirty-nine companies referred to had invested, at the end of
1919, more than $732,000,000 in notes and loans to policy hold¬
ers, or nearly 12 per cent, of the entire assets, Mr. Fiske took
up the necessities of government as another principle on
which investments should be made.   He declared:

At the end of 1919 the 39 companies owned nearly a billion and
a quarter of Federal, State, County and Municipal bonds—nearly
20% of the entire amount of their assets. We were at war so
short a time that tho recollection of everybody is very vivid as
to the urgent necessity of borrowing money by the Federal Gov¬
ernment. Life insurance companies were the first to be appealed
to and they were urged even to borrow money to invest in the
Liberty and Victory loans. They responded nobly and owned
over seven hundred millions of United States bonds at the end
of 1919. In this case you will observe that what we have named
as the primary principle of investment—to get as high a rate
of interest as' possible from safe securities—was mofliflfled hy
the other principle we have named. Some of the bonds bought
carried interest down to the rate assumed in the calculation of
premiums, and nearly all of the bonds subscribed left little
excess interest for surplus.

It seems to mo there should be another principle governing
investments, namely public needs. It would seem to be selfish,
and to be ignoring the fact that by reason of the large propor¬
tion of the population which is insured it owes a certain regard
for the needs of the people as a whole for a management to be
governed entirely by the rate of interest, or by the investments
It prefers as in its experience it knows most about or is in a
way associated with. In what channels can the management
put its funds for public benefit provided these channels are
safe? It would seem that insurance companies as a whole have
consistently followed this principle. Take public transportation.
If we go back over the financial history of the country we find
that thirty or forty years ago what the country most needed
was facility of communication. The linking together of far dis¬
tant communities; the opening up of the West to agriculture:
the bringing of products to the seaboard, the furnishing of
necessities from manufacturing centers to the farms, the devel¬
opment of mines and transportation of metals and coal, the
building up of cities near the newly opened land, the consequent
organization of commerce, all indicated the use of capital for
building  railroads and equipment.

Taking up  the  subject of  real  estate  mort.ca.ues,  Mr.   Fiske

said;

Next take the public need of cultivated farms and city dwell¬
ings, store houses, shops, office buildings. Mortgage loans have
generally formed the largest percentage of life insurance In¬
vestments. Here is .a need which just at present attracts the
most public attention. Criticism has been insistent that the
companies have not done their duty. They have been blamed
because of the shortage of liousing. It is unthinking criticism.
It has even been claimed that mortgages should be. if not almost
the sole, yet the very greatly predominating form of investment.
This criticism overlooks several facts. First, investments must
be to some extent liquid. One company was called upon to pay
twenty-four millions of dollars in a year on influenza claims
over and above its normal mortality—about 50%. Second. If
all the companies undertook mortgage loans almost exclusively
the rate of interest would fall to a point very detrimental to the
interest of policy-holders. Third, if such a riile were established
by statute the supply would exceed the demand and there would
be a large amount of uninvested assets. And lastly, and as im¬
portant as any, and really fundamental, is the fact that tlie
housing situation would have been just as bad if the policy now
suggested had been the rule of the companies. During the war
there was no unsatisfied demand for mortgage loans on good
securities. Building stopped. Parenthetically we may remark
if the rule desireii had been statutory the United States Govern¬
ment would liave been seriously hampered in the prosecution
of the war by lack of funds, and the statutes probably would
have been repealed. One reason building stopped was that there
was no great demand and little capital which was available to
back up the mortgage loans, which, of course, are only half the
building costs. Besides which it will be remembered that the
Federal Government put great restrictions on building con¬
struction, and that permits to build and even to make improve¬
ments or alterations in  existing buildings had to be obtained.

After the war. when real estate began to be active and it was
realized that years of quiescence had caused a shortage of all
kinds of buildings, several obstacles were found in the search
for loans. The surtaxes on income caused estates and individuals
to call existing mortgages for payment for the purpose of rein¬
vesting the funds in tax-exempt securities or those yielding a
nigh return and to refuse to make new mortgage loans. Seekers
for loans on new construction met with the competition of bor¬
rowers whose loans were called who were looking for new
lenders. The high cost of labor and material has deterred
builders, and on this high cost, the proportion heretofore re¬
garded as safe to loan has been diminished; because the mort¬
gages are permanent loans and the investor must look far ahead
for ultimate real estate values when he determines how much
to lend. It is significant, however, that the insurance company
which IS the largest investor in New York City mortgages (the
Metropolitan) has not refused here or elsewhere a single appli¬
cation with adequate security on housing enterprises, and has
loaned this year, and agreed to loan on mortgages, eighty
millions of dollars. Its loans and engagements of the year cover
107 apartments and 2,024 dwellings, accommodating 5,038 fami¬
lies, besides nine hotels. Of these, 620 loans are In New York
city and 1,511 elsewhere. The dwellings are not expensive ones,
the loans running from $2,000 to $5,000. The fact that it has
refused none indicates that other companies and institutions
must be lending. And can anybody say that the life insurance
companies should be the only lenders on bond and mortgage?
It is not their fault that the tax laws have cut out of the market
the private Investor and the managers ot estates; nor that there
are  In the market  huge amounts of tax-exempt  Investments of





$





local government bodies, safety of all the funds of life insurance
companies would seem to call for diversity of investments within
the limits of existing laws.

And there is the matter of farm loans. Dwellers in cities
have had direct benefit in the matter of lower food costs and
would suffer if agricultural development were curtailed. The
life companies are called upon for these loans and have over a
billion dollars so Invested—15% ot their assets; although in this
field they have to submit to the competition of the Federal
Government, which exempts mortgages made under its system
from taxation. The history of farm loans is very creditable to
the life companies.

As to the total mortgage investments, back in 1870 nearly
40% of the assets of the 39 companies was on bond and mort¬
gage; in 1875, 5S%; from 1S80 to 1895. about 40%, and last year
they were over 30%. The end of this year will probably see this
percentage increased; for the increase ot mortgage loans by
the 39 companies in 1920 to the end of October amounts to
$232,729,386.70, of which $151,348,902.23 were on farms, $78,875,-
359.47 in cities, and two and a half millions not separated in the
figures furnished to us by the companies. Thus to-day the
companies have the enormous sum of $2,082,836,848.46 invested
on bond and mortgage, about equally divided between farms and
cities, and have made commitments for many millions more—one
company alone having promised nearly fifty millions in loans not
yet closed.

Now, during this period of expansion of mortgage loans by the
life companies, the companies have put aside to a large extent
offers of railroad bonds, equipment and public service securities
all perfectly sound, which would have netted 6%, 7, 7>4, 8 and
even higher rates of interest. Here again we observe the prin¬
ciple of obtaining the highest rate of interest consistent with
soundness modified by the principle of meeting public necessi¬
ties.

Mr.  Fiske  further declared it to be a false policy to unde:

take to compel insurance companies to invest a fixed part
their funds in localities where policy-holders reside. One
state passed such a law, he said, and the consequence Was that
the most important companies withdrew from the state and
have never returned. Another consequence was the rise in the
rate of interest on mortgages in the state because of the
withdrawal of the company loans.    Continuing, he said:

The agitation for that kind of legislation has never ceased,
and even in the enlightened State of New York something
along that line has been proposed: as, tor instance, compelling
loans on bond and mortgage in some proportion to the assets.
Much can be forgiven people "who have the responsibility of
meeting acute housing deficiency. But they must think things
out. The fact is that the life insurance companies doing busi¬
ness in this state have about 60% of their New York reserves
invested in New York real estate mortgages and real estate.
Such a law passed In New York would lead to retaliatory legis¬
lation. The ultimate result would be the diminution instead of
the increase ot mortgage loans in the state.

The fact is that there is no obligation upon the companies to
the various states in matter of investments. The right to do
business is purchased by the payment of taxes and license fees
and the subjection to state supervision. The obligation of the
companies is to their policy-holders in their respective states.
The way to conduct an insurance company is to meet the rea¬
sonable, intelligent, informed desires of its policy-holders. In
regard to this subject, what is the real interest of the policy¬
holder? It is to get the best returns out of safe investments.
Safety first, income next. Wherever the return are highest on
sound securities there should the investment be made irrespec¬
tive of locality. But, given securities of equal value and return,
it is right that policy-holders should have their localities
benefited. This Is, I think, according to the investment plan of
the companies. It is dictated by self-interest. Any attempt to
dictate by  legislation  is  sure to  defeat  its  object.

"What   the   companies  have   done."   Mr.   Fiske  added,  "has

l>een   to   invest   their   funds   throughout   the   country   where

funds were needed, as indicated in part by the rate of interest

obtainable.    Two   things   were   accomplished   thereby   which

benefit   policy-holders:    First,   a   better   rate   of   interest   was

obtained, and  second, the partially  undeveloped  parts  of the

country were helped along in their progress."





APPLICATIION has been made to the Board of Esti¬
mate by John H. Delaney, Transit Construction Com¬
missioner, for an issue of city bonds of $25,901,000 to
carry on construction upon the city owned rapid transit lines
next year. The application was referred to the Committee on
Finance and Budget.

Commissioner Delaney asked the board to set aside $11,-
053,500 for construction on routes operated by the Inter¬
borough Rapid Transit Company under terms of Contract No.
3, and $14,103,500 for work on the lines of the New York
Municipal Railway, a subsidiary of the Brooklyn Rapid Tran¬
sit Company, under Contract No. 4. He also asked an allow¬
ance of $825,000 for additions to the original subway, operated
by the Interborough.

According to the schedules filed by Commissioner Delaney
the work to be done on Interborough lines includes the exten¬
sion of the so-called Steinway tunnel route from Queens,
which now ends at Lexington avenue and Forty-second street,
to Forty-first street west of Seventh avenue.