§ (1) In the case of an assurance company transacting other business besides that of assurance or transacting more than one class of assurance business, a separate account shall be kept of all receipts in respect of the assurance business or of each class of assurance business, and the receipts in respect of the assurance business or, or, in the case of a company carrying on more than one class of assurance business, of each class of business, shall be carried to and form a separate assurance fund with an appropriate name."
§ (2) A fund of any particular class shall be as absolutely the security of the policy holders of that class as though it belonged to a company carrying on no other business than assurance business of that class, and shall not be liable for any contracts of the company for which it would not have been liable had the business of the company been only that of assurance of that class, and shall not be applied, directly or indirectly, for any purposes other than those of the class of business to which the fund is applicable.
§ Mr. THOMAS LOUGH
moved, at the end of Sub-section (1), to insert the words: "Provided that nothing in this Section shall require the investments of any such fund to be kept separate from the investments of any other fund."
§ Mr. CHURCHILL
There is the question of a certain fund being hypothecated for the security of life policies. Apart from that, there is the question of making returns so as to show the investment specially earmarked for a particular fund. But it is not the intention, and never has been, that investments should be specially earmarked.
§ Mr. WATSON RUTHERFORD
The right hon. Gentleman is capable of expressing his ideas in clear and unmistakeable language when he likes, and I think we ought to have some more information as to what is really intended with regard to these monies; whether or not they are going to be put as specific securities for the specific purposes indicated?
§ Mr. CHURCHILL
Under the Life Insurance Companies Act it is enacted that life insurance funds shall be kept separate in the books of the company, but the Act does not, and never has required that the investment of that fund should be specifically ear-marked. Though not ear-marked the funds have been kept separate. It was thought by some of the Scottish companies that this Bill would alter that. My right hon. Friend was anxious to remove that doubt, and the Amendment which he has moved is to have that effect.
§ Sir F. BANBURY
I have listened to the explanation of the right hon. Gentleman, and I cannot say that I understand it. The Clause runs like this: "In the case of an assurance company transacting other business besides that of assurance or transacting more than one class of assurance business a separate account shall be kept of all receipts," etc. "And the receipts.….shall be carried to and form a separate assurance fund with an appropriate name." The right hon. Gentleman the Member for Islington (Mr. Lough) proposes to add to the end: "provided that nothing in this Section shall require the investment of any such fund to be kept separate from the investment of any other fund."
I venture to say that these words, if accepted, will alter the whole of the preceding words of the Section. The right hon. Gentleman who moved the Amendment proposes that the investments shall be mixed up with any other investments. I should like to ask the President of the Board of Trade what is the object of having receipts kept separate, and having to 249 have a separate fund under these circumstances? It is evident, as far as I can see—and I studied this Clause very carefully before I rose to speak—that if the Amendment is accepted, the first part of the Clause goes for nothing at all. Before we divide upon this matter, we ought to have some better explanation.
§ Mr. T. LOUGH
There has been a misunderstanding, I think, because the words have not been carefully studied. There need be no mixing up, because both investments can be made clear. If an investment is good for one object, it is also good for two objects. If there was an excellent mortgage, and it was a perfect security for one part of the funds of the company, there is no reason why it should not be for another portion of the funds. All the requirements of the Act would be fulfilled and the Amendment merely allows one investment for the several needs.
§ Sir F. BANBURY
I cannot follow the explanation of the right hon. Gentleman. He says that if there are two funds and one mortgage there is no reason why that one mortgage should not be divided between the two funds. That, I gather, is his explanation. But why should you not get another mortgage for the second fund? If you once begin to do this sort of thing how will you know to which fund the half belongs? Unless it is earmarked it may arise that one fund may claim that the whole of £10,000 belongs to that one special fund, and not to another. I must say that the explanation of the Amendment has made the matter worse. There is no difficulty in two funds of £10,000 each in getting two mortgages.
§ Mr. WATSON RUTHERFORD
I expected that in answer to the appeal I made to the President of the Board of Trade that he certainly would have given us a little more enlightenment upon this point. This is a very important Clause of the Bill. In fact, as we read on in Sub-section (2) of the Clause, the intention clearly is that there shall be specific investments of specific funds separate and entirely distinct from other funds. In fact, the second portion of this Clause, which is now under consideration, makes it quite clear that the particular amount of the security which is to be kept for one particular kind of business is a security for that particular kind of risk; is to be kept so separate, according to the second part of this Clause, that it is to be treated almost as if there 250 were two separate companies, and one part of the funds is not to be liable for any contracts relating to another part of the funds. Now, Mr. Emmott, it does seem to me that the President of the Board of Trade, in this feverish hurry to legislate, which appears to be actuating the Government at the present moment with regard to this Bill, accepts or proposes to accept an Amendment which really makes nonsense, not only of the first part of this Clause, but clearly is quite inconsistent with the whole of the second part of it. And the explanation which the President of the Board of Trade, that these funds can be mixed for the purpose of investment, seems to me to allow a most irregular thing. Supposing there happens to be £10,000 in one fund and £7,000 in another. According to the Government's proposal you can take a mortgage out for £17,000. Supposing you realise that mortgage and there is a loss. How is that loss to be apportioned between the two funds? There may be all kinds of difficulties arise in the attempt to do so. I welcome this Clause, and think it is an excellent thing that there should be security for this kind of business, and that it should be kept separate, and that the security for one part of the business should not be allowed to get mixed up with the other parts. If we are going to give authority to the companies, notwithstanding this, to mix up these funds, I think it is going to detract very much from the benefit of the general protection which is sought by the Clause. In the absence of a very complete and satisfactory explanation I feel justified in raising my voice by way of protest.
§ 6.0 P.M.
§ Sir SAMUEL EVANS
I think there is some misapprehension as to the actual practical effect of the Amendment. This Clause alters Section (4) of the Act of 1870, as amended by the Act of 1872, and there is nothing in that Act that applies to the investment of the funds themselves. The practical working out is this: It has been settled by Parliament, and we desire to enact also, with reference to the companies to which this Clause applies, that if they have separate business they must separate the funds which belong to those separate businesses. You have two different kinds of insurance, life and fire. You must keep the funds quite separate, so that the funds, belonging to one part are available for this interest of that part. But there is no reason whatso- 251 ever, and there is no reason under the Act of 1870, to keep investments separate. Just let us see what the practical operation is. Take a perfectly simple case. Suppose you have £1,000 to invest for each of two parties, you have £2,000 to invest altogether. Supposing you have an excellent mortgage security, and it must be assumed that you have, so all you have to do is, if the law were as it is desired to be by the hon. Member opposite, is to take two mortgages for £1,000 instead of one mortgage for £2,000. The fund is not altered in the slightest degree. The part of the £2,000 that belongs to one person and the part that belongs to the other still belongs to each of them. I agree that in case there should be loss there might be some little difficulty in the apportionment, and that priority might be sought in the case of mortgages. This makes no change in the law, but it reproduces the law of 1870 as amended by the Act of 1872, and it makes it clear, if it is convenient and proper in the carrying on of the business, that the same investment may cover the two. There is no objection to that being done.
§ Sir FREDERICK BANBURY
I am very much obliged to the hon. and learned Gentleman for the clear way he has put the case, but I should like to ask him, in the case he has given of two sums of £1,000, making the sum of £2,000, whether it is a fact that if you put a mortgage out for these two sums pari passu there would be any extra cost for doing so? [An HON. MEMBER: "No."] The argument of the hon. and learned Gentleman the Solicitor-General was that there would be no extra cost.
§ Mr. WATSON RUTHERFORD
There is no cost upon the mortgagee; the cost has to be paid by the mortgagor.
§ Sir FREDERICK BANBURY
Here we have two members of the legal profession differing, and I am rather inclined to agree with my hon. Friend (Mr. Watson Rutherford).
§ Sir FREDERICK BANBURY
Then what becomes of the argument of the hon. and learned Gentleman? It does not matter to the insuring company whether 252 the person pays £5 or £10, but it does matter to the person investing. Let me point out to the hon. and learned Gentleman that all the moneys of insurance companies are not invested in mortgages, a great many of them are invested in bonds. If you want to invest £2,000 in different accounts you can easily buy £l,000 worth of bonds in one account and £1,000 worth of bonds in another. There is no extra cost, and you can keep the two in separate compartments or boxes. This is not such a very simple matter as the hon. and learned Gentleman thinks. I presume there is some object in this Clause in providing for two separate accounts. If there are to be two separate accounts, unless there are to be two separate investments, you might as well leave out the Clause providing for the two separate accounts. I presume these Clauses are put in to avoid fraud. The moment these investments are mixed up the opportunities for fraud are very much greater than if the investments are kept separate.
§ Mr. CLAUDE HAY
I should like to ask the Solicitor-General one question. I should like to know whether, in the event of a big calamity, such, for instance, as that which occurred in San Francisco, any funds to meet claims on life policies invested under the Amendment which has been moved could be held as security to meet the claims arising in the fire insurance department, or whether the life policy would be protected and the assets available upon the claim on the death of the insured; in short, whether life funds could be taken to pay for a conflagration such as that which occurred at San Francisco?
§ Mr. JULIUS BERTRAM
As far as the differentiation between the two cases goes there is nothing in the nature of difficulty even in the case of mortgage. Supposing there is a mortgage of £15,000 contributed equally in two parts by separate mortgagees. You put down in the list of assets one as representing so much Consols, so much railway stock, and £7,500, half of the £15,000 investment. There is no difficulty about that. With regard to any other investments they only represent the profits of the year, and they only stand in the name of the same party. The actual name upon the books may be the same person, but in each year you have a statement on the part of the company that their funds allocated to life insurance business are represented by So-and-so, and are earmarked there. With regard to the 253 question as to the first of two pari passu mortgagees, that is a strange arrangement. You have two, one must appear as the first and the other second; there must be some priority. If there are two separate mortgages, one must have priority over the other. There is no such thing as a pair of mortgagees ranking together, at any rate in this country. If you have one mortgage deed of £1,000 upon property A, if there is another mortgage deed in identical terms of £l,000 upon the same property, one must have priority over the other. The only way to do it is to have mortgages in which each of the parties is described as contributing so much, and in the event of failure or foreclosure the party in priority would share.
§ Mr. JOYNSON-HICKS
It is with great diffidence that I differ from my hon. Friends on this side of the House, and I want to say why I do differ from them. I think they are confusing the question of funds with the question of investments. There must be separate funds for separate purposes. To reduce the whole thing to an absurdity, let us assume the whole of the funds of a company, say £2,000,000, are invested in Consols. Does my hon. Friend say that £1,000,000 should be invested in Consols, and another invested in Indian Stock in order to differentiate the investments? That is the logical conclusion if the investments are to be separate. My hon. Friend the Member for the City of London (Sir Frederick Banbury) says "No, no." Then I venture to suggest that, instead of investing the whole of it in Consols, that it should be invested in separate blocks of Consols. That is no real advantage to the policy holders. I venture to suggest that the Amendment of the right hon. Gentleman is in accordance with sound business.
§ Mr. WATSON RUTHERFORD
I make no apology before leaving this subject for saying another word upon it. Of course, I quite realise there is a distinction between funds and investments. This Clause does not apply merely to the deposits that have to be made, as some Members who addressed the Committee seemed to think. It applies to the whole receipts of a company. A company may be carrying on three absolutely distinct classes of business, as some of them are. Here now for the first time we are going to pass an Act of Parliament which says that each of these three classes of business is separate, is practically a separate com- 254 pany, with separate risks and separate property, kept distinctly apart for the purposes of these separate businesses. Now let us consider for a moment how the accounts would look. Supposing you take the accounts of such a company, assuming it had got cumulative receipts and funds—one million and something—for life, and two millions and something for fire, if we read the Clause as it stands, the balance-sheet would go to show how each of these were represented. Supposing the life departments got £1,500,000, it would show that one million and a half was represented by so much—Consols so much, mortgages so much, mortgages and property in Australia or the Colonies so much, and Inscribed Stock so much. That particular fund would be represented by specific investments which everybody insuring their lives with that company would know. If there was a million and a half of money, it would be actually represented by items A, B, C, D, E, and F in the balance-sheet. I certainly looked upon this Clause as being one of the best things for the purposes of insurance companies I had ever seen. For the first time the knowledge was going to be given to the people who insured their lives or their buildings what the funds in that particular department were, and it was going to be made clear, as it is clear in this Clause, that these funds could not be appropriated for any other business, but that they were distinctly reserved for these particular reasons. It is within the knowledge of every Member of this Committee that there are insurance companies which have been very heavily hit in recent years, with the result that the whole of their fire funds have been swept away. Unfortunately, each of us knows of companies of that description where very heavy claims have to be met. Supposing there was a number of investments made together in the funds of a firm like that, these funds would have to be realised, possibly at a loss, particularly having regard to the recent fall in trust securities, and having regard to the action of the Government in relation to the finances of the country. Now is the life department of the company, in such circumstances, to be forced to realise its securities for the purpose of providing funds which are only liable to the life department? I look upon this Clause as a charter of privileges and a safeguard to the ordinary investor in insurance companies in the future, and I look upon the Amendment now before the Committee under which these investments can be mixed up 255 and under which really, for the purposes of the accounts to be represented year by year, it would not be possible to say what are the specific investments put into these particular funds, as giving the whole safeguard away. On this point I differ from my hon. and learned Friend beside me. I do not think he has quite realised the extreme importance of the Clause and the very objectionable nature of the Amendment before the Committee.
§ Sir SAMUEL EVANS
Where they invest in such securities as have been mentioned by the hon. Member they can allot a certain amount to one fund and a certain amount to the other.
§ Amendment put, and negatived.