Towards the ‘cult of the equity’? Insurance companies and the interwar capital market

Abstract

This article examines the ways in which insurance companies modified their investment policies during the interwar years, arguing that this period marked the start of the transition from ‘traditional’ to ‘modern’ investment practice. Economic and financial conditions raised considerable doubts regarding the suitability of traditional insurance investments, while competitive conditions forced insurance offices to seek higher‐yielding assets. These pressures led to a considerable increase in the proportion of new investment devoted to corporate securities, including ordinary shares. Meanwhile new insurance investment philosophies began to be advocated, which accorded both legitimacy and importance to the role of ordinary shares in insurance portfolios.

Avoiding toxic assets and ensuring bank stability: English commercial bank investments, 1880–1910

“…This would be consistent with some of the known elements in the established historiography. Thus, we know from the literature that there appears to have been a general move to greater liquidity from the late 1870s, partly in reaction to the banking crises of 1878 and 1890 (Baker & Collins, 1999b; 857 2001, 2002Cottrell, 1992). In addition, other important elements in establishing an industry 'norm' or 'minimum' for investment holdings -at least amongst the larger banks -may have been the emergence of larger banking corporations (initially of a regional and, then, national character) that were subject to greater public scrutiny from the press, shareholders and depositors.…”

“…Obviously, their liabilities were of a much longer term nature than those of the commercial banks and their resources were invested in a wholly different asset structure than the commercial banks, most notably with their large property, mortgage and business sector portfolios. However, like the banks they were also substantial holders of public sector debt but their composition is in stark contrast to the banks ; for changes in a later period see Scott, 2002). Thus, in 1903 non-British, non-colonial stock comprised 26% of the insurance companies' holdings of public sector securities (compared to 1.6% for the banks in 1900), and 45% (compared to 2.9% in 1910) in 1913; and British government stock comprised 24% in 1903 (84% for the banks), and 6% in 1913 (compared to 68%).…”

The early managed fund industry: Investment trusts in 19th century Britain

“…Insurance companies were an additional alternative for long-term savers. Life assurance products, however, were very conservatively managed, and the widespread acceptance of the benefits of holding a portfolio of liquid securities came decades later to the insurance industry (Scott, 2002).…”

British Business History: Review of the Periodical Literature for 2002

“…Scott examines the other side of this coin by studying the investment behaviour of insurance companies in the inter-war period. 9 He finds that insurance company investments shifted substantially towards corporate securities, in the process 'becoming major players in the corporate securities market'. 10 The inter-war years were thus the origin of a movement that was to become ever more significant after 1945.…”