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Life Insurance Savings in Canada*
Published online by Cambridge University Press: 07 November 2014
Extract
Modern macro-economic analysis has emphasized the role of saving and investment in economic fluctuations. As the totals of saving and investment are important, so are their components; for the more that is known about the components the more meaningful are the aggregates. Life insurance savings merit investigation for at least two reasons. In the first place, they constitute an important medium through which personal savings are effected. In Canada from 1926 to 1948, except for the war years, 39.0 per cent of total net personal savings were realized through the purchase of life insurance.
This voluminous flow of savings has produced an accumulation of investment assets which has attracted the attention of economists concerned with trends in the supply of equity capital and the stimulation of depression period investment. Since the rate of return expected on insurance investments is important in determining premiums, the investment practices of the insurance companies have a bearing upon the welfare of millions of Canadians. This concern of the economists about insurance investments is the basis of a second reason for examining insurance savings. In the various proposals involving insurance investment it appears that the savings side of the question has been too little emphasized. In the case of an investment intermediary, investment policy cannot be considered totally apart from the demand for the institution's product; the institution's demand for investment outlets is a derived demand.
- Type
- Research Article
- Information
- Canadian Journal of Economics and Political Science/Revue canadienne de economiques et science politique , Volume 19 , Issue 2 , May 1953 , pp. 202 - 209
- Copyright
- Copyright © Canadian Political Science Association 1953
Footnotes
*
The views expressed in this article are those of the author and do not necessarily reflect the views of the institution with which he is connected.
References
1 War years were excluded because of the abnormal influences affecting insurance sales. In the whole period 1926–48 the insurance component was 20.3 per cent of total net personal savings. See Table I.
2 Henceforward “insurance” will refer to life insurance only and, unless otherwise stated, “savings” to net savings only.
3 See Anderson, C. J., “Trends in the Supply of Equity Capital,” Harvard Business Review, 09, 1950, 79–89.Google Scholar
4 See Jones, H., “The Optimum Rate of Investment, the Savings Institutions and the Banks,” American Economic Review, 05, 1948, 321–40.Google Scholar
5 See Canada, Central Mortgage and Housing Corporation, Economic Research Department, Mortgage Lending in Canada, 1950 (Ottawa, 1951), Table 4, p. 34.Google Scholar
6 Dominion Bureau of Statistics, National Accounts, Income and Expenditure, Preliminary, 1949 (Ottawa, 1950), 13.Google Scholar
7 The basic policy plans are term, life, endowments, and annuities. Endowments are really term policies with savings plans incorporated into them. The annuity can be classed as a special type of insurance, that is insurance against outliving one's capital and earning power.
8 Superintendent of Insurance, Report, 1929, II, lxxxvi Google Scholar; 1934, II, cxiii.
9 Ibid., 1929, II, xlvi; 1932, II, liv; 1936, II lxvi.
10 These data include only Dominion registered companies. See Abstract of Statements of Insurance Companies in Canada, 1950, 16A Google Scholar; Annuity consideration is included.
11 Superintendent of Insurance, Report, 1941, II (Ottawa, 1943), xxxiii.Google Scholar
12 Poapst, J. V., “The Growth of the Life Insurance Industry in Canada, 1909–1947,” unpublished thesis, McGill University, 1950, 62, 133.Google Scholar
13 See Elliot, C. M., “The causes of and the Problems Resulting from the Increased Sales of Life Annuities by Life Insurance Companies,” an abstract of a thesis, Graduate School of the University of Illinois, 1940, 3 Google Scholar; and Canadian Life Insurance Officers' Association, Year Book (Toronto, 1934), 7.Google Scholar The former writer has stressed the importance to annuity sales of the increase in the numbers of aged people in the United States. In Canada from 1921 to 1949 the number of people over 54 years of age increased by about 120 per cent while the total population increased by about one-half. See Canada Year Book, 1924, 104 Google Scholar; ibid., 1951, 125.
14 Canada Life Insurance Officers' Association. Year Book (Toronto, 1933), 16–17.Google Scholar
15 Monetary Times Annual, vol. 76, 01 6, 1926, 168–72.Google Scholar
16 For a brief outline of the development of institutional advertising by life insurance companies in Canada see Canadian Life Insurance Officers' Association, Year Book, 1939–1940, 83–5.Google Scholar
17 Canada Year Book, 1925, 862.Google Scholar
18 Canada Year Book, 1950, 155 Google Scholar, and Dominion Bureau of Statistics, Daily Bulletin, XXI, no. 35, 02 11, 1952.Google Scholar
19 Statement based on compilations of data from Dominion Bureau of Statistics, Ninth Census of Canada, 1951, Papulation, Incorporated Cities, Towns and Villages, Bulletin 1–9, Aug. 22, 1952.
20 Ibid.
21 See “The Individual Investor in Canada,” in Parkinson, J. F., ed., Canadian Investment and Foreign Exchange (Toronto, 1940), 131.Google Scholar
22 During the peak of the epidemic in October, 1918, deaths from influenza and pneumonia totalled 2,713 in Montreal alone. See Canadian Annual Review of the Year, 1918, 574.Google Scholar
23 Poapst, , “Growth of the Life Insurance Industry,” Chart 1, p. 62 Google Scholar; Chart 3, p. 64.
24 See Geren, P., “The Contribution of Life Insurance to the Savings Stream,” Journal of Political Economy, 02, 1943.Google Scholar Passing reference can be made to Mr. Geren's point concerning insurance savings and the doctrine of secular stagnation. This doctrine has been concerned with insurance savings to the extent that the rapid rise of the industry could be cited as a cause of a secular rise in the ratio of planned savings to income. See Higgins, B. H., “Concepts and Criteria of Secular Stagnation,” in Income, Employment and Public Policy (New York, 1948), 97.Google Scholar Another criterion of stagnation is a declining rate of growth of population which, by decreasing the number of investment outlets, complicates the problem of placing savings. Mr. Geren mentions that the effect of the declining rate of growth of population upon insurance savings should not be overlooked. See Geren, 46–7.
25 Hoyt, H., “The Effect of Cyclical Fluctuations upon Real Estate Finance,” Appraisal Journal, 04, 1947.Google Scholar
26 Mortgage Lending in Canada, 1948, 67 Google Scholar; 1949, 67; 1950, 92.
27 Supra, p. 203.
28 Statements based on compilations of data from the Superintendent of Insurance, Report, 1939, II; 1946 Google Scholar, II; 1948, II; and computations with data from the Abstract of Statements of Insurance Companies in Canada, 1929, 1933, 1939, 1945, and 1950.
29 Jackson, H. R., “Investment Trusts,” Canadian Banker, XLV, no. 1, 10, 1937, 40–7.Google Scholar
30 See Canadian Life Policy Conditions (Toronto, 1951), 2.Google Scholar