Mercantile's New Premiums Increase 24pc
Sydney Morning Herald
Friday December 8, 1989
Investor flight to secure, capital-guaranteed products, together with consistently strong investment performance, gave Mercantile Mutual Life a 24 per cent lift in new premium income to $649million in the year to September 30.
Mercantile Mutual's assets leapt by 57 per cent to $2.9 billion, continuing an eight-year pattern of doubling every two years.
Regular premium business, the core of life office activity, rose by 29 per cent during the year, compared with a jump in single premiums of 23 per cent, ranking the company fifth in the industry in terms of new premium income.
Mercantile Mutual's managing director Mr Rod Atfield yesterday slammed the industry practice of buying agents by offering large development loans.
"These loans are, in my opinion, against the best interests of policy holders and are damaging to the industry."
His comments come only two weeks after another major life insurance company, Friends' Provident Life, announced that it was recalling $10million in agents' loans because they were not in the policy holders' best interests.
Mr Atfield said industry figures amply illustrated the flight to security since the October 1987 stockmarket crash. Capital-guaranteed single premiums(other than superannuation) had risen by 32 per cent industry wide, but this was more than offset by a 68 per cent drop in investment-linked sales.
Mercantile Mutual had moved against industry trends by not only increasing its capital-guaranteed business, but also boosting its market-linked business by 124 per cent.
Mercantile Mutual's market-linked fund returned an average of 20.3 per cent per year over a five-year period, while the capital-stable fund returned 16.1 per cent per year after tax and expenses.
Mr Atfield said that as a result of Budget imposts on superannuation, 1989 was the first year in which payment of the tax on investment income had hurt the company's returns.
In non-superannuation business the tax meant a return of 10.51 per cent, compared with last year's 12 per cent.
Commenting on new solvency standards for capital-guaranteed business introduced this year, Mr Atfield said the company was required to hold reserves of $155 million, but in fact had reserves of $346 million.
© 1989 Sydney Morning Herald
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