and surplus. Some of the joint stock banks have successfully syndicated their bond issues. All the joint stock banks have been successful in placing their bonds on the market through established bond houses.

These practices create keen competition for the small farm mortgage banks. It is doubtful whether many of the small private enterprises will continue to operate unless they consolidate as branches of larger organizations.

CHAPTER VII

LIFE INSURANCE COMPANIES AND FARM

MORTGAGES

Farm mortgage credit has many agencies, among which are life insurance companies, the Federal land banks, joint stock land banks, and farm mortgage bankers. These account for less than 40 per cent of the farm mortgage credit, as indicated by the estimated farm mortgage debt in 1920. Undoubtedly, the former owners of the land and private investors constitute two of the most important sources of mortgage credit, for which no figures are available.1

Life insurance companies are able to account for only about 14 per cent of the estimated total farm mortgage debt in 1920, or almost one and one-half billion dollars. This amount accounts for 18.6 per cent of their admitted assets. Each insurance company does not hold its due share of this amount.. Some companies have no farm mortgage loans, others maintain their own investment departments and employ agents or correspondents, and do a large business in this field; still others rely for their mortgage loans largely on banks and mortgage brokers.2

Farm Mortgages as Investments for Insurance Companies Life insurance companies in investing their money must be sure to obtain a sound investment. The quality is not the same as would be required by other investors. Practically all classes of investors require such qualities as: (1) Absolute security of principal; (2) a fair, stable income; (3) a marketable security, one which is salable 1 United States Department of Agriculture Bull. 1047, p. 5.

on an organized market; (4) a security which can be borrowed upon; (5) one which is tax exempt or yields a large enough interest rate to overcome the tax in whole or in part; (6) one which will run for a long time; (7) denominations of the loan in fair sizes; (8) a security requiring little attention. Life insurance companies do not require all of these on some of their investments. They must keep a certain amount of their capital and surpluses out in securities which are readily marketable and from which they can get their money on very short notice. The largest part of their surplus can be invested in securities which will run for a long time and need not necessarily be so readily marketable. Farm mortgages are taken in under this class of investments.

TABLE X.-DISTRIBUTION OF INSURANCE INVESTMENTS 1860-1918 1

1 Table X from Bull. by the Association of Life Insurance Presidents

December 5, 1919.

Table X showing the distribution of life insurance investments from 1860 to 1918 brings out the fact that mortgage loans have been a favored investment. Investments in bonds have increased rapidly and average generally larger than the mortgage investments. If later data were available, it would probably show an even greater difference in the percentage of investments in mortgage loans and bonds with the advantage in favor of the latter. This would naturally be expected, since the Federal farm loan system has taken over a portion of the farm loan business. Although life insurance companies still have a large amount of money invested in mortgages, they have relatively decreased such loans in the last few years.

Bond Investments

The present investments of life insurance companies are more and more in bonds of governments, municipalities, and railroads, although some of these bonds do not yield as high a rate of interest as they might obtain on mortgage loans, the first two classes are almost all tax-exempt and make up for the lower rate of interest in that way. Railroad and public utility bonds are taxable and have to pay a higher rate of interest to compete with the tax-exempt bonds. The problem of tax exemption will be taken up in a later chapter.

Distribution of Farm Mortgages

Table XI shows the divisions of the country and their farm mortgage investors. There are five geographical divisions in the United States in which insurance companies do extensive business: The east North Central, the west North Central, the south Atlantic, the east South Central, and the west South Central. With the exception of the south Atlantic division, most of their investment territory is included in the Mississippi

Valley. Investments are made in these sections because of the excellent security afforded by the fertile and productive lands. Loans to farmers in such a territory are most apt to be repaid since the land is productive and yields high returns and the chances of failure are not as great as in the less productive regions. Investments placed in one of these five sections are conservative and there is seldom cause for default, and in case of default the farm is quite easily sold.

Decline in Farm Mortgage Loans

Table XI also shows that the farm mortgage business conducted by life insurance companies has been falling off within the last five years. We must take into consideration that the estimated total farm mortgage debt has increased by 138 per cent between 1913 and 1920 and that if the percentage of investments held by insurance companies remained constant there would be an increase of 138 per cent in the amount of their farm mortgage business. But their percentage of investments decreased slightly, and the amount of their farm mortgage investments increased only 72 per cent as compared with an increase of 138 per cent in the total farm mortgage debt. Although this seems as though the life insurance companies are not keeping the pace in the farm mortgage investments, they probably are doing as much as their business will permit. As shown by Table XI, their admitted assets in 1913 were 4,658.7 million, and assuming from the average yearly rate of increase that they would have assets of 7,500 million in 1920, this would give an increase of 61 per cent from 1913 to 1920. It seems, therefore, that the life insurance companies are investing in farm mortgages as their business will permit, but the farm mortgage debt is increasing more rapidly than the assets of life insurance companies.