Mr. Bailey’s principles of insurance investment are as much used today as were in his time.
1. Security of capital: As he thought, the security of capital is very useful today also, because of the fiduciary relationship of the insurer and insured. Therefore, he pointed out the first principle of security in his canons.
2. Profitability: He suggested the second principle only after the first one because he was aware of the negative correlation ship between high security and high profitability.
It is correct in most cases even today. He tried to establish a happy balance between the first and second principles.
Therefore, he suggested that a fund should be invested in safe security first and in profitable securities, later on. At least the assumed rate of interest must be earned to avoid losses.
3. Liquidity: The negative correlations between liquidity and profitability were fully known to him. Therefore, he suggested that a larger portion of funds should be invested in non-liquid securities and a smaller part in the liquid securities, i.e., which can be easily converted into cash.
4. Social Objective: His fifth rule to increase the life insurance business is now gaining more importance because of an awareness of the government toward social objectives.
He suggested that life insurers should make the investment in social institutions such as municipal boards, hospitals, housing societies, health centers, and schools because these will help in reducing mortality which will tend to reduce premium rates. The life business will increase, consequently.
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