154 BRITISH LIFE ASSURANCE, 1914-1918
not; but in any case the action was a significant one, and
deserves to be recorded. It was also in accordance with common
sense. The argument underlying it was this. Probably no
British subjects regarded the default of the British Government
as a possibility worth considering. If they had they would
not have trusted it with their money. There was no likelihood
that any Life Assurance Company would be so hard pressed
as to have to sell these particular securities at a loss before their
redemption date. Hence it might safely act as suggested.
Along the same lines of reasoning may be noticed a method
of valuation which is adopted by several important Companies
in the general matter of securities redeemable at fixed dates.
It consists in what is known as the ‘amortization’ plan.
Assuming that there is perfect confidence in the security,
an appropriate sinking fund is set up. By this method (to quote
the paper (referred to in Chapter IX supra) by Mr. H. Brown,
whose description for conciseness and accuracy cannot be
improved upon) ‘the book values of redeemable securities
bought at a price higher or lower than the redemption price
are gradually, by means of a sinking fund, reduced or increased
to the redemption price by the date of redemption, and the
values so adjusted are used in the balance sheet instead of the
current market values’.
On the whole, what may be said of such a plan is that it
presents nothing unreasonable. It is improbable, however,
that a Company would actually divide profits except up to the
line of surplus shown by actual Stock Exchange values.
There is, however, another and more important question
which arises in the same connexion. It concerns the whole
subject of depreciated securities. These, as pointed out in the
previous chapter, differ essentially from the other losses by the
war. The question is, what do losses by depreciation really
mean ? The adage of the financiers of an older day is suffi-
ciently familiar. ‘ Write investments down. Never write one
up.” It is undoubtedly a counsel of perfection. What has to
be asked is whether, when dealing with the results of a world
catastrophe such as the recent war, unprecedented in its