The evening telegraph. [volume] (Philadelphia [Pa.]) 1864-1918, 1871-02-01
SPIRIT or rHn PRESS.
editorial Opinions Of the Leading Journals
upon Current Topios-compiIed Every
Day for the Evening Telegraph.
sOLvENCY IN LIFE INSURANCE.

SOLVENCY IN LIFE INSURANCE.
From tho NJ Y. Times.
The disturbance which recent failures in
the insurance world have created will not be
an unmitigated evil if it concentrates atten-
ton upon the true test of solvenoy in life
insurance and the essential conditions of
good management. The immediate effect is
prejudcal to the business. The saying of
De Morgan, that absolute security is nowhere
found in greater degree than in a carefully
governed life insurance company, has been
SO twisted and perverted that most persons
we're accustomed to regard failure in
life insurance as an utter impossi-
bility The delusion has served as a cover
for many impudent cheats, and has impaired
the effect of criticism upon the recklessness
and extravagance in the conduct of business
which an almost criminal competition has
produced. This delusion the recent failure
of the Great Western Life and the Farmers
and Mechanics Life has rudely broken. The
result is something not unlike panic. An
entire system is suspected because abuses
which have fastened themselves upon it
have produced natural and disastrous re-
suits.
Before confidence can be restored, the re-
sponsibility for the irregular-not to say frau
dulent-practices revealed in the failure of
the Farmers and Mechanics Company must
be determined either by legal proceedings
against the parties implicated, or by legisa-
tion that shall fix the penalties of criminality
for any future practices of the same kind.
If, as reported, the aggregate apparent busi-
ness of the company in question were in
creased, and the ratio OF its expenses re-
duced, by a pretended issue of policies
which never were issued, there must
be somewhere a responsibility of which the
law can take cognizance. In such q case it is
not enough that the affairs of the company
are placed in the hands of receiver If the
Superintendent has the requisite authority,
his duty is to bring to punishment the Off
cials chargeable with the malpractice; and if
he has not authority, his duty is to urge upon
the Legislature amendments that will furnish
better safeguards than the public at present
possess.
The efficacy of legislation in regard to life
insurance is, however, necessarily limited.
The misfortune is, not that we have too
little legislation upon the subject, but that
we have too much. People rely upon the
protection afforded by law, although the only
adequate protection must be derived from
an intelligent discrimination between good
and bad management, and from adherence
on the part of the companies to tests which
only public opinion can enforce. Ihe law
fultils its proper purpose when it exacts from
the companies sworn and specific state
ments as to their affairs, and provides for
the publication of information so acquired,
and when, further, it provides for the severe
punishment of Irregularities and frauds of the
nature resorted to in the Farmers and
Mechanics Company. 1t does more harm
than good when it leads the public to put
faith in stockholders capital as of any ap-
preciable value except during the earliest
stages of company's business; and it goes
beyond its province when it lays down rules
and imposes conditions which every company
should be free to determine for itself.
The essential information, and that which
should be supplied, officially. to the public
in q more readable form than is at present
adopted, embraces three distinct points,
First, the amount of business, and the ratio
of the reserve, or accumulation of premiums,
to the sum required to constitute solvency.
Second, the character of the securities in
which the reserve is invested. Third the
cost of management, discriminating between
salaries and other fixed outlay, and COM
missions paid to agents, with an additional
distinction between the rate allowed on new
business and the rate on renewal premiums.
This information, or g large proportion of it,
may be derived from the present reports.
But it is mixed with a mass of returns pos
sessing little or no value save to the compa-
nies or their agents, and in the matter of
expenditures the statements are so dumped"
as to render them practically unavailable.
The first and simplest test the Superin-
tendent already, In bulky way, enables the
public to apply for themselves Let it be
distinctly understood that no company is
solvent whose "reserve," or accumulation of
premiums, does not equal the present value
of the insurances-in other words, does not
amount to the sum that would be required
for the reinsurance of all outstanding
risks - and large number of companies
will be at once discarded as unworthy of
confidence. In the application of this
test, stockholders capital is really not
entitled to popular consideration. 1t has
uses in the case of a com pany whose bust
ness is very small, but it is infnitesimal in
proportion to the reserve required by large
company, whose solvency can be secured only
by a wise administration of the money sup
piled by the poicy-ho holders. As a rule, then,
we suggest that policy holders who desire to
Judge intelligently of the companies they
are interested in, and parties who desire
guidance in the taking out of policies, should
trust only companies whose premium assets
are equal to their liabilities, mathematically
determined. We do not say that company
whose actual reserve is but seventy-fve OF
eighty per cent. of the needed reserve may
not, under more careful management, acquire
the requisite strength. But a really solvent
company is alone that which can endure the
test we have described.
Expenses afford another test that is univer
sally applicable. The rates of commission
generally allowed are exorbitant, and there il
a general tendency to extravaganza which
takes shelter under such headings as ''al
other expenses" 1t is not easy to define
maximum percentage as the cost of carrying
on business; bat that is a safe rule which
estimates the rate of expenditure for man
agement by comparison with the rates in
cnrrad hY other comnanies Other thing