New-York tribune. [volume] (New York [N.Y.]) 1866-1924, 1877-01-13
LIFE INSURANCE EHAMTNAT TONS


LIFE INSURANCE EXAMINATIONS
DANGERS FROM DISCRETIONARY POWER.
INJUSTICE THAT MAY BE DONE UNDER The NET
sYsTEM-HIGH AND Low OBSERVATION-DISCLOSURES
RiGOR SHOULD NOT BE EMPLOYED-EFFECTs OF
THE HARD TIMES.
TO the Editor OF The Tribune.
SIR The failure of the Continental Life In
Company and the suspension and probable qui
dalton OF the Security Life insurance and Annuity Com
pany have impaired the confidence Of the public In life
underwriting. 1t is Olerably we'll understood that tho
Superintendent OF the Insurance Department viii make
rigid examinations into condition Of other companies
and If by his they are found wanting" re-
| ceiveI will doubtless i've introduced.
highly important that the method adopted for de-
tcfmning the liabilities OF company should be correct
one, otherwise great wrong might be done to o com
pany which is abundanty able to fnif all its contracts
as they mature. Under the usual form OF life nsur
anco policy equal annual premium insures con
stantly Increasing risk Tho necessity for creating
fund In OF the cost Of Insurance for the uneNpo
portion of the year IA based upon the policy -homers
right OF continuance The principles upon which TINS
fund should be determined in ascertainng whether OF
not company Is solvent IA the question WHICH PrV
pose to consider.
The laws OF the state OF NewYork provide chat the
superintendent OF The Insurance Department may at MS
discretion calculate OF policies by the net the acuai OF
the gross premiums otherwise, deduetng In case o
gross valuations from the gross value Of future preln
una one-iAth thereof for future expenses and eontin
gpncies" 1t Will be observed that broad discretionary
mower is giyon TO the superintendent Heretofore all
valuations made by the Insurance Departments have been
computed Ivy premiums This system Is empire, as u
ignores the actual future premiums receivable IL places
upon one side Of tho sheet the present value OF future
death claims and upon the other the present value OF
future net premiums and assumes inc Daahce W pe 'e
proper reinsurance fund.
II business desired TO ascertain his financial con-
Hion he wOni place on one side Of the sheet tho pres
ent value OF all outstanding Indebtedness and upon the
other cash hand the market vane OF all his property
and tho present worth OF his bills receivable aiier max
ing due allowance for bad debts other contingencies
and the cost Of collection, and then strike balance H.
instead he credited himself with an arbitrary amount
REGARDLESS OF his resources lie would he The laugh
!ng-ytock of the community Yet this is substantially
what the system OF net valuations does in life insnf
ancc company.
The character Of this system be shown by one or
two simple Illustrations. Upon the American Experience
Table Of Mortality with interest at li2 per cent tina
basis required by statute upon al ordinary lie poi
icy Issued at the ago Of thirty years the as6ump
tou Is that the company will receive $40 ~ annually
for each ~ 900 risk " al the aga and upon the pan
named two companies each issue policy for Tloco one
charging premium OF $50 50 ana tue other OF rs ~
it is evident that Tie former has margin for expenses
q -
NM be conceded that # ~ 70 il sufficient allowance
for expenscs upen one policy it certainly is upon the
other jpan tai, sappositicn the reinsurance require
mnts OF each policy, II Placed upon an cqniobe DaS7
at the end Of the tenth year would be as follows;
POLICY WITH PREMIUM or 500 -.
500 q le. II r. leaves SO ~ ~ effective pTeiiTn .
The present Of iuture deal; claims H. ia 81
Less fl2 H. lnuitlGi.5 D! ll'o''' 'i' " ' 2C7 q
Leaving bsanoc % reserve 10 W
HsSp IL the net premium. Is evident mat ie re-
.,tt.-f hut fa- vat. IN %
POLICY WITH rgE%1r " 81 %r ;7s , 57
so r. 81 10 leaves 81 % a. pioH'u M c,
TIE IroS M GOT ire ic2ta can5 is---
-, ~ multini.ed ly 40 80. 80 y,
Leaves balance reinsurance iand 10 -
on t,o other hand u IL il asserted thai - 90 Is re-
orired for oxpsnRcs upon one pHey IL must DC Oh ms
ether Ia that tbs policy with the higher prclniah
rate viii be required to hold 1923 OF and that WIN the
lower %2lO Or What, yer margin Is deemed necessary
whether the higher tee lower ~ an Intermediate one
the f,,cy of coInpelhng both OF tdcse companies TO
hold precisely The Same amount in reserve Mt tho end 81
the tenth or OF any other year is apabie as TO render
further comment needless.
II has ,e.n nrgcd AGAINST ,he method employed above
that it may when the premium is nigh ana the margin
for exntY,es small gave negative results This IS une
!, c,ui. coni enforce the payment ~ premiums as
,Iu, fU due duriug tie full term Of the policy, sich
cs should he Ken into consideration, but AZ the pol
cyoler ha, tae rsht Of discontnuance they must be
ignored.
I'm determining the question OF soyelry due weight
should be given to every fact Assuming ia" scale OF
mortality and the o interest given by our Ia" ~
haas the future premn5 receivable, the proper pro
vi,u for EXPENSE. the options OF dsccnnuoncc for
Ter paidp policies. cash values, or extensions 81 ~
srraucc. she cnco that the Fycr2e i"t3 VIII cAtttu
10 Nrons,s and CONTINGENCIES ar" amonS mo "rin'hS
no. b,n5 Inc cor.i. cd Tnps"s and -urltndcrs Will
cyrrt an influence q sing perhaps gam On f on hA,
agu , bhi"St i've P"sib. deirment tnis
Ia no INA
CONTINGENCIES The most important; quc-tij the dcttF-
,,',,,ti,t, at which rgqurc5 great JUDGMENT AMI IA
,bro, knoylcar of both the theory and practice OF
HE under writing j., ~ t. Just What Tue Ito'l.oH3 ~
rNren,cs and contingencies should be- IL mast lh'unr
sufficient portion Of the premium 10 provide Tor agents
commissions, for Office expenses, Tor ai' cohlh'
Cos Dcl:irs excessive mortality, and the elect Oh
e7cs aud guIfcndrr- Tho poiiclcs of American copa
mics are ofte compound contracts. - thJ Ot Only pro
yld. Tor the payment " the cinm 81 maturity hut ans"
c.ncld 10 tho insured ID" ught t. discontinue THEW "
Inonts aud l,Lo either r"idup policies csh 81; 90
values extensions of SlTlnce or some "thr i''i. %
,,,f Hany uud'i wiiter7 10 not som 10 L''r gwen
due wei ght TO There options, especially to the premium
winch Ihoy otter 10 wlthdI7'wiuS p"ic' h"eir. - tH
u,crs.y Tor The aris from The option uieh
fhe insured has to coninur ~ IN determining We
amount which 1t is necessary for tho company \" hPu,
lie right of a policy I0l'r 10 entail ne" nahhy
should also nc considered. If, upon examination, u -
tns snb,tlcd excceGs "a" reseI'e which the "iisin
contract would have had had u contained DO npr,i1i
provisions, The company should DO charged WIN sueh
fjg value. -, .-.--...- -.
-Iyr below inc values OF he policies. which bad
under consideration. 10y gro, valuation. with an abai"-
The FIRST third attn and tehth years. also appeod tor
the purposes OF comparison the corresponding values
by nct preIn!uins: ,..,.ro ,,. ,,,c. ,,ro
Ne! ya ne mum a go o, %. Ne94 sT2 H.
isud th.rd year. 80 4 90 % Nesl,,ye.
81 s 3 3 II 5$ sis'''
Under ina law the superintendent can accept tIe gross
values given above, OF he may Icguiio The Ict 'an. II
ans no surrender options contained In the poicy. he
would require, under tne coht.t WIN TX" ~ WI