The Hawaiian star. [volume] (Honolulu [Oahu]) 1893-1912, 1905-07-12

I'd the widespread interest and dis
interest in it has been manifested
therefore, publish this report in full,
, to day.
security. while sound in many cases,
is not of the character that should be
negotiable. The extent of the security
can never be exactly known, but must
be estimated. and the best estimate is
subject to demolition by unknown in
nuences. Having started on this policy
of liberal loans the experience of the
society shows that it is hard to al
ways stop at the high point. The in
stances heretofore quoted show the
advancing of money TO agents to the
extent of from two to three times the
theoretical safety point established by
the society itself
OF perhaps even greater moment
than the financial risk is the effect
which this practice has Of placing the
society to an undesirable, if not ac-
tually dangerous extent into the hands
of the agents. Where credit has been
extended to more than the value of
the security; the lender is not in a
position of independence to the Dor
rover. The agent who borrows to an
improper extent is quite apt to develop
qualities which are undesirable in an
agent. but the mere fact of his unse-
cured loan makes it impOlitic to dis
charge him. The loan must be pro
tected, and the agent is temporized
with while the attempt is being made
to nurse his account back to safety.
The committee finds that the direct
and indirect advances to agents have
been i'm many cases excessive and be-
yond the point of safety and prud-
ence, and that the immediate respon-
sibility therefor rests upon the second
vice-uresident.
EXCESSIVE CASH BALANCES.
1t is of course unnecessary to say
that a most important factor in the
conduct of life insurance company is
the investment of it's assets. As a
life insurance company is restricted
both for prudential reasons and by law
to certain conservative classes Of in
vestments, it is essential that the low
rates of interest which are naturally
obtained from such investments be
compensated for by keeping constantly
invested the greatest possible proper
tion-consistent with safety and con-
venienCe-of the companys assets.
The cash balances of the Equitable
Society lying in United States and
Canadian banks and trust companies
at the end of each year from 1900 to
1904 inclusive, We're:
At December 81, 1900....... SIG, 3O2, 112 OF
AT December 81, 1901 ....... 1885, S24 %
At December 81, 1902 ....... 24624, 746 "a
At December 81, 1908. ....... 2424O,921 So
At December 81, 1904 ....... 20 S49, S95 %
The percentages which these balances
bore to the society's total assets at
the same dates were respectively $50
per cent, 5.S7 per cent. 6.S7 per cent,
6.3S per cent, and sos per cent. The
average rate of interest received by
the society on these balances was 5.25
per cent
The amounts named are large. They
are not required for safety. The society
is not subject to sudden or unexpected
calls for unusually large sums in the
regular course of its business. Such
calls are not incident to the operation
of life insurance, for all legitimate de-
mands follow the known laws of aver
ages on which life insurance is based.
Aside from this general theory the
fact that large balances are not re-
quired for safety is accentuated by the
fact that the regular receipts of a pro-
gressive life insurance company are
always in excess of it's disbursements.
Both for purposes of comparison and
=. L,
ance companies do not consider it
necessary or desirable to carry such
large cash balances as has been the
custom with the Equitable Society,
attention is called to the fact that
while on December 81, 1904, the Equit-
able Society held sos per cent of its
assets in cash, the Northwestern Mu-
tual had 1.S4 per cent, the Connecticut
Mutual 1.79 per cent and the Mutual
Benefit 1.26 per. cent of their assets co
held. The Northwestern Mutual
apologies in its report for having so
large a sum in bank-the words be-
ing: This amount is larger than the
company usually has, as the receipts
at the close of the year were so large
as to prevent prompt investment"
AS stated before the society has, as
shown by its report as at December 81
of each year, had a much larger pro-
portion of it's assets in cash than has
been the custom with other companies.
1t is also a fact that owing to the
large premium and interest receipts in
the latter part of December, the gem
eral tendency among insurance COM
panies is to have larger cash balances
at December 81 than at other periods
during the year.