Audubon Republican. [volume] (Audubon, Iowa) 1894-1925, 1906-01-11


state officer, at which time our auditor
should transfer thu securities so placed
with him to the officer of the state II
which the company Is organized. Ii Q
few states would adopt this plan, Il
would result in every state having IN
surance companies, requiring the deposit
1 earnestly recommend to you careful
investigation of this phase of the general
subject.
Another grave defect in the methods
of life insurance developed by the recent
study of the subject, is the accumulation
of a so-called surplus, which, in great
measure at least, represents deferred div
idends; that is to say, the sum which
the company, in vague way, promises
to distribute at a future time to Its
policy holders, but concerning which
there Is no specific agreement fixing the
amount of the distribution. The surplus
so existing is not reckoned as a liability,
for the reason that no policy, so far as
| have been able to ascertain, contains
any more positive assurance of distribu-
ton than that the policy holder shall be
entitled to such share of the surplus as
the directors of the company may de-
termne. The whole scheme of deferred
dividends has tendency to lead the bust
ness away from the field of indemnity
which is altogether too prominent, and
which should be checked by such reason
able regulations as can be prescribed
without injuring the legitimate enter
prise Of insurance; but there Is still
more potent objection to the practice.
As is we'll known, the premium charg-
ed by a legal reserve company is made
up of two parts: First, morality; sec
ond, the loading for expense. The actual
mortality is considerably less than the
theoretical mortality, and it might hap
pen that tie share allotted to expense is
not altogether consumed. From these
oyercharges in the premium, together
with a portion of the interest earned
the surplus is created, and the general
promise is, to return this surplus to the
policy holder in the form of dividends.
| am speaking now of a mutual COM
pany, although it is likewise true of a
company having capital stock, with the
one exception of the diminution in the
earnings caused by whatever claim the
capital stock may have upon them. No
company can safely make any definite
promise with respect to the surplus so
acquired, for the obvious reason that
its extent must always be uncertain.
One of the issues in the insurance bust
ness at the present time, therefore, is /:
Shall this surplus be ascertained and
apportioned and disposed of in some
manner at short intervals, or shall it be
allowed to accumulate during long peri
DDS, and then be paid to the policy
holders in such proportions as the board
of directors of the company may think
best? 1t seems to me that every
consideration of safety and fair dealing
requires that the surplus to be credited
or paid to participating policy holders
shall be ascertained and paid, or
otherwise disposed of every year. In so
saying, l do not mean necessarily, that
the first or second years of policy shall
be so treated because the expense of get
aing the business, with the mortality.
quite consumes the premium for those
years. If the dividends are deferred for
long period, the policy holder is alb
solutely at the mercy of the company
Even if he could override, by a judicial
proceeding, the discretion of the board
Of directors in apportioning the surplus
then due him (and the courts have de-
cided that he cannot) the cost of pro-
curing the proof necessary to establish
his rights would far exceed any benefit
that he could derive from the litigation
IL, however, the law imposes upon the
company an imperative obligation to as
certain and apportion the amount of the
surplus due to each participating policy
holder at the end of each year, then the
natural forces of competition between
companies, together with the option on
the part of the policy holder to surrend-
er his policy if the dividend be not fair
and satisfactory, will protect the pol
cy holder from any serious wrong.
therefore recommend that the law be
so strengthened as to require an annual
hnfx ooh
its policy holders so that Mt the close
| of each year the policy holders will BIZ
notified of their respective shares in the
| surplus of the preceding year. The
amendment should also provide for thu
| option which at that time may be exer
cised by the policy holder, namely: Il
withdraw the dividend in cash, or to us,
It for the purpose of purchasing fur
Their insurance. In so recommending
it must not be understood that | advo
cate the distribution, annually, of thu
entire surplus. 1t would be unwise tt
insist that the assets of the compan,
shall at all times be. no more than it
liabilities. There must be margin O
safety to cover unexpected and extra
ordinary conditions. There are wide
| y differing opinions with respect to thu
amount or percentage that should be re
served as the margin of safety, and thi,
| divergence of judgment can only be ad
| justed by your good common sense. {,
which / confidently submit the Who'll,
controversy.
1t is believed by many thoughtful mer
that there should be a limit to the no
gregate amount of insurance which {
company should have outstanding; or n
other words, that the amount at risl
should be restricted to some large, bu
reasonable sum. l have not been able
to reach a satisfactory conclusion upor
this subject, and therefore alake no re
commentator upon it. 1t is, however
so mportant-indeed, so fundamental
that l comply with many requests, ant
invoke for 1t your careful consideration
This state has, with great wisdom
pursued the policy of narrowly restrict
ing the manner In which the legal re
serve OF company may be invested
1t is to be hoped that an enlightened
conservatism will always control thi,
essential feature of supervision. I be
lieve, however, that the time has come
to enlarge the field of investment. In
harmony with the plan already adopted
life insurance companies should be per
mitted to invest in drainage bonds, anc
in such securities as paying, curbing
sewering or other public improvement
certificates. These securities are a.
safe as municipal bonds, and inasmuci
as the opportunities to loan money OF
real estate will gradually become less
you ought to open such other remunera
tive fields as are without danger. | be
lieve, also, that every life Insurance
company organized under the laws n
this state should be permitted to inyes
reasonable sum Ito be fixed bv IN,
executive council, but not exceeding ta,
, | Nf &c