The Washington herald., 1920-03-14
TINS. CO.'SCUT
DIV. SCHEDULE
Readjustments Adopted
Most Severe In History
Of Business.
ACTION Is JUSTIFIED
Underlying Conditions
Force Large Companies
To Conserve Assets.
ACTION IS JUSTIFIED

Never in the history Of the busi-
ness has there been seen such a
wholesale adjustment in dividend
schedules of mutual life insurance
companies as is taking place this
year, says the Life Insurance Cou-
rant In all such cases where no
adjustment was made last year, the
revision is downward. Some COM
panies which last year cut their div
idend scales to a low point are now
Increasing their greatly reduced
dividends OF 1919. In all such cases.
however. which have come under
observation, not one company has
fully restored it's old normal divi-
dend scale. The companies which
have voted to maintain their old
dividend schedules without any
change, and which made no change
last year, are comparatively few In
number.
The current dividend cuts are nee
essary. and, under the circum-
stances, such a course is unques-
tionably the correct one to take.
Security should be the paramount
consideration. in view Of the unusu-
ual conditions that have confronted
the companies during the past two
years. and are, in fact, still con-
fronting, them.
1t seems a glaring incongruity
and inconsistency that following the
most productive year in the annals
of life insurance, with all outward
appearances of unusual prosperity,
II should be necessary for so many
companies to now reduce their divi-
dends to policyholders. But there
N lia0 fha Snn for SIIch ne
cessity. The expense involved in
putting new business on the books.
paying the first years cost of in
surance. and setting up a first year
reserve is generally in excess of the
first year premiums that are re-
ceived. This requires that the COM
panies temporarily borrow from
their surplus funds in order to help
dnance the new business.
Unfortunately, the FLU" epidemic
a year ago. bringing with it a
wholly abnormal mortality, made it
necessary at that time to draw
heavily on surplus funds in order to
pay the unusual sums required to
settle the greatly increased death
claims. As result the surplus
funds of most companies were some
what reduced at the beginning of
1919, and the year opened up with
4 smaller margin of surplus to work
with In the first quarter of the
year the mortality rate continued
high, but, fortunately, the pendulum
finally swung back and the mortal
lty experience for the entire year.
was. on the whole. quite satisfac-
.ory, but still. with many companies.
4 little higher than allowed by the
mortality contribution calculated in
% their schedules of dividend dis
.ribution.
Then came the unprecedented VOL
1me of new business, which, as al
-eady stated, required surplus funds
- finance it's acquisition. The ex-
.raordinary volume OF business put
IN the books of course meant just
hat much greater drain on surplus
funds. With these funds already
1epleted at the first of the year, the
strain was very great, and in order
% preserve any at all adequate sur
+. plus to work on in 1920 Ii meant,
with a number of companies, that a
-eduction had to be made in the
AMOUNT distributable to poIicyhold-
srs as surplus. or dividends. for the