New-York tribune., 1920-12-12
By Haley Fisks
President Metropolitan Lije lxsur-
d,,ce Company

THE subject Of investments Of life
insurance funds has been . very
live ono for some years, and especially
of late the discussion has reached an
acute stage. 1t is interesting for three
reasons: First, because of the immense
amount of the funds Of the companies;
second, because Of the need Of capital
in various directions, and, third, be-
cause Of the enormous number Of
people who are interested as life in
surance policyholders. Two-hfths Of
the entire population Of the United
States are insured in what are called
"old line" companies-that is, in CON-
panies issuing policies on tho level
premium plan. This plan requires
great accumulations to provide for the
maturity Of the insurance.
These reserves in thirty-nine com
panies. whose assets are nearly 81 per
cent of the combined assets of 266
level premium companies operating in
the United States, amounted at the
end of 1919 to about five billions of
dollars. Many people look upon these
five billions as free assets and do not
know they are also liabilities. The
public ought to understand this. The
level premium plan of insurance was
designed, as the name indicates, to
issue policies the premiums upon
which are the same during the life of
the policies. 1t is certain that the
cost of insurance increases each year
after age 10 because the rate of NOR
each thousand die every year with in
creasing age.
Tho natural insurance" plan Of as
sessment companies therefore involves
increased premiums with advancing
age. 1t is obvious that as the period
OF life approaches the less productive
age the premium becomes more of a
burden, and finally becomes almost pro-
hibitlve. The level premium plan takes
the cost of insurance through life and
divides it 80 that the premium will be
sue of the policy. 1t follows that ut
the beginning the holder pays more
than the premium necessary to carry
the mortality cost for the year. The
excess premium is the reserve THIS
reserve takes care Of the deficit in the
premium when the age has advanced so
fhat the premium charged is less than
the mortality cost of the year. The
companies must invest the reserve at a
rate of interest that, added to the re-
serves themselves and future premiums,
will produce the full amount of the in
surance when it becomes due.
Public Investments
At the end of 1919 tho thirty-nine
companies owned nearly q billion and
q quarter OF Federal, state, county
and municipal bonds-nearly 20 per
cent OF the entire amount of their as
sets. We were at war so short time
ago that the recollection of everybody
is very vivid as to the urgent neces-
sity of borrowing money by the
Federal government Life insurance
companies were the first to be ap-
pealed to and they were urged even
to borrow money to invest in the
Liberty and Victory loans. They re-
sponded nobly and owned over seven
hundred millions of United States
bonds at the end of 1919. In this case
you will observe that what we have
named as the primary principle of in
vestment-to get as high rate of in
terest as possible from safe securities
was modified by the other principle
we have named. Some of the bonds
bought carried interest down to the
rate assumed in the calculation of
premiums, and nearly all of the bonds
subscribed left little excess interest
Tor surplus.
1t seems to me there should be an
other principle governing investments
namely. public needs. 1t would seem
have consistently followed this prin-
ciple. Take public transportation. If
we 90 back over the financial history
of the country we find that thirty or
forty years ago what the country most
needed was facility Of communication.
This nation owes its greatness to
the railroad facilities. We find the
recognition of these facts by the in
surance company officers who shared
the vision of the pioneers. In 1870 out
1.13 per cent of the assets OF life m
surance companies were investea oo . IN IN
railroad bonds and stocks; in 1880 3.72
ner cent In 1885 railroad investments
were nearly 20 per cent of the assets;
in 1890 23ls per cent, in 1895 26h pei
cent. in 1900 over 80 per cent, in 1905
32 per cent. in 1911 35 n per cent; three
years later show a decline as the needs
decreased and the proportion dropped
to 1914 per cent, then in 1917 to S2h
per cent, and last yesr to 28s4 per cent
Debt to Companies
The debt the country owes to tn,
life companies in the matter Of trans
portation has perhaps not been real
lied. The companies have done theil
share in civilization, lor this is the
result Of developing the country ir
facility of communication. have
often called life insurance premium.
the circulating life blood of the coun
try We need not elaborate this ides
further nor do more than mention tn.
matter Of urban and intcrurban raj
systems.
Next take tho public need Of cult
waited farms and city dwellings, store
houses. shops, Office buildings. Mort
gage loans have generally formed thu
largest percentage Of life insurance
Investments. Here is need which
just at present attracts the most pub
lie attention. Criticism has been in
sistent that the companies have no
done their duty. They have beer
-samed because Of the shortage O.
housing. II Is unthinking criticism
II has even been said that mortgage
= should be, If not almost the sole, ye
the greatly predominating form Of in
vestrnent This criticism overlook
several facts.
First investments must be to som,
extent liquid. One company was calle,
upon TO pay s24.0000o0 in q year OF
influenza claims over and above IT.
normal mortalty--about 80 per cent
Second. II all the companies undertook
mortgage loans almost exclusively tn,
rate Of interest would fall to q poin
detrimental TO the interests OF policy
holders. Third. II such rule war,