Wy Y _ _ Zi Uy ty ty Yj Yj NG eae ss re CORNELL UNIVERSITY LIBRARY F Bt TION BURGAU — TuNe Cornell University Libra “HTT The Poetry of Earth is Never Dead ee bee Woes . ; ve ei uA y ae ae ay O Wry Oe ut MD, LENE, NUE! STATE OF WISCONSIN le PV VSS ee a REPORT OF H Joint Committee of Senate and Assembly ON THE Saint Caminittee ao Affairs of Life Insurance Companies MADISON, WIS. Democrat PRINTING COMPANY, STATE PRINTER 1907. 2 ~z \ 4.99 6/&6 TABLE OF CONTENTS. ORGANIZATION OF COMMITTEE... ... cece cece eee eee eee ree eee eens COMPANIES. EXAMINED 6. 0.504 sata a sesae meas Coa MR Coe eae SaaS x NORTHWESTERN MUTUAL eo ies e's a scspict slew asenecas aides oo eae Ee ROE e em Hxecutive COMMILCEEC «6 66 sigees sa ced seg eee gee new sew ee Oe eee Finance committee................ arable Masa ee aie tresses Committee on insuramce and agencies.................0000. Executive officers............. Diet Sea whale Rei dmla land acyiukde: Od arate Membership in COMpANY.......... cee eee cee eee eee eens Qualifications of trustees and votersS............... cece eee Proxies, voters how selected............ cece eee eee ee eee Nomination. of trustees. icc ic sce cece decd dae ca wee Hed eee Salaries and increase. .i.cccei sec ssc sieevees Ge dist tes iewnes Relatives of officers in employ of company................ Remedy ‘proposed. sas vis csens tage voanewerehaes ea aeerex anes Private loams by officers, €tC.......... ccc cc eee eee List? Of! WOanS ei: v's cece a sas he wees eis was ws SR ee eee Annual] and deferred divideads............ cee cece eee eeees Company loans on policieS.......... cece eee eee eee eee eee Restoration of lapsed policies ......... 0... cece cece ees THSPCCtlON, OF TISKS w...o5 csi ees. wea ew ain een x eres anasa deans Woes Aveda Incousistencies between policy agreements and loan agree- MCHES “ers de tasieh ocho abies paemeaor ee set teste Agency system........ doa Seay ous us ciie teens Saya aay tabetha cable cass ae Form of agents’ contract........... cece cece cece e eee tenes General agents and commissions...................00c0 cee Expense of mew business is in excess of amounts collected to defray same........ Be sondansdie Tecoveune ea aneuale eagialecetans d & eomoonNrttn DAaAnrk wep oe peeonnwnnydHHHH EL ownomrn owe cl PF COR 43 zt) 45 46 51 iv Table of Contents. Northwestern Mutual—continued. Page Rebatin ge saa ics Paes dade asl aew asule wee dead sagadtuasesaereme se 53 Legislative expenses and disbursements .........----+8++7° 56 Campaign contributions......... 0000.0 ccc eee ee eee eee tet 61 THVES(MONS: 3.4 Acecwcasancaeed aeotews bdka es TAREE EON NY 62 Bonds and mortgages compared............0eeee er eee tees 64 Net rate of interest—Northwestern and Union Central COMPARE. a. 0 wnscaca aaled ah eT ee SeEe eo RES GS Mortgages—Northwestern and Union Central compared.....- 66 Farm loans in Wisconsin, Iowa and Minnesota..........--- 67 UNIon CENTRAL LITE INSURANCE COMPANY....-- sees ree eeeneree CL Control of company.............-. 72 Stock profitSin-.0 gua cn saa hie das den Gea cern bse ee Se OS eee 72 Surplus accumulation 73 Manipulation of company’s business in interest of stock holderg............ fi al cepdetncag ug te sdhpasSe ey ates ae BHO Soa ais atk eae 4 13 Company’s purchase of its policies.....................055 78 Other discriminations in favor of stock holders............ 78 Stock companies and general surpluS..........-......0005 79 Stock and stoek holders: . soi cscs cssis cossawsedevaiiaa sade 81 DIVIGENG Sirs vote Sees dal ed ese cau eee ee eee Sethe Wa GuRenaeenn ee ade 82. Poticy. LOANS: + sa:0%4 ech 4d yee ee dH ean ee STADE TE Nes Hoe a eS 83 Discrimination. + sexes + 4u% ose yer ee eek oda Hed eee Re ees 84 Po.icy conditions and stipulations...............0.c0.ee eee 86 FRESEFVE | CONN CO: ge si: dtonciy chara ne a sltanas He: Sagled, W's RE a Sse Sb Reese 87 Practice as to payment of dividends....................... 88 Provision for paid up imsurance.....................0.00. 89 General surplus and reSérve......... 0.0... c eee eee eee 89 Investment and tax expenseS.............0 0c ccc eee eee 90 Difference in cost of insurance............................ 91 Commissions unfairly charged on different policies......... 92 Per cent increase in different classes of policies............ 93 Forfeiture of reserve the first two years................... o4 Discrimination in forfeitures..................0.......... 94 Cost: OF HEHNSUPAM CEs 5.5 ces eee alata Ha CaN doe be aly Oak wees 94 General agency SysteM........... 0.60 cece eee c cece ee 94 First year’s commission............... 0.00. ccee cece eeeeee 96 High COMMISSION: sa s5..006cceegocuswevews ever dcscwuas has 96 Life rate endowment policies.............0.0.....0....0005. 97 Salaries of officers and increase........................... 98 Table of Contents. Union Central—continued. Investments....... Commission to loan agentS.......... 0.00 c eee eee cence ences Interest rates..... Farm loans....... Foreclosures....... Emergency fund... Policy contract.... Company's: Tate: HOOKS saeco e garg ais wees Sein weg ade Sew area ag ae Insolvent condition Of QGMPENY: . ccc cc kaweca wa veeaan dines Reserve required by commissioner of insurance............ Fay contract...... Commissions and expenses of new business................ Gain, @md- "OSS: OxBibit ccc cc cuca do auece lace adueserde besser s were weeds eee Policy loans....... Real estate loaas.. FUNPAMENTAL PRINCIPLE OF INSURANCE........00 00 cece eee eens Mortality table.... American experience table......... 0... cc ee eee Interest rate assumed in advance............. 02. cee eee ee Premiums uniform Explanation of policies and premiums...................05 Net annual premium. American three per cent............ Net annual premium. American 3% per cent.............. How ieserves are accumulated......... 0. cc. e cece eee eee eee Reserves on ordinary life policies...............0...20000. Reserves end Of year........ cece ctw ce cee crete e cence tenes Charge for death claims based on amount at risk.......... Total reserve Northwestern and Union Central..... eb ares Savings from MORAY dace io pede aa alane awe dare Mae deatete Gain from excess Net premiums are INCORES Es aaviaaciuaald ag duis eos MUM A ded oo loaded for expense.................04. Bavine {roi LOACiMG ss. chow cw ein cohen bur ededaeuaens Lapses and SUrTenders........ cece eee cee ee eee tenes Surrender charges ordinary life................. 0... c ee eee The sources of SUIPIUS.......... cece ccc ee cece ee enaee 103 105 105 1935 107 109 110 111 112 113 114 119 121 121 122 123 124 125 127 127 129 129 129 130 130 130 131 182 132 133 134 134 135 136 vi Table of Contents. Fundamental Principle of Insurance—continued. Page Losses by forfeiture. «0... cccca sent ews mene e rene ree rene. 136 Policies terminated by lapSe.......... cece ee eee eee eee 138 Premiums diid retW7iS. sic eace ste ees WS OE HEE G we Aa Sew ee 141 Effective publicity........ 0... cece cece ee eee ent 142 Table should be inserted in policy..........ec eee eee neers 143 Insurance companies are Lusiness institutions........+++-++ 144 Table showing expense loading of premium...........-.+-- 145 Regular full reserve plan.........- cee eee eee eee eee eens 147 Se‘ect and ultimate plan............-.--00-? Sate DTH Raw atiat 148 Plan providing expense charges in accord with actua con- OGG so sea dea boay sd aes Swe ae the eed MEG Oe bade Poe eee 143 Preliminary term modified to limit expense a ‘owance to that under the twenty payment life plan................04- 149 Preliminary term modified, etC......... cece eee eee 150 First premium higher than subsequent.................455 150 Hindowment imSurance........ eee ccc eect ee een tenes 151 Further analysis of the tables sii. ei. dos ca cee ae seen ee 152 Schedule showing analysis of ten year endowment of Equit- abIG: ING Wie nea waders dee tuck aes. eaten mates Scaueihe tec ds 152 Non-participating ten year endowment of Equitable........ 154 Reserve made up from surplus of old policy holders....... 155 Various bilys do not insure reduction in premium.......... 157 Limitations of expense loading................ Re ask diode cee LaF Premiums charged are e@xCeSSive......... 0. cee eee eee ee 158 Premium rates of New York companies high............... 158 Premiums of some companies lower.................0c0eee 159 Net annual ‘premiums: ysis oe cae yess Ga Saw BUH e ww ese ae baa oe 159 Per Cent Of “Gadi Nes 6 asc s piste ye won tals sea ales at whl omie nicked 160 Effect. of OVET-CO.1ECHON os occ 5 iia eee ea bey ees Ek ea Sao oes 161 Loading on 314 per cent policies......... 0.0... c ee ceeee 161 Schedules showing premium charges...................... 162 Summary of premium rates..........0. 0... cc cece ee eee ee 164 Ordinary life—premium and loading...................... 165 Twenty payment life—premium and loading................ 167 Twenty year endowment—premium and loading............ 169 Ten payment life—premium and loading................ 171 Pen Fear SAAC WMEN be 2 sisi eg Beas des bee anes d case ec cusitety 173 Summary of loading............ 0... cece cece cece eee cces 175 Usage the only defense of unfair loading.................., Li7 Guaranteed dividends........... 0... ccc cece e eee cece eee 177 Loadings and dividends ............. 0.0000 cece eeee cee 178 Table of Contents. vii Fundamental Principle of Insurance—contin)ed. Page Annua! dividend of various companieS.........-.+-sseeeree 179 Interest and mortality assumption. ......... 0060s eee eee eee 181 {ntereSt limitatiOn. ..cg.4 cca ers e shoe we dda net Oe es a Hee 181 Mortality limitation. 0... 0... cece cee eter e enn 182 Reserve liability... ... 0... cee cee ee eee eee ae Hae sad wise 182 Limitation of expense provision............. eee ee eee eens 182 Maximum expense provision.......... cece cece te eee eee eee 182 WA AIAODG wiccda cee ee aangnic taal aun shee s 2h nla Oak aces BE TRE DE CRE 184 Plan elastic and adaptable to variable conditions........... 184 High commissions have increased expense.........-..-005 185 Reduction in present value of expense provision.......... 186 Table showiag present value of reduction in expense pro- WASLOM sp jee: q. aise do. sundhe area tenendanss susus dS thad 1 SUR SSA TN VY SW RS 187 Prémium: limitation... 2.006. circ sad cecn ce eee set ess iawn 188 Maximum annual premium allowed under proposed limita- THOM peciiactin she OBA aces oe BRe dk RSE RE ie ae SEs Shee Beare os 189 Reduction in annual premium on American Experience Tabie of Mortality cos csceeencnce ves eure aa gaan shane new ne 190 Table showing reduction of annual premium............. Ld Reduction in aunual premium on American Experience Select and U.timate Table of Mortality...................008 192 Table showing reduction in annual premium............... 193 Advantages of plan consiGered.............. 0. cece eee ee ee 194 Standard’ -proviSions.: sir: s eased oveaaa da seme sede oe eee ee 195 DIVIDENDS # ans, se lee eee Ls HS a A aaa ae ER ae hd oe 197 Different kinds of dividends. ....... 0.2... 02 ccc eee eee eee 138 Semi tontine dividends......... 0... cece eee eee ee 198 Full tontine dividends. «cic. cca ee eas ee ame ee ee ee wees 198 ATMWAL GiVIMONGS ies eae y 24 Wa 28 «Wale Haina eran annanaee a4 199 Excess interest earningS ......... cece cee eee eens 199 Dividend for 1902. (L. S. Davis.) ....... 0.0.0... eee eee eee 202 RePulat “SURPLUS e254 weds nase edward sa Waglsdas WAY doe eames o6 202 PMGIUCHRD SUV OUS nas ey eva os ee duane Pd ADE K RTD SRE 202 Annual dividend factors .......... 0. ccc eee eee 205 Mortality factors). ccs sien scien nee Aa le LEER Ns Hees 205 EX PeNSE: TACOS javier dae ddcdunan sade coals Lune dd bee cae es 206 Reserves on surrendered policies.......... 0c... cece eee eee 207 Apportionment of tontine surplus............ 00... cee eee eee 208 Dividend for 1902. (J. K. Patterson)..................... 210 vill Table of Coutents. Dividends—continued. Page Annual dividend takea partly from earnings on tontine SUPPlUS x scraw evar eer eeegeaadadded ane POSTE RE Sear RN 212 Interest rates and dividend factorS...........-++seeeeeeee 212° Consideration of explanations............-e seer eee teers 215 Other companies have discriminated.........--..++eeeeeees 218 Union Central dividend........... 0c cece eee eee eee ene eaee 219 Mortaiity factor... .. 0. ccc cee eet eee e eens 219 EXxpense factor... .. 2. cc cece cee cee nee een eens ene eneeee 221 Life rate endowment policy..........:. cece eee eee e eens 222 Interest rates and dividend factors.........-.... sees eee eee 223 Retaliatory legislation....... 2... ccc cece eee eee eee 228 Fraternal imSurance. .... 6... cece cee ccm e ee eee ne nenenee 230 Industrial InSuranCesis ssc oo crease’ Heuee oeiednaie signs Gow eal taee So 233 Bills: SUIMIMEUVs ocicceevaree sewed ee merece KE SEN Ree CK eee 234 SISNAUUTES bend aieeeenes celadieiein mene oe adne a ata Po Rees 435 PROPOSED: BILDS ia siascos age tied an ara dare en wnlaipiae pee sem ineeleuies FEN 236 1, Définition. Of tePMS..264 dane dane wets deneea asec dae) aie ees 236 2. Election of directors of mutual companies............. 238 3. Appointment of director by governor.................. 242 4. To require deposit with staite treasurer................. 244 5. Te prohibit writing of both participating and nonpartici- pating po.icies by same company.................. 246 6. To require foreign stock life companies to determine re- spective rights of policy holders and stock holders in Unassigned: SuUCPIUG biases cere sterptane sealers maauamaueqiae® @ 247 7. To change standard of solvency.............000c cu eeeee 248 8. To prescribe standard provisionS................0000005 253 9. NG: TIMIt; PEM IMS & sess ccoesases acs whe Seandieeanerdrwdanae bis bnaes ab 259 1.05 TOr TM CR POD SES i cece scar dary es masealoane atom am renncace ddan ledeuce 260 i1. To limit salaries of officers, agents and employees...... 263 12. To prohibit discrimination......................0c cues 264 ° 18. To prohibit misrepresentation...................00000- 267 14. To provide for apportionment of deferred dividends.... 268 15. To provide annual distribution of surplus.............. 270 16. To repea' Stipu’ated Premium law..................... 273 17. To require companies to furnish copy of application... . 273 18; ObbyIne: w.cxovwe sees we We i edusdee Gihaw aad aaueated aw esau 274 19. To repeal section 1221 re fees.......... 0. eee cece 275 20. To prohibit campaign contributions.................... 275 Table of Contents. ix Proposed Bills—continued. Page 21. To limit amount of insurance on single life............. 276 22. To amend licemSe (aW........ cece eee cee teenies 277 23. Relating to discontinuance of business..............-.. 278 24. To require gain and loss exhibit.............. 00... eee 279 APPENDIX. APPENDIX. Schediu'e illustrating various plans .....4.0--2-.60500b bee beeen 285 Net ivevel premium reserve Plan 1... .ccsavereusesdevieveeeeves 286 Explanation of construction of Schedules ..................005 287 Summary of net level prem. reserve plan Ord. Life ........... 230 Full preliminary Terni. PoOliCy® oicsc ve cove wis ews iwa vam ewe snd wa 292 Summary, ful preliminary term policy ..................0000- 293 Schedu'e. full preliminary term policy ..................00 0008 294 Ovdinary life policy within proposed plan ................-005 296 Summary of third Schedule ordimary life ..................... 293 Thith Schedule. wrdingry Oe «294.4050 ae 4a he 64a wee eR Raees 298 First premium $10 higher than subsequent premiums .......... 802 Summary, fourth Schedule, first premium $10 higher than sub- SEqGuent PIEMIUMS: sass oa seae a eee daas anes ede ae ears ee 803 Select and ultimate plan ........ 0... ce cee ccc cece ee eens 306 Fourth Schedule, first premium $10 higher than subsequent prems. 304 Summary of fifth Schedu've, setect and ultimate plan ........... 307 Fifth Schedule, select and ultimate plan .................00055 308 Modified preliminary term plan.................... igus Sedo aheiae 310 Summary of sixth Schedule, modified preliminary term plan... 310 Sixth Schedule, modified preliminary term plan .............. 311 Ten year endowment withia proposed plan .................4. 313 Summary of Seventh Schedule, 10 year endowment ........... 313 Seventh Schedule, 10 year endowment .....................4. 314 Dividend and net annual collection Schedule ................. 317 Annual dividends for 1905 ordinary life ...................... 318 Annual dividends for 1905, 20 payment life Annual dividends for 1905, 20 year endowment wo 10. SUMMARY OF RECOMMENDATIONS. The committee recommends :— . That voting by proxy be abolished................ . That each member in a mutual company be entitled to one vote, regardless of the amount of insurance éarmed by Wits oy cseccgcn-aecde eee ne se cee & That each member be allowed to vote for trustees or directors in person or by mail................6-- . That the officers shall prepare an ‘‘administration Ticket” 52. wew ins wader ted Sr Ritter eo steak en hakste . That policy holders may nominate a ticket to be ce known as the ‘‘policy holders’ ticket’’.......... . That ballots shall be mailed to each member........ That companies be required to furnish to each mem- ber a list of policy holders upon application and payment of one dollar..................00000- . ‘that provision be made to prevent loss to policy holders through inadvertence or on account of the activities of an inspection department........... . That rebating be made a crime.................... That companies be required to make a complete re- port on all legislative expenses................. 16 16 16 17 17 44 56 61 Xli Summary of Recommendations. Page 11. That companies be required to make a detailed report of all campaign contributions ......,.......000065 62 12. That companies be required to give a fixed surrender VOM e ss ee et tiasecciras capa ian neue eeecthtd tC otis apuneitelele saute’ 78 13. That provision be made for retiring the stock of stock companies and to affect their mutualization...... 79 14. That standard provisions be required to be inserted in participating policies with respect to dividends. 81 15. That an accounting be made to determine the rights of policy holders with respect to the general sur- HIS oh shes t aap cassactenetcdesaceass diceauccan ales Wonmeemnesanneutne ieee 81 16. That the governor of the state be authorized to ap- point one trustee or director in each domestic mu- tual life insurance company................000. 122 17. That companies be required to insert in every policy a table showing the amounts set apart each year for expense, cost of insurance, and reserve...... 143 18. That provision be made to limit expenses.......... 182 19. That the valuation law be so amended as to permit the use of ‘‘Select and Ultimate,’’ Modified Pre- liminary Term, Full Preliminary Term, or any other standard recognized by law asasafestandard. 183 20. That premiums be limited by law................. 188 21. That standard provisions be adopted relating to:— (a) Loan provisions ...............00 0.0000 eee 195 Gloss danke aig Ly De? scenes diaterdca nce besa cele She aeeeonbcausiene 195 (ce) Automatic extension .................0000. 196 (d) Policy aniversary ......0 0.0... ccc cee ences 196 (ec) Annual dividends ....................000. 196 (f) Table of expenses, ete. .......0 02.00. cee 196 to tw 2. That dividends be declared and apportioned annually. 224 Summary of Recommendations. 23. That a detailed statement of surplus be filed annually with the commissioner of insurance............. 24. That the tontine surplus be provisionally credited to each policy holder entitled thereto.............. 25, That a Gain and Loss Exhibit be required to be filed with the commissioner of insurance............. 26. That the dividend factors be reported to the commis- sioner of insurance... 0.2.6... eee ee eee xiii Page 224 225 226 REPORT OF THE JOINT COMMITTEE OF SENATE AND ASSEMBLY OF THE STATE OF WISCON- SIN, APPOINTED TO INVESTIGATE THE AFFAIRS OF THE LIFE INSURANCE COMPANIES. To Hon. James O. Davipson, Governor :-— The joint committee of the senate and assembly, appointed pur- suant to the action of the legislature, to investigate life insurance corporations in the state, have had under consideration the mat- ters covered by such legislative acts, and submit the following report: For several years past the daily press and the magazines of this country contained startling accusations of the corrupt and ex- travagant management of the large life insurance companies of this country. These accusations became so specific and assumed such form that in July, 1905, the legislature of New York ap- pointed a joint committee to investigate and examine into the affairs of the life insurance companies doing business in that state. The New York committee organized August 1, 1905, held many sessions at which testimony was taken and exposed scandals which shattered reputations and shocked the moral sense of the nation. At the special session of the legislature of Wisconsin, held during the year 1905, Hon. Robert M. La Follette, then governor of the state, submitted to the lezislature a messaze, in which, among other things, he said: “With the exception of the corporations which control the transportation facilities f the commonwealth there is no class of corporations more in need of careful and econdmical admin- istration than those which make a business of life insurance. It is the business which gathers the savirgs of youth and ma- Life Insurance Corporations of Wisconsm. ture manhood, to safe-guard old age against poverty; to pro- vide sustenance and shelter and the comforts of home for the widow and orphan. . . . It is a shocking disclosure of the demoralized business integrity of the country when the admissions of the highest officials, entrusted with the savings which the people have invested in life insurance and charged with the management of these funds, show habitual violation of their trust to enrich themselves at the expense of the policy holders. It ought not to be necessary to say that no official, agent or employee of any insurance company should be person- ally interested in the purchase or sale of any securities of that company, or have any personal or pecuniary interest in the making of loans of the funds of the company. The disclosures of the investigation of the New York Investigating Committee -have demonstrated that the policy holders of three of the largest of the companies of the country have been systematically plun- dered by the operations of the officers of these companies. They have not only voted to themselves salaries out of all pro- portion to the services rendered, but this investigation estab- lishes the personal financial interest of officers in the sale of securities to the companies; in the sale of securities by the companies; in the use of insurance funds for promoting indus- trial enterprises; in the loans of the funds of the companies; in the commissions paid for new business; in contracts for sup- plies; in the rental of companies’ properties and in the payment of the money of the policy holders as contributions to cam- paign funds and as salaries to legislative representatives. It must be borne in mind that all the irregularities which have been brought to light by the three investigations, were revealed as the result of a quarrel between two men high in authority in the Equitable Life Assurance Society, and it is probable that had those two officials not disagreed, this reckless disregard of trust obligations would have continued and grown in mag- nitude. . . . It seems to me that it is due to our home companies, their policy holders and the people of the state, that Wisconsin take such action as shall make impossible a repeti- tion in this state of what has occurred in New York, and, at the same time, satisfy the people as to the condition of Wiscon- sin companies. . . . The subjects of insurance legisla- tion and expenditures of public service corporations open up Report of Joint Legislative Investigating Commuittee. 3 such a wide field, and there is such need of thorough investi- gation, that I recommend that a committee, with power to sum- mon witnesses, examine books, and with all power necessary to investigate expenditures and methods of doing business, be ap- pointed and instructed to make a complete report to the gov- ernor, who shall transmit the same to the legislature at its next session with any recommendations he may make thereon.” In response to such executive recommendation Joint Resolution No. 3, S., and Bill No. 14, A., to provide for a joint committee of the legislature to investigate life insurance companies in this state, were duly enacted. These enactments expressly provide that the committee appointed in pursuance thereof is directed to investigate and examine into the expenditures of life insurance corporations in this state, in all matters including their expen- ditures incurred: (a) In the employment of legislative and municipal lobbies; (b) In making contributions to candidates, committees or oth- ers, to be used for political or campaign purposes ; (c) In paying wages, salaries and expenses of officers, agents, attorneys and employees Also to examine into and investigate: (a) The methods employed by such insurance corporations in securing business and in paying commissions and other com- pensation to agents, officers and employees. (b) To examine into and investigate the nature and condition of their investments; methods of making such investments, and the manner in which the funds, securities and assets are safe- guarded. It is further expressly provided that “The mention of any par- ticular lines of inquiry herein, shall not limit in any measure the field of investigation which said committee is empowered to en- ter.” ORGANIZATION OF COMMITTEE. The undersigned, who were appointed as such committee, duly organized on the 15th of January, 1906, by the election of Senator James A. Frear as chairman thereof, Assemblyman Herman L. Ekern as secretary, Lewis A. Anderson as actuary and assistant 4 Life Insurance Corporations of Wisconsin. secretary, and later employed James L. O'Connor as counsel, and Miles M. Dawson of New York, Henry S. Vail of Chic2 ,o, and Prof. James W. Glover of the University of Michigan, as actuaries. William J. Buckley was appointed as official ste- nographer, THE COMPANIES EXAMINED The committee confined its general examination to three com- panies, two of which were organized under the laws of the state of Wisconsin and one under the laws of the state of Ohio, to wit: The Wisconsin Life Insurance Company of Madison, The North- western Mutual Life Insurance Company of Milwaukee, and the Union Central Life Insurance Company of Cincinnati, Ohio. It is only just to the companies selected for examination to state at the outset that they were not selected because of any gen- eral belief on the part of the public, or of any belief on the part of this committee that their affairs were conducted in any less credit- able manner than those of other companies transacting life in- surance business in this state. The Northwestern Mutual Life Insurance Company had courted this investigation, and the Union Central was selected for examination because it is recognized as a conservative mutual and stock company and had not been exam- ined by the New York investigating committee, and has a large number of policy holders in this state. It is also just to these companies examined to say at this point, First. That we found no evidence that any of said compa- nies since their organization, has made any contribution from the company’s funds, to any campaign committee, or any one repre- senting a campaign cuinmittee, or given aid in the election or de- feat of any candidate for public office. The nearest approach to participation in political affairs is found in the fact that the Northwestern Life Insurance Company occasionally circularized its policy holders in connection with legislation pending, or pro- posed, which it was believed by officers of the said company would injuriously affect the interests of its said policy holders. Second. There is no evidence that any of said companies has engaged, directly or indirectly, in any syndicate operations, or that any officer of said companies has had any interest in any such syndicate operations. Report of Joint Legislative Investigating Comm:ttee. 5 Third. There is no evidence that any of said companies, or any officer thereof, has ever had any interest in the flotation of securities, and we find there has been no investment of the com- pany’s funds, except in income bearing securities and real estate, all properly listed in the assets of the companies, as provided in their charters and the laws of the state. Fourth. We have found no evidence of any misappropriation of these companies’ funds or manipulation of the business of these companies for personal gain, except as it may be inferred from facts hereinafter specifically set forth. We have not confined our investigation to the particular lines of inquiry specified in the act of appointment, but have, as far as our limited time would permit, examined into the internal man- agement of the companies under investigation; their methods of electing trustees; their forms of application and policy contracts ; loan agreements; settlement of death claims; forfeiture and sur- render of policies, and gathered a large quantity of data bearing upon life insurance as an economic and social institution, and pursued lines of investigation into all matters having a direct bearing upon the cost of insurance and management of compa- nies and their treatment of policy holders. With respect to some of these matters enumerated we have found much that is subject to criticism, and calls for efficient, comprehensive, conservative, remedial legislation. The committee held sixty public sessions during which wit- nesses were examined and documentary evidence offered. We prepared schedules of questions for practically all the companies transacting business in this state, and by their returned answers thereto, gathered a vast amount of information relating to life insurance business which has been used in the preparation of titis report. We held one open session to which were invited all of the general agents of the Northwestern Mutual, then assembled in Milwaukee, and the general agents of all other companies transacting business in this state. At this session these general agents participated in a discussion of the subject of rebating, and offered suggestions as to legislation by which this evil might be minimized or abolished. The committee also held one open ses- sion to which the officers of all fraternal societies doing business in the state were invited. Practically all these societies appeared by representatives, and with Hon. Zeno M. Host, commissioner 6° Life Insurance Corporations of Wisconsin. of insurance, participated in a discussion of the condition of fra- ternal insurance, and submitted suggestions for its improvement. A complete digest of the testimony taken cannot be incorpo- rated in this report. Our report must, of necessity, be largely conclusions of fact based upon the salient features of the evidence taken, NORTHWESTERN MUTUAL LIFE INSURANCE COM- PANY. The Northwestern Mutual Life Insurance Company was ol- ganized as a purely mutual company by special act of the legisla- ture in the year 1857. It began the transaction of business in the year 1858. The management of this company is vested in a board of thirty- six trustees, and such committees and officers as the trustees may appoint or delegate. The charter expressly provides for the elec- tion of these trustees by the policy holders. One-fourth of the trustees are elected at each annual meeting in July. The trustees have delegated certain powers to committees created and known as the “Executive Committee,” the ‘‘Finance Committee,” and the “Committee on Insurance and Agencies.’” EXECUTIVE COMMITTEE. The executive committee consists of ten members, and pos- sesses, when the board of trustees is not in session, the full pow- ers of said board. FINANCE COMMITTEE. The finance committee consists of seven members, and _ is charged with the duty of investing and managing the assets of the company. A complete record of all transactions of the executive and finance committees is kept, and such records are submitted in de- tail to the full board of trustees at each quarterly and annual meeting, but the testimony shows that such detailed report is sel- dom, if ever, examined by the full board of trustees. The finance committee is authorized by the by-laws to appoint annually a committee to be known as the “bond committee,” con- sisting of the president, vice president, and such other officer or Report of Joint Legislative Investigating Committee. % member of the board of trustees as the finance committee shall determine. The bond committee has power to contract for the purchase or sale by the company of such bonds as the company is authorized by law to purchase, subject to such directions as may be given by the finance committee from time to time. The by-laws further provide for a real estate committee, which shall consist of at least three members, two of whom shall be members of the finance committee, and one the auditor of the company. This committee is appointed annually and has charge of the sale and renting of real estate acquired under foreclosure and the care of such real estate. COMMITTEE ON INSURANCE AND AGENCIES. This committee consists of the president, vice president, second vice president, secretary, actuary and superintendent of agen- cies. It has general charge of the insurance branch of the com- pany’s business, and also of the employment and compensation of agents. The by-laws provide that the trustees shall receive actual trav- eling and hotel expenses, and twenty-five (25) dollars a day for attendance upon the quarterly meetings of the board, but only when actually present at such meetings. EXECUTIVE OFFICERS OF THE COMPANY. The executive officers of the company consist of the president, first vice president, second vice president, third vice president, secretary, actuary, medical director, general counsel and superin- tendent of agencies. The duties of each one of these executive officers are specifically defined by the by-laws. SALARIES, The board of trustees, upon the recommendation of the com- mittee of said trustees, fixes and determines the salaries of the ex- ecutive officers, and of all persons employed in any subordinate position in connection with the home office. 8 Life Insurance Corporations of Wisconsin. The salaries paid to the executive officers, as fixed at the an- nual meeting of July, 1905, are as follows :-— President. aexvevaaews saws angie er igeeteg os $25,000 First vie@ presidétitc:nvawrase. ea eaese ee 18,000 Second vice president............:6.. eee eee 15,000 Third vice president............2 eee eee 12,000 Counsel's cc4.4 nad iwi Fhe tee ae 15,000 SéChetaty can04 dads ialeewins eae Senha ee 10,000 ACHUALY: QGugtin auntie ated a tae ss 12,000 Medical IO> O> (Test. p. 343.) Report of Joint Legislative Investigating Committee. 31 Appended to the record in this case was the following note written by E. J. Stone, special agent of the inspection bureau: “Said to have had an attack of muscular rheumatism three years previous to July, 1898. E. J. Stone, 2/23/01.” (Test. p. 344.) Also the following note from E. J. Stone: “Dr. Dillard was the physician who examined him for insur- ance 4/24/01. This is a case we can do nothing with.” Upon this information as to Mr. Reed’s health a square was placed opposite his name and the agent of the company directed not to receive his premium unless paid on or before the date upon which it fell due. Mr. Reed received no notice of the date on which his premium fell due. The premium fell due on August 25th and he tried to pay it on August 26th, but because of the in- structions to the agent, he refused to receive it and the policy was lapsed. Mr. Reed thereupon made application for restoration and on Sept. 10, 1902, forwarded to the company a certificate of health. Dr. Fisher, the medical examiner, then wrote Dr. Dillard for further information in regard to the health of Mr. Reed and Oct. 30, 1902, received from Dr. Dillard the following letter: “Dear Doctor: Yours regarding E. C. Reed to hand. I have not seen Mr. Reed since my report on his case about a year ago. From all that I can learn he has not improved and his deformity was great when last seen by me. I cannot say whether he has had any acute attacks within the last year. Yours truly, Joun W. Ditrarp.” The inspection department continued its investigation through commercial agencies and on May 8, 1903, received a report from another commercial agency as follows: “Q. Character and standing in the community? A. Good. Q. Habits in regard to use of intoxicating liquors? A. Good, does not drink. Q. Health? A. Not good. Invalid for past four or five years. Wife attends to business.” The company refused to restore this policy because the insured was suffering from rheumatism. In his application for insurance he stated that he had suffered from muscular rheumatism. The 32 Life Insurance Corporations of Wisconsin. policy was reduced from two thousand (2,000) dollars to four hundred (400) dollars. Mr. Reed died in January, 1906, from abscess of the liver. (test. pp 341 and 381. test. pp 389-390.) All of the foregoiny facts appeared from written evidence. The committee had under consideration reports in other cases of substantially similar character, and from these it appears that had the default been in payment of notes, or in instalments of inter- est a similar course would have been pursued. CASE OF THOMAS J. KING. Mr. King had four policies in the Northwestern Life Insurance Company, Nos. 150416, 164280, 198848 and 198849. We call especial attention to the fact that policy 150416 was for the sum of $5,000. He made application for a loan in the sum of $765.00. The company required an assignment of all four policies to secure this loan, although, under the rules of the company, the loan could have been made upon the security of-the three policies, namely 164280, 198848 and 198849. Had the loan been made upon the security of these three policies, the insured would have had left the fourth policy of $5,000 freed from the drastic provisions of the policy loan. There was a default of interest for two years and all four policies were cancelled. The total indebtedness was $856.00. The cash value of the three policies, exclusive of No. 150416, was more than sufficient to pay the entire indebtedness, yet all four policies were cancelled under the provisions of the loan agreement. The terms of this loan agreement placed in the hands of the officers the power to discriminate between two policy holders who had defaulted in their premiums, or in case of a loan, upon their interest or principal. WILLIAM G. LORRIGAN CASE. In connection with the record referred to in the case of Ed- ward E. Reed and of Thomas J. King, we desire to call attention to the case of William G. Lorrigan, one of the judges of the su- preme court of California. Judge Lorrigan took out policy No. 172540, on July 9th, 1888, in the amount of $3,000. In February, 1899, he made a loan upon the security of this policy in the sum of $500. This policy was cancelled under the statute of limitations Report of Joint Legislative Investigating Committee. 33 of the state of California on March 25, 1904. The general agent of the company at San Francisco wrote Mr. J. C. Crawford, as- sistant actuary of the company, as follows: “Dear Sir: I received your letter to William G. Lorrigan, one of the judges of the state supreme court, cancelling his policy and enclosing a check for the same. We mailed this draft to him on the 23rd, and he immediately called me up and asked for an appointment this morning and has just left my office. He is disappointed over the action of the company, al- though he does not blame the company in the matter. He ad- mits his own carelessness, but claimed a pressure of business. The supreme court here is a very busy one and I do not think that he is a very good business man; but they have recently rendered one or two decisions decidedly in our favor and I do not think we can afford to be too exacting in this case. I will ask you to let nie hear from you as to how to adjust this matter and reinstate the policy, by return mail, and oblige Very truly yours, CLARENCE H. SMITH, General Agent.” Under date of March 1, 1904, J. W. Skinner, secretary, replied to the foregoing letter as follows: “Your letter of the 25th inst. in relation to Judge William Lorrigan, insured by policy 172540, has been handed to me for attention. We very much regret that it was necessary to cancel this policy, in accordance with the terms of the assignment, for a company loan, because of the expiration of the time allowed under the statute of limitation in your state. Restoration may be effected, however, by refunding to the company the full amount paid for surrender, with interest. After restoration the policy will again be available for a loan. Yours truly, J. W. SKINNER, Secretary.” This policy was restored March 22nd, 1904. In restoring this policy the company asked for no reports from commercial agen- cies, or confidential letters from doctors, either as to the habits or health of Judge Lorrigan. The policies of Judge Lorrigan and Mr. Reed were in precisely the same condition. One was 3—I. 34 Life Insurance Corporations of Wisconsm. as effectively lapsed as the other. The company refused to re- store the Reed policy because of impairment of health, but made no inquiries as to the health of Judge Lorrigan. It is only just to the officers of the company to state that although, upon this in- vestigation, unable to state any reasons for the difference in the treatment of these two policy holders, they did assert that they were not influenced by the fact that the court of which Judge Lorrigan was a member “had recently rendered two decisions de- cidedly in favor of the company.” CASE OF JOHN M. BARRON. Mr. Barron took out policy No. 463255, ordinary life insur- ance, in the sum of three thousand (3,000) dollars. The policy was issued Sept. 12, 1900. The inspection department received reports on this policy holder as to his health aad habits. The first one is not dated and states: “He drinks to excess. He took the bankrupt law.” The second report, dated May 18, 1901, states: “His habits are all right. Health good.’ Another report dated August 4, 1903, is as follows: “Don’t drink. Health apparently good.” Another report dated August 8, 1903: “Character fair. Drinks to excess six or eight times a year for only a day at a time. Health good.” svieiecetieved< 04 40,436,928....... beac Sies 2,594,434 It was admitted by the officers of the company that there should be a proportion between the general surplus and the reserves of an insurance company; that 4% is amply sufficient with a company 90 Life Insurance Corporations of Wisconsin. having investments such as are held by the Union Central. If it were a company that had a different class of investments, fluctuat- ing railroad stocks and bonds, that 4% would not be sufficient. 4% of the reserve for the year 1905 was $1,600,000. The officers admitted that this would be a sufficient general surplus but that in fact they had on hand $2,594,434, or 6.4/10% of the reserve. In other words, that they retained about $1,000,000 of the general surplus in 1905 that could have been distributed to the policy hold- ers without affecting the solvency or safety of the company; that the officers of the company would, however, prefer to keep about 5% of the reserve as a matter of absolute safety, (p 893) and that from 4% to 5% would be sufficient for this purpose. (p 895.) A proper limitation placed upon the contingent surplus would have three effects: First. It would place a check on extravagance. Second. It would stimulate better investments. Third. It would establish a rule for determining the aggregate of dividends that would be distributed. INVESTMENT AND TAX EXPENSES. Investment expenses for 1905.......... cece $226,673 Paxes: Oni Teal estates is ahaatenes aaeweels ss aha 6,421 Fees and taxes upon premiums............05 140,214 otal: gage ssrics eins ane vacsians ievasneieks die Baceel $373,308 (p 549) Gross assets for 1905. ........... 0.000 0ee $49,756,960 Invested assets, 1905....... 0... cece ee eee 47,400,547 Total of all investment expenses and all taxes and all fees, is less than 1% on the invested assets. (p 550.) If this 1% were deducted from the investment earnings, it would leave ample mar- gin between the net returns and the rate required. lf the investment expenses were provided for in this way, in- cluding taxes, the insurance expenses would be provided for out of the loading. (p 551.) The amount at risk in any insurance company, is the difference between the face of the policy and the reserve. That is the amount for which a charge.is made in fixing the so-called cost of Report of Joint Legislative Investigating Committec. 91 insurance, under every form of policy. (p 552.) The cost of in- surance represents the actual amount of insurance a man has, and " is strictly proportioned to the insurance in every case. DIFFERENCE IN COST OF INSURANCE. On a ten-year endowment policy, age 35, non-participating, amount $1,000, the gross premium is $96.22, net premium $87.02 and the loading $9.20. On a ten-year term policy, age 35, non-participating, $1,000, the gross premium is $13.86, net premium $8.95 and the loading $4.91. The amount at risk on the 10-year endowment policy greatly lessens during the term of the policy, until at the end of the fifth year it is approximately $500, and during the last year of the policy, dwindles to nothing. (pp 553-54.) The amount at risk on a ten-year endowment policy averages throughout the term $500. This is all the insurance which the company carries. (p 535.) The loading collected for expenses on this ten-year endowment policy is $9.20 per year, or equal to $18.40 for a full thousand dollars at risk. In the case of the ten- year term policy, the company carries practically the full thou- sand dollars each year throughout the term, and makes a charge each year throughout the term for expenses of $4.91, as compared with $18.40, in case of the ten-year endowment. The officers of this company were unable to state any particular justification for this extra expense, upon the most expensive form of policy issued by the companies. They conceded that the sys- tem of loading in use in this country is one which the actuaries generally agree, could be adjusted in many cases and made more equitable on different forms of policies. (pp 556-557.) The difference in the loading collected annually on each of these two forms of policies is $180 on one and $49.10 on the other. These differences are common to all companies. People who take out these high priced policies do not understand this differ- ence (p 558) they do not take time to consider it, and if they did consider it, they would not be able to determine the difference. “p 559.) It was conceded by Mr. Marshall, an actuary for many years, aud connected with life insurance for over a quarter of a century, 92 Life Insurance Corporations of Wisconsin. that provisions for expenses throughout the history of the policy, could be worked down to its present value and collected in the premium just the same as premiums are collected now. If there’ were a reserve for expenses, the total reserve would be much larger, and the amount at risk would be less. This would re- quire new tables, but that is practicable. (p 561.) The actual insurance carried by the company is the amount at risk, the actual insurance which the insured has is likewise the amount at risk, and it is fair and just that the charges made to a man for carrying that insurance, should be proportional to the the amount at risk, and it is entirely practicable, if the amount to be charged per thousand of insurance at each age is fixed, to work out a set of tables on this basis. That is done right along. (p 565.) Starting out with the proposition that the value of $1,000 of insurance at each attained age is a certain amount, which value includes the expected mortality according to the table, and the expected expense of taking care of that insurance, assum- ing also a certain rate of interest and certain ratio of expense, the rest can be worked out on that basis. That is nothing more than finding the present value of the sum of this expected mortality and expected expense for each year during the history of the policy, and the apportioning them as an annuity throughout the period at which the premium is to be paid. This can be done. (p 566.) This result would encourage the purchase of short premium pay- ing policies, and eliminate the discrimination which at present ex- ists against the policy holder who buys an endowment policy. (p 567.) COMMISSIONS UNFAIRLY CHARGED ON DIFFERENT POLICIES. The agent’s commission is ascertained by a certain percentage or commission on the amount of the premium. The loading on high premium policies was conceded by the officers of this com- pany to be manifestly unfair, and it would follow that it is unfair to pay commissions on practically the same plan on which load- ings are estimated. In case of a ten-year endowment policy the amount at risk averages but one-half as much as in a ten-year term policy; yet the agent receives for his services in securing the ten-year term policy of $1,000 worth of insurance, but $4.15 while for securing Report of Joint Legislative Investigating Committee. 93 $1,000 worth of insurance on the endowment plan, he receives $19.20. There is no justification for this discrimination, except that it is the universal practice of all companies. PERCENTAGE OF INCREASE OF DIFFERENT CLASSES OF POLICIES IN THIS COMPANY DURING THE PAST TEN YEARS. Total increase of all policies...........000000e 178% Increase of endowment policies................ 270% Increase of whole life policies..............00. 170% (p 581) The average solicitor would not be able to inform the policy holder how much of his premium goes into expense charge. With respect to the statement to the policy holder, as to the amount of his premiums which are used for expense charges, mortality and reserve, it was conceded that such a table could be worked out, and the reserve adjusted in such manner as the person making the table desired; that the larger charge to meet the initial ex- pense, compared with subsequent charges during the later years of the policy could, under this plan, be made out of the first year’s premiums. This charge is now being made by some companies in the form of prelimiary term. The real objection to the prelimi- nary term is that a high rate is charged for one year’s insurance in a ten year endowment policy, for instance, and a reasonable rate in the ten year term policy (p 585). This is a discrimination against the man who takes high priced insurance. If the initial expenses were made three times the cost of the insurance the first year of the policy, or some similar multiple of the cost of insurance, and the initial cost be proportioned equally in each case, upon the cost of insurance, there would be no dis- crimination against different classes of policies. It is entirely practicable to provide a table embodying that idea. (p 588.) This company is opposed to what is known as the select and ultimate method (p 590); but favors the modified preliminary term. In life insurance the part of the premium which goes into the reserve, is equivalent to a deposit made by the policy holder to mature his policy. There can be no valid reason given why the 94 Life Insurance Corporations of Wisconsin. policy holder should not know the expense of caring for these deposits. (p 591.) FORFEITURE OF RESERVE DURING FIRST TWO YEARS. The officers of this company claim that this is justified by the large initial expense. This is the chief and practically the only defense of such action. DISCRIMINATION IN FORFEITURES. Taking the same age, same amount, the policy holder who for- feits a ten year endowment policy the first year, forfeits about four times as much as one who holds the twenty payment life policy. The only justification for a forfeiture or surrender charge is the necessity of reimbursing the company for initial expenses. If each policy holder were charged and required to pay the initial expenses, there would be no justification for forfeitures or cash surrender charges. (p 626.) COST OF INSURANCE AMONG COMPANIES THEMSELVES. Where the Union Central takes a policy for $100,000 and re-in- sures for $50,000 in another company, it pays the second company the cost of insurance for the year and nothing for expenses. The reinsuring companies are willing to carry that risk at 4% or 5% margin above the expected mortality and its gain on loadings. (p. 609.) GENERAL AGENCY SYSTEM. This company transacts its business through the general agency system. The general agent, through his arrangements with the sub-agents, gets about one-third of all renewal fees. In 1905, one of the general agents received, Tirst year’s commissions. ..........eeee8- ... $21,389 Renewal commissions...........00eeeees Sites ROOTS Assuming that he paid all of the first year’s commissions to the agent, the business netted him about $8,000. In addition to the $8,000 he received $3,000 salary. He also Report of Joint Legislative Investigating Committee. 95 received for clerk hire $3,387.69; for postage, telegrams, etc., $1,596 and traveling expenses $670. Total $16,653.69. (p 239.) It was conceded that the duties of the general agent were no more important or onerous, than the duties of the superintendent who received but $8,000 per annum. The system of putting agents upon a salary has been tried by some eompanies, and it appears to be working to their satisfac- tion. (241.) Speaking of insurance in general, the increased cost of insur- ance for the past ten years has resulted from high commissions. In the experience of the Union Central, the new business of 1905 was 1%1% of the amount of loading collected on new premiums. The agent above referred to received in 1896 first year’s commis- sions, $18,139. In 1905, $21,389. Thus showing that the agent wrote in 1905, only about $3,000 more business than he did in 1896. At the same time, his renewals in 1896 were $10,044.10, while his renewals in 1905 were $25,313. His increased useful- ness it. securing business for the company is represented by an ex- cess of $3,000 of new insurance, while his compensation at the later date was about 2.14 times as much as at the former date. This indicates that under this system the usefulness of an agent to the company in securing new business may be at a stand-still or even decrease, while his renewal commissions have greatly in- crvased. 4, second agent of this company received, In 1896, first year’s commissions............. $ 9,106 In 1905, first year’s commissions............. 17,210 In 1896, renewal commissions............08. 10,767 In 1905, renewal commissions.............06. 23,905 A report upon a third agent shows, In 1896, first year’s commissions............. 4,962 In 1905, first year’s commissions............. 4,114 In 1896, renewal commissions.............0. 5,163 In 1905, renewal commissions.............005 8,650 ( p 247) 96 Life Insurance Corporations of Wisconsin. A report of the other agents of this company shows a similar condition. (pp 249-250.) This company pays a renewal commission of 7.449% upon all forms of policies, during the continuance of the general agent’s contracts, and 1% on all premiums collected on business done by other agents. (See copies of contract, pp 260-262.) FIRST YEAR'S COMMISSIONS. This company pays, as first year’s commissions on different forms of policies from 25% to 50% of the premiums on partici- pating policies, and from 20% to 40% on non-participating poli- cies. On single premium policies, cither life or endowment 346 (p 264). These contracts are usually made from ten to fifteen years. All the. company’s contracts with agents contain a pro- vision that in case of the agent's death, the company will pay to his estate all renewal commissions for three years. HIGH COMMISSIONS. Some companies use the entire first two year’s premiums in writing new business. Some run as high as 331% ; one company 872%, and one 467% of the margin or gain from mortality and loadings. THE GAINS FROM LAPSES AND SURRENDERS FOR PAST FIVE YEARS ARE AS FOLLOWS: 100 iT cchaes alec eect ierianeinee $ 93,049 POOP catcrenec toate Coourunee reese -. 63,648 TOR eapentnie tar cies aa tase BN dest asec tr 68,015 LOM cc essere. instead Bx Se waite Gt ee 85,552 TOU teat Reto antic t ohea iether Aves 115,111 (p 822) Under the practice of the company a policy holder who does not carry his policy through the third year, and who gives a pre- mium note, if he fails to pay his note, has an advantage over the police holder who pays his second premium. If both lapse at the end of the third year, the policy holder who gives his note for the third premium is practically carried through the year for nothinz Report of Joint Legislative Investigating Committee. 97 The taking of premium notes, during a period when the company is not paying cash surrender values, results in an injustice to those who pay their premiums in cash, as against those who give premium notes. The number of lapses in this company before the third annual premium, is in excess of 34% of the policies written for any given year. Where premium notes are taken, and default is made in the payment, no effort is made to collect them. Upon such default the policy is lapsed. During the life of the premium note, the other policy holders are carrying this risk. If a party dies after giving a premium note and before maturity thereof, in settlement the note is deducted from the face of the policy. ( p 328.) The amount of premium notes defaulted in 1903 was $218,925. The amount of payments upon policies less than three years old was $247,584. (p 322.) LIFE RATE ENDOWMENT POLICIES. It was conceded by the actuary of this company that the life tate endowment policies were written upon false estimates. It was also conceded that the loading in the ten year endowment policies of this company was nearly three times the amount of the loading of the ordinary life. In point of fact, the loading itself is very nearly equal to the whole premium on the ordinary life policy. The effect is that the policy holders holding these high premium policies are discriminated against in being charged— First. A higher percentage in order to pay agent’s commis- sion; and Second. A higher expense charge throughout the life of the policy. It was also conceded that dividends have entirely disappeared on paid up policies in some companies, and admitted that this re- sult would not have been had the loading been reserved for the policy at the end of the premium paying period. (pp 62-64.) The actuary stated, that the reason why a dividend is declared at the end of the first year when none has been earned is to please 7—I. 98 Life Insurance Corporations of Wisconsin. the policy holders. Other companies do it, and their competitors are compelled to do likewise. These dividends are taken from the surplus of the other policy holders. There is no justification of the practice except that all companies are compelled to pay these dividends in order to meet the competition of companies which have taken the lead in paying these early dividends. (p 76.) The average policy holder has no knowledge of the fact that divi- dends are being paid before they are earned. (p 76.) SALARIES OF OFFICERS AND INCREASE THEREOF. President, 1891, $8,000; 1894, 1895, 1896, 1897, $11,000; 1898, $12,000; 1899, $15,000; 1903, $18,000; 1905, $25,000. (p 231.) Vice-president, ninety years of age, 1891, $1,200; 1892 to 1905, $2,000. Secretary and actuary, 1891, $4,500; 1893, raised to $6,000; 1898, raised to $7,500; 1902, raised to $9,000; 1904, raised to $12,000. (p 233.) Cashier, 1891, $3,000; 1894, $3,500; 1900, $4,000; 1901, $3,500. Medical director, 1891, $6,000; assistant medical director, 1891, $1,200; medical director, 1892, $6,000; assistant, 1892, $1,500; medical director, 1893, $3,105; assistant, 1893, $2,500; 1894, medical director, $3,000; assistant, $3,000; 1899, medical] director, $4,000; assistant $4,000; 1905, medical director and assistant each $4,000. Superintendent of agencies, 1891, $2,500; 1893, $2,700; 1894, $3,000; 1897, $4,000; 1901, $5,000; 1905, $6,000. The largest stockholders in this company are the officers; they fix and control their own salaries. It is claimed by the officers of this company that the salaries are particularly moderate com- pared with other companies of its size; that the amount of sala- ries should bear some proportion to the amount of assets and the business done by the company. It was conceded, however, that this company, with about 14 the assets of the Northwestern Mutual, was paying precisely the same salary to its president, but it was contended there may not Report of Joint Legislative Investigating Committee. 99 always be an actual basis or standard of comparison between the salaries paid to corresponding officers in different companies, be- cause these officers may not have the same duties precisely in the two companies; that the way to test the question is by determin- ing the gross amount paid for the whole executive management of the business of the two companies compared. It was conceded that throughout the connection of each officer with the company, he was obligated for the compensation pro- vided, to give his entire time and best efforts to promote the inter- ests of the company. In other words, that the president of this company was under no greater obligation to the company when he received $25,000 per annum, than he was when he received $8,000 per annum. The increase of this company’s outstanding insurance, from 1902 to 1905 was 9.17% and the assets of the company increased during the same period 28.12%. The increase of the president's salary was 66% during the same period. The secretary’s salary was increased 60% and the treasurer's salary was increased 60% for the same period. (pp 283-84.) The salaries of all the other officers were increased during these three years 16.41%. The total increase of the company’s busi- ness during this period was 12.42%. COMPANY'S INVESTMENTS. The officers of this company assert that it is their duty to exer- cise as much effort in the line of investments as they do in the line of getting new business (p 903), and conclude from their expe- rience that there is just as much competition today for farm loans as there is for life insurance. (pp 903-909.) The company has no investments in railroad or municipal bonds. The laws of Ohio prohibit the company from investing in stocks or bonds of every kind or character, except government or municipal bonds. The company is confined practically to mortgage loans on real estate, and loans on the company’s poli- cies. The company has at present $40,000,000 loaned on real estate. The following table shows the mortgage loans of this com- 100 Life Insurance Corporations of Wisconsin. pany from 1867 to 1905, and the percentage of same to the total amount of assets invested in that class of securities: | Year. | Amount. Percentage. $33,827 41 20 35,528 11 16 49,234 77 17 179,220 00 37 308,963 00 36 436,151 00) 43 455,898 00 40 610,649 00 47 $13,593 00 58 877,893 00 60 923,058 00 61 1,027,456 00 67 1,070,015 00 66 1,196,343 00 69 1,247,785 00 67 1,412,678 00 70 1,606,109 00 69 1,933,565 00 71 2,092,909 00 65 2,641,268 00 69 3,033,059 00 66 3,837,382 00 67 4,304,574 00 64 5,690,386 00 7 7,043,327 00 vie 8,096,056 00 73 9,898,202 00 3 11,028,702 00 75 12,234,977 00 14 18, 455,354 00 7 15, 468,620 00 73 17,497,723 00 3 20,538,620 00 7 23,276,577 00 77. 27,360,063 00 80 31,054,234 00 80 85,442,335 00 80 40,317,152 00 ~ 81 The following table shows the mean rate of interest earned on mortgage loans, for the following years: Year. Percentage. 4.5 Report of Joint Legislative Investigating Committee. 101 Percentage. 6.92 RATE OF COMMISSION PAID TO LOAN AGENTS. The company, it was stated, has always endeavored to select men of good character and financial responsibility, permanently located in the territory, and men who have a knowledge of agricul- tural lands in the territory. These representatives are compen- sated in a variety of ways, some are employed on a salary, some part salary and part commission, some exclusively commission, some on commission and expenses, some on exclusively commis~ sion and some fees, expenses of travel, legal expenses, etc., the rule being to make the expense as small as possible. The rate of commission is a matter between the company and the agent affected. No fixed rate applies to all territory. The rate of commission depends upon the rate of interest received in the local- ity. The highest rate of commission paid by the company is 4.%%. This commission is paid in parts of Texas and some parts of Kansas. The rate of interest secured in the territory is from 7% to 8% in Texas; from 6% to 61%4% in Kansas. This is simply an initial commission for securing the loan. It is not an annual proposition. (p 909.) The loans usually run for ten years. They are all written on the ten year term, so that the total interest at 8% would be 80% and deducting 4.4% commission would leave 75.34% for the entire term of ten years or an average of about 7.5% per annum. The company has in the United States approximately 100 loan agents. In some states more than one, and in some none at all. After paying all investment expenses, the net rate of interest 102 Life Insurance Corporations of Wisconsin. earned by the company from 1890 to 1905 on its total investments is shown by the following table: INTEREST RATES. Year. Gross. Net. Per cent. Per cent. 6.108 025 6.613 6.421 6.415 6.152 6.656 6.481 6.756 6.329 6.714 6.140 6.844 6.313 6.812 6.420 6.924 6.211 6.521 6.152 6.228 5.269 6,231 5,554 6.097 5.291 6.177 5.875 6.058 5.445 6.090 5.535 FARM LOANS. The blank application for farm loans provided by this com- pany is intended to cover every salient feature of the security. The matter of taking applications for loans is attended to by the agent residing in the locality of the farm. The application is turned over to the financial correspondent of the company in the district where the security is located. The financial correspond- ent, either in person or by some one employed by him, examines the security and makes a written report, coupled with the recom- mendation of approval or rejection. The company in many in- stances sends a special agent to see the security, if in a new loca- tion, or if it presents unusual features. The farmer is required to sign a blank giving the most minute detail of the description, location and character of the land, nature of the soil, number of acres cultivated, number fit for cultivation, crops raised the pre- ceding year, kind and quantity thereof; a detailed description of the buildings, size of the house, material of which constructed, age of the house, cost of construction, cost of any repairs, and every detail which would enable the officers of the company to pass judgment upon the value of the security tendered. The ap- plicant is required to insure the buildings for the benefit of the company during the term of the loan. Report of Joint Legislative Investigating Committee. 10 The farmer is permitted to pay one-fifth of the principal each year, but cannot do this with money borrowed elsewhere. If one- fifth is not paid each year it cannot be made cumulative in later years. The purpose of this arrangement is to continue the loan as long as possible. If the applicant fails to accept the loan when tendered, he obligates himself to pay a percentage of the expense of investigation. The company also requires the affidavit of two resident free- holders of the county in which the land is located. Until re- cently, the company was not permitted to loan upon farm mort- gage security, an amount in excess of fifty per cent of the value of the land, exclusive of the buildings. The financial agent, being familiar with the security offered, can anticipate in advance if satisfactory to the company. In- stead of waiting until the matter is fully investigated by the com- pany, the financial agent makes the loan with the understanding, that if not accepted by the company, he shall carry the loan, and he does in fact carry it until such time as it is approved and ac- cepted by the company. During this time the financial agent re- ceives the amount of interest earned upon such loan. From the beginning, this company has negotiated $80,000,000 of loans, about 55,000 loans. The total loss from the organiza- tion of the company to the present time on such loans was claimed to be less than $60,000. (pp 967-968.) FORECLOSURES. Total Year. Outstanding Foreclosures. Mortgages. 5,813 60 9,620 75 10,882 ~ 89 12,507 57 14,178 51 16,194 25 16,269 12 20,469 13 22,779 it 26,625 6 26,421 6 PERCENTAGE OF PORBCLOSURES AMOUNT OF REAL ESTATE Li . 1896, 1.30-100 per cent.; 1897, 1.54-100 per cent.; 1898, 91-100 per cent.: 1889, 72-100 per cent.; 1900, 2-100 per cent.; 1901, 8-100 per cent.; 1902, 9-100 per cent.; 1903, 19-100 per cent.; 1904, 12-100 per cent.; 1905, 2-100 per cent. The company has six outstanding loans in Wisconsin; rate of interest 64%4 and 7 per cent. 104 Life Insurance Corporations of Wisconsin. In Iowa, 2,440 loans, amounting to $4,896,705, rate of interest 5% and 6%. North Dakota, $2,549,014, rate of interest 7%. Minnesota, $2,694,383, rate of interest 614%. Indiana, $2,574,643. Average rate of interest 514 to 6%. At the present time 81% of this company’s investments are made upon the security of farm lands. This committee is convinced by the testimony that this com- pany has organized a most efficient and successful investment de- partment. We have not made any personal investigation of the safety of the investments made, or sufficiency of the security taken. We are, however, convinced that these farm loans are made with great care and conservatism. A loss of $60,000 upon loans amounting to $80,000,000, is such a small percentage of loss as to demonstrate beyond question, that these loans are made upon ample security. The small percentage of foreclosures to the amount of real estate loans, would seem to indicate great care in making investments to industrious and reliable farmers. The company has sent its active agents into the agricultural districts to aggressively compete for farm loans. They have not at- tempted the practice of seeking loans through local banks and money lenders, who are themselves interested in securing such loans, to the exclusion of others. Report of Joint Legislative Investigating Committee. 105 WISCONSIN LIFE INSURANCE COMPANY. (Madison, Wisconsin. ) The Wisconsin Life Insurance Company was organized in the year 1895, as a mutual company, under chapter 418 of the laws of 1891. It was reorganized under chapter 175, laws of 1895, and operated thereunder until sometime after chapter 270, laws of 1899, known as the “Stipulated Premium law,” was enacted. Subsequent to the enactment of chapter 270, laws of 1899, the company was reorganized, and continued so to operate until the fall of 1902, when it was again reorganized under the statutes applicable to old line companies. The investigation of this company revealed a striking condition of incompetency and mismanagement on the part of some of its principal officials. ELECTION OF OFFICERS AND PROXY SYSTEM. In the earlier history of the company, a proxy was given to the executive officers by each member, on his medical examination. (Testimony, page 62.) The present practice is to give the proxy to the executive committee at the time the policies are delivered. At the last annual meeting, the executive committee held from 800 to 1,000 proxies, which constituted a substantial majority of all the policy holders. These proxies held by the executive com- mittee are voted by the secretary, whenever a question of differ- ence arises among those present. Under a recent amendment to the constitution, the executive committee is limited to the use of 500 proxies which are continu- ous until revoked. (p 67.) ; The method of electing officers in this company is illustrated by the minutes of the adjourned meeting in October, 1902. At this meeting two directors were selected to succeed A. R. Bush- nell and R. A. Watkins. Upon motion the secretary was directed to cast the unanimous vote of the members for each director to succeed himself. The minutes do not show what members were present, or how proxies were voted at this meeting. (p 68.) The president of the company in testifying with respect to the election of trustees, said, “the directors are elected at the annual 106 Life Insurance Corporations of Wisconsin. meetings of directors or members of the company, and as there were no members present excepting the directors, of course they did the whole business. They voted for themselves and rein- stated themselves in office.” Members were not accustomed to attend the annual meetings, and no notice of such meetings was given to members, except a notice published in the newspapers. Articles 5 of the company’s constitution, authorizes a director to appoint another director as his proxy. This has been a com- mon practice in the company. Under this provision one or two directors, acting as proxies for the others, represented the whole board of directors. The election of directors in this company is but a mere matter of form, consisting of a ratification of a slate prepared in advance. The executive committee is composed of three members elected by the board of directors each vear, and is by resolution authorized to perform all the duties of all other committees provided by the constitution. OFFICERS AND SALARIES, Rasmus B. Anderson has been president of this company, ex- cept for a few months, since the company was organized in 1895. He was formerly an agent of the Equitable Life Assurance Society in the states of Wisconsin and Minnesota. During his examina- tion as a witness before this committee he stated that he did not know whether the articles and by-laws under which it is now operating, are those which appear in the report of the commis- sioner of insurance for 1904, or whether the articles of organiza- tion, by-laws, and amendments furnished to this committee, are the present articles under which the company is transacting busi- ness; that he had no knowledge of the fact that the company was frequently reorganized; had no clear or definite knowledge as to the reasons for reorganizing; did not know the manner in which the books of account were kept or the funds disbursed, and could not speak with accuracy as to the amounts disbursed to himself; had no knowledge of the fact that different policies were issued as the result of this reorganization; and had no knowledge as to the purpose, the consideration or obligations of contracts involving the solvency of the company. A. R. Bushnell is vice-president, treasurer, counsel, and chair- man of the board of directors (p 58). Mr. Putnam is at present Leport of Joint Legislative Investigating Comuinittce. 107 secretary and bookkeeper, and Mr. Nedderson actuary and man- ager. From the time of the death of L. M. Fay to the election of Mr. Nedderson, Mr. A. R. Bushnell was manager. The company has made no provision for salaries for officers. No corporate action in relation to such salaries has ever been taken. There is, however, an understanding that in the future these officers shall be compensated reasonably, for services ren- dered, when the company shall be able to do so, without impair- ment of any of its obligations to its policyholders. No record has been made of such understanding, and no amount agreed upon as “reasonable compensation” (pp 126-127). It appears to be the undoubted intention of these officers to compensate themselves in an amount which, in their judgment, is reasonable, although Mr. Bushnell, vice-president and general counsel, testified that he did not consider there is any liability against the company in favor of any of its officers (p 128). President Anderson testified that, as an officer of the company, either as director or president, he never received one dollar, directly or indirectly, with the exception of eight or nine hundred dollars during the months that he acted as manager, and the com- missions paid him for writing policies issued by the company dur- ing the first year of its existence. The books of the company show charges against Mr. Anderson, as follows: In 1895, com- missions, $2,311.25, traveling expenses, $28 (p 21) ; in 1896, com- missions, $746.36 and an item of $18.91; 1897, salary $285, and an additional charge of $921.12; traveling expenses the same year, $132.56; in 1898, salary $913.33, commissions $366.93, traveling expenses $64.72; 1899, salary $800. In 1900 Mr. Fate, for. a time occupied the position of presi- dent and received a salary at the rate of $2,200 per annum (p 23). The books likewise show that while holding the various offices above referred to, Mr. Bushnell has from time to time been paid various sums for his services and expenses; that he has also had his insurance policy of $3,000, requiring an annual premium of $125.70, carried by the company. FORMS OF POLICIES ISSUED. The forms of policies issued by the company are divided into five periods. During these periods different kinds of policies 108 Life Insurance Corporations of Wisconsin. conforming to the usual ordinary life, limited payment life, en- dowment, term, etc., were written. First periop. This period extends from June 10th, 1895, to April 10, 1897. The policy forms for this period are marked ex- hibits 1 to 9. During this period the company sold policies upon the representation that it was issuing natural premium policies. The policies did not conform to the general definition of natural premium policies. The premium is a certain stipulated sum, payable at a fixed date during the continuance of the contract. The company agrees to pay a fixed amount upon the death of the insured. The policy contains a table purporting to be a table of surrender values, computed for each year of the term of the pol- icy. This table contains the word “estimate” before the last sec- tion of the table. The surrender value is subject to the word “es- timate.” It contains a stipulation to the effect that upon the in- sured reaching the age of 71, the full amount of the policy, with- out conditions, estimates or otherwise shall be paid in ten equal annual instalments. It also contains a disability clause (p 131), and contains what is known as the safety discount clause which is the only clause which differentiates it from the ordinary life level premium policy, except the premium charged. At the time of the investigation there were 38 of these policies outstanding, 24 issued in 1895, 12 in 1896, and 2 in 1897. The premium charged in these policies is not sufficient to enable the company to comply with their terms. Mr. Vail as actuary testified “there was no experience table published of a combination of this kind in 1895. The company simply made a guess as to the premium charged, cash surrender values, endowment and disability fea- tures.” That if these policies were carried for a number of years the company could not meet the death claims without resorting to the assets belonging to the other policy holders. Of this class there are outstanding 99 twenty payment life policies, 52 issued in 1895, 40 in 1896 and 7 in 1897. Of this class there are 17 fifteen payment life policies outstanding, 9 issued in 1895, 5 in 1896 and 3 in 1897. Of the ten payment life policies of this class, there are outstanding 19, 17 issued in 1896 and 2 in 1897. Seconp perrop. This period extends from April 5, 1897, to August 22, 1899. The policies of this period contain no table of cash surrender values. The endowment clause is changed to read as follows: “On reaching the age of expectancy, 71 years, the Report of Joint Legislative Investigating Committec. 109 insured may, upon surrender of the policy, receive as its cash sur- render value, the full amount of the surplus accumulations cred- ited to the policy.” Of this class there are outstanding 112 poli- cies, 55 issued in 1897, 44 in 1898 and 13 in 1899. The amount of reserve required to meet the obligations of these policies, as valued by Actuary Vail and calculated on the 4% combined pre- liminary term, is $30,184; on the more lenient standard of 414% American preliminary term $28,835. The amount of reserve car- ried by the company upon these policies is $2,165, or a shortage of $26,675. These policies contain what is known as the assess- ment clause, which reads as follows: ‘The premiums herein re- quired to be paid by the insured are to provide a mortuary fund for the payment of death benefits, and for the general and emer- gency fund, and are composed of the following elements: First. The mortuary element, which is based upon the Actua- ries or Combined Experience Table of Mortality, with interest at 4%. Second. The emergency fund which shall equal 20% of the mortuary element, and which shall be used for mortuary purposes only, and not then unless the mortuary fund shall be entirely ex- hausted, and such proportion as may be necessary for mortuary purposes shall be equitably apportioned to this policy, and shall be debited against the emergency fund to the credit of this policy. Third. It is expressly understood that this policy is carried on the books of the company the first year as term insurance; that the annual expense element of the premium, shall not exceed the sum of four dollars per thousand of insurance. These rates are based upon insurance experience, and if the death rate does not materially increase, will prove ample to carry out every pro- vision of the policy contract; but if an emergency arises whereby the mortality expenses of the company shall exceed the mortality ‘provisions made by said table or rates, the premiums for the mor- tuary fund only shall be equitably increased to meet the emer- -gency, as required by law, in which event the same shal] become due thirty days after notice thereof given to the insured, or with the consent of the directors, the amount thereof, together with interest at the rate of 6% per annum, may be charged against this policy, and deducted therefrom when the same becomes a claim.” The present condition of the company is such that to meet the obligations of these policies the company would have to draw 110 Life Insurance Corporations of Wisconsin. upon the accumulations of other policies (p 144). The company has never exercised the power given by this clause to assess these policy holders to make up the deficiency, and at the present age of the policies of this class, the amount at this time will be excessive upon these policy holders, as compared to the amounts they would have paid, had a sufficient premium been collected from the be- ginning. (p 144.) It was the opinion of Actuary Vail that in order to treat the older policy holders justly the company should have kept a separate account of the contributions of the particu- lar class of policies subject to assessment; that the failure of the company to keep such separate account of the mortuary fund contributed by the so-called “assessment policy holders,” will work a great injustice to the policy holders coming in at a later date, and who are required to pay upon the basis of the main- tenance of a legal reserve, according to the American Experi- ence Table, of 4% or 314%. These later policy holders coming into the company, have been compelled to pay from their con- tributions, losses sustained by reason of the maturity of the pol- icies of the assessment class. POLICY CONTRACTS. The company had several rate books which were prepared un- der the supervision of R. B. Anderson and W. H. Rogers. In the preparation of these rate books, it was the understanding of the counsel of the company, that it was required to carry a re- serve under the law, equal in amount to one assessment, or per- haps an amount equal to the largest policy the company issued. This was $5,000. The same counsel contends that there is noth- ing in the assessment law that prohibits an assessment company from issuing any kind of a policy that is ordinarily written. Commissioner Fricke, however, insisted that the kind of policies being written by the company, required a legal reserve. The company’s answer to this contention was that no matter what the contract is, every contract had in it the assessment clause, and if necessary to carry out its provisions, the assessment clause would have to be resorted to, and all members taking policies, and the company itself, agreed that such should be the case. It was stated on the hearing, by the officers, that every form of policy used was submitted to the commissioner of insurance before the Report of Joint Legislative Investigating Coimmittee. 115 same was issued (p 204). The company did, as a matter of fact, maintain and return to the commissioner of insurance in the an- nual statement, a legal reserve upon these policies, notwithstand- inz the assessment clause. Mr. Bushnell testified that he was surprised to discover on this investigation, that the company’s policies contained surrender values, loan values and extended insurance, without indicating that these were estimated values ‘It was conceded that the policies issued by this company after the enactment of chapter 270, laws of 1899, contained no di- rect provision providing for assessment. These policies contain references to chapter 270, laws of 1899, which are so incor- porated in the policy contract that a policy holder who was not familiar with that chapter would not take the policy contract with the understanding that he was liable for an assessment. (p 220.) COMPANY'S RATE BOOKS. The executive committee was charged with the duty of prepar- ing rates. Mr. Timme, actuary in the insurance departnient, was consulted. John L. Fate was the assistant actuary in getting out the rate book. Professor Van Velzer also did some work upon the rate books. President Anderson took a conspicuous part in getting: out the first rate book. (p 222.) It was stated by one of the officers that President Anderson knew as much about in- surance, and a good deal more than all the others who were con- nected with the company; that the only members of the company familiar with life insurance, at the time of the organization were W. H. Rogers and R. B. Anderson (p 223). These gentlemen had experience in soliciting insurance (p 224). The table of rates was based upon the experience tables of mortality and the practices of life insurance and rates that other successful com- panies were charging (p 225). Sometime prior to May, 1905, the company discovered that its rates were inadequate and on May 11th, 1905, the company passed a resolution reciting the fact that a certain number of policies were issued on the assess- ment plan, providing for a mortality fund, and 10% additional fund for reserve; that the mortality cost had exceeded the net premium collected and the surplus accumulation by said 10% reserve, and resolving that each such policy holder be required tc. pay an additional sum to meet the mortality cost each year; that 112 Life Insurance Corporations of Wisconsin. each said policy holder might have the option to increase his pay- ments, or decrease the face of the policy each year, to the amount that the premium paid would purchase according to the combined experience tables of mortality, also giving to each holder of such policy, the option to change his assessment contract to any non-assessable form issued by the company, and granting a cash value, loan value, paid up insurance and extended insur- ance. Since that time the company has been carrying out the scope of this resolution. At the time of the investigation Mr. Ned- derson was at work calculating the amounts to be paid by each policy holder (p 235). In 1904, the officers of the company dis- covered that these policies could not mature (p 237.) The de- partment of insurance has always held that all policies written by this company require a legal reserve (p 241). No attempt has been made by the company to levy an assessment against such policy holders. INSOLVENT CONDITION OF THE COMPANY. The testimony shows that if the entire assets of the company above the amount set aside as legal reserve, were added to the legal reserve, the company would not have sufficient reserve to mature and pay all outstanding policies; that the company’s premium charges were never sufficient to enable it to give a guar- anteed surrender value (p 150) ; that the cash value offered by the company was approximately, what is usually offered by other companies receiving the full premium; that the only way to make up this deficiency, without prejudice to the other policy holders, is to assess the policies in which the company reserves the right to assess, and thereby make up the deficiency (p 151) ; that this as- sessment may be made in two ways, either to require an addi- tional payment of the policy holder, in the way of additional premiums, or by a reduction of the face of the policy, as was done by the Charter Oak, and one or two other companies of this kind (p 152). The testimony shows that from the time of the organization of the company, up to 1902, when it was reorganized as an ordinary old line insurance company and collected premiums upon that basis, the company has never had a sufficient reserve. On the Report of Joint Legislative Investigating Committee. 113 contrary, it was, during all of this period, insolvent. Its sol- vency at the time of this investigation depends entirely upon its ability to collect sufficient upon these old policies to enable it to put up a proper reserve. The testimony also shows that in case of the maturing of the policies under the disability clause, it could protect itself only by resorting to an assessment, and we think it extremely doubtful if, under the terms of its contracts, it could resort to the assessment clause in order to liquidate liabilities under the disability clause of its contracts. (See section 270, laws of 1899.) Fourru Perriop. The fourth period extends from March, 1900, to October, 1902. The policies issued during this period do not contain the disability clause, endowment clause, or the as- sessment clause, but do refer to section 12, chapter 270, laws of 1899 (p 168). During this period the company issued a form of policy in the nature of a ten year semi-tontine policy. There are 297 policies of this class now outstanding, making a total of all outstanding policies of the first, second, third and fourth periods of 715 policies. Firtu Periop. This period extends from October 28th, 1902, to December 31st, 1905 (p 170). These policies provide for a cash surrender value at the end of the third year, equal to 95%: of the full 314%, American Experience Table, and one-half of one per cent in addition, each year, until it reaches the full 314% American Experience Table. (p 171.) The tabulated statement prepared by the actuary employed by the committee, showing the kinds of policies in force, covering the first three periods of the company’s history, with the regular reserves required by law, shows a total deficiency of $48,271. RESERVE REQUIRED BY COMMISSIONER OF INSURANCE. In 1896 Mr. Fricke, as commissioner of insurance, required the company to put up a reserve. Mr. Fay, who was at that time manager, furnished a part of it, Mr. Rogers an additional part, and President Anderson the balance. The whole amount re- quired was $18,000, and was furnished in the form of mortgages on real estate. These notes-and mortgages were subsequently returned to Fay, Rogers and Anderson. 8—I. 114 Life Insurance Corporations of Wisconsin. FAY CONTRACT. In May, 1902, the company entered into a receipt and contract with Mr. Fay as follows: “Received, Madison, Wisconsin, this 31st day of May, 1902, of L. M. Fay, being a promissory note for $15,000, bearing interest at 314% per annum, secured by a mortgage on 800 acres of land, as a part of the assets of the Wisconsin Life Insurance company, and to repay the same, and in consideration thereof, and in fur- ther consideration of the fact that he took hold of the company and put it on its feet when it was in great straits, and has man- aged the business and affairs of said company ever since August 1st, 1900, with signal success, giving to the same most of his time and attention, and he is to continue to do so while his health permits ; said company hereby sets over and assigns to him, the said L. M. Fay, his heirs, personal representatives and assigns, the one-fourth part of the expense loading of all future renewals of all policies of said company, heretofore written or hereafter to be written, for twenty years from this date, provided, however, that when the same shall have amounted to enough to repay said mortgage and interest, and pay said Fay $3,000 per annum dur- ing the time he has so managed and shall continue to manage for said company, and $2,000 per annum thereafter, during said twenty years, then this assignment shall no longer bé in force; but provided further, that if at the end of said twenty years enough shall not have been realized upon this assignment to amount to such payment as aforesaid, then and in that case, the same shall remain in force long enough to make up such pay- ment in full thereby. Witness the hand of the president and secretary of said company, and its corporate seal, and the hand and seal of said Fay, the day and year first above written. Ex- ecuted in presence of A. R. Bushnell and George E. Anderson, R. B. Anderson, president of said company, A. R. Lushnell, secre- tary of said company, and L. M. Fay. Seals.” President Anderson testified that he signed this contract on the advice of counsel. This action was not authorized by any resolution or act of the company. Mr. Bushnell and Mr. Fay came to his office to get his signature. He was unable to state whether one-fourth of the expense loading of all future renewals of the company’s policies theretofore and since written have Report of Joint Legislative Investigating Committee. 115 been applied toward the liquidation of this contract. (p 38.) That it was his understanding that this contract was given to pay Fay $15,000, with 314% interest, $3,000 salary so long as he continued to manage the company, and $2,000 per annum there- after, during twenty years; that this was imposed upon the com- pany in addition to the mortgage and interest and salary which was given to Fay in consideration of his services and an advance- ment of $40,000; that the $40,000 is still a liability on the expense loading of the company, and if at the end of twenty years, enough shall not have been realized from the assessment to meet these payments, the same shall remain in force long enough to make ur. such payments in full. It appears that at the time of the making of this contract the mortgages theretofore deposited by Fay, Anderson and Rogers were returned; that Fay deposited with the company a $15,000 niortgage on certain lands in Forest county. President Ander- son testified that he knew nothing about the value of these lands; that Mr. Bushnell ought to know because he approved of the loan; that he as president, had no knowledge of the transaction, except as above stated. It was contended by the officers and directors, that the depos- iting with the company by Anderson, Fay and Rogers of $18,000 worth of notes and mortgages, did not create a liability on the part of the company; that they contributed this amount at the risk of building up the company. (p 108); that this $18,000 was contributed to secure present and prospective policy holders; that they had no idea as to how Fricke calculated it as $18,000. (p 109.) Prior to the agreement with Fay the company paid no interest upon these mortgages deposited by the directors. In the subse- quent agreement with Fay they allowed him 314% interest. In this connection it was asserted by the officers that Anderson, Fay and Rogers did not put these mortgages in as an absolute asset, but simply as security, to be kept until the company could return them, without impairing its legal reserve; that they were only contingently the property of the company. They were, how- ever, reported to the commissioner of insurance as the absolute property of the company. It was conceded that if the company was required to earn 314% on its reserve, to meet the obligations of the company, and pay 314% to Fay, it would be required to 116 Life Insurance Corporations of Wisconsin. earn 7% net on its investments. The counsel of the company in- sisted that this contract with Fay was not a liability, and that the officers of the company had a right to enter into this contract without any authorization from the board of directors. (p 117.) No copy of this contract was kept or filed in the office of the com- pany. Responsibility for the failure to record it was placed upon the management of Mr. Fay. Fay as manager, mace the terms of the contract between himself and the company and the presi- dent and counsel approved it. (p 122.) No record was made of the transaction of the directors putting up $18,000 reserve. The minutes of the meeting of the board of directors for May Ist, 1897, show that Mr. Fay was insisting upon repayment to him of that part of $18,000 put up by him to meet the demands of the commissioner of insurance, and on May 1st, 1897, Mr. Brand was directed to negotiate a settlement with Mr. Fay, upon the best obtainable basis to avoid litigation, and that if it was im- possible to obtain a settlement in any other way, without litiga- tion, he, Brand, was authorized and instructed to reconvey to said Fay, the securities held by said company for said Fay, and secure the cancellation of all contracts and memoranda existing between Fay and the company for the purchase of the same. It appears from the testimony that while the company was re- porting these mortgages as an asset, they had some private ar- rangement with these directors, by which the company became liable to the directors for the full amount of this $18,000; that in complying with the requirements of the insurance department, they treated these mortgages as the property of the company; that in dealing with the directors who put up these mortgages, they considered them the property of the directors; that prior to, or at the time when the contract above set forth was entered into between Fay and the company these mortgages which had been reported to the commissioner of insurance as a part of the com- pany’s reserves, were returned to the directors who deposited them. The Fay mortgage on the Forest county lands was held by the company as a reserve and was so reported to the commis- sioner of insurance. The side contract with Fay was neither filed nor recorded in the office, nor upon the books of the com- pany, nor any reference made to it which would enable the com- missioner of insurance, upon an examination of the company, to ascertain its existence. Report of Joint Legislative Investigating Committee. 117 Mr. Bushnell, however, testified that the commissioner of in- surance of Texas by his representative, examined the company ; that such representative looked into the Fay mortgage, receipt and contract, and accepted it as a part of the assets of the com- pany; that at this time there was nothing in the books or records of the company, which would enable an examiner to ascertain its existence. The counsel of the company stated that he had no definite or clear recollection relating to the meeting of the direc- tors, when action was taken resulting in the Fay contract; that his advice and opinion with respect to the same was never asked. He furthermore stated that he did not know if any member of the company examined the land covered by the $15,000 Fay mort- gage (p 402) ; that all the information he had as to the value of the lands was a memorandum on the back of a letter signed by R. B. Anderson, president, dated Sept. 6, 1896, addressed to Daniel Gagen of Forest county, and also a letter dated Sept. 4, 1896, signed by A. R. Brazeau. (p 406.) He stated that he did not-see these appraisals, and did not examine the mortgage to ascertain the character of the security; that the company had at that time been placed in the hands of Fay to run; that as an officer of the company he signed the Fay contract, basing his in- formation as to the value of these lands, entirely upon the judg- ment of Mr. Fay. (p 405.) The letter of Mr. Brazeau, reads as follows: “Cavour, Forest county, Sept. 4, 1896. National Insurance Company, Gents: Said lands are wort $50 to $100 an aker, de- pending as to nearness to raylroad and amt. of timber on it. Most respectfully, A. R. Brazeau.” ; Mr. Bushnell conceded that upon an examination of this letter there seemed to have been erasures; that the figures 50 and 100 appear to have been changed (p 406) ; that he had not the slight- est knowledge as to who made these erasures. The endorsement on the letter of R. B. Anderson reads as follows: “These lands are worth from $25 to $40 an acre, depending on the amount of timber on each description; say $25,000 to $30,000 for the whole batch.” The body of this endorsement is written in one handwriting, and the name “D. Gagen” in another handwriting. There were holes in this paper and thinness in some places, indicating that it had been tampered with. There appears a correction in the 118 Life Insurance Corporations of Wisconsin. word “acre” in another handwriting and in different ink. There was also evidence of a change in the figures $25,000 and $30,000, in different ink. (p 407.) Evidence was offered on the hearing, showing that on January 24th, 1904, 10 years subsequent to the aforesaid apprai.al, lands in this county, as a whole, were worth not to exceed twelve dollars an acre. The officers of the company insisted at all times, that under the law they were not required to maintain the reserve required by the commissioner of insurance. They were unable to throw much light upon the transaction of the directors, Anderson, Fay and Rogers, depositing with the company $18,000 in mortgages re- quired by the commissioner; nor as to the transaction between the compatiy and Mr. Fay, which led the company to enter into the foregoing contract with Mr. Fay. From the testimony taken, and the inferences to be drawn therefrom, the committee are clearly of the opinion that this entire transaction may be summed up as follows: First. That the officers of the company, when required by the commissioner of insurance to put up a reserve, received from president R. B. Anderson, L. M. Fay and W. H. Rogers, certain mortgages of the face value of $18,000; that these mortgages were turned over to the company simply because the commis- sioner required this reserve; that there was a distinct understand- ing on the part of these officers that these mortgages, in their dealings with those who put them up, should either be returned to them, and while retained by the company be considered as a liability of the company, but in their dealings with the commis- sioner of ‘insurance, they should be represented as the ‘company’s assets. Second That subsequently, $3,000 of these mortgages were returned either to Fay, Rogers or Anderson; that the others were insisting upon the return to them of the mortgages which they had depostied with the company ; that thereupon the company re- ceived from Mr. Fay a mortgage of the face value of $15,000, covering certain lands in Forest county, and received from the company, in consideration thereof, the foregoing contract; that no officer of the company made any effort to ascertain the value of these lands, beyond the fact that president Anderson wrote to one Gagen, asking him to give an estimate of their value, and a written estimate was furnished by Gagen and Brazeau; that some Report of Joint Legislative Investigating Committee. 119 one erased the original figures and inserted others, by which erasures and insertion it was made to appear that these lands were worth ten times their actual value. We.have no doubt that the purpose of this tampering with the written estimate of these lands was intended to deceive either the officers of the company, or the commissioner of insurance who might examine the com- pany. Third. That this contract entered into with Mr. Fay was not filed in the office of the company, nor recorded upon its books. The purpose of such failure to file or record said contract can readily be surmised by a perusal of the history of this transac- tion. The contract was entered into secretly and without au- thorization by the board of directors. It was concealed from the policy holders, and with one exception, from the commissioners of insurance, and remained a secret until revealed by this investi- gation. The transaction, from beginning to end is marked by concealment, tampering with estimated values, conducted in an unbusinesslike manner and merits unqualified condemnation. COMMISSIONS AND EXPENSES OF NEW BUSINESS. This company is conducted under the general agency system. It has in its employ seven general agents. The contract of the general agent for Wisconsin provides for 70% first year’s com- mission. There is no provision for renewals. Endorsed on the back of the contract is a stipulation that beginning April, 1905, this agent shall receive $60 a month, until the first day of Novem- ber, 1905. Also a provision for reasonable actual traveling ex- penses, while traveling on business of the company, exclusive of soliciting new business. He has been occupied chiefly, in read- justing the business of the company. (p 306.) Mr. O’Callahan, another general agent of the company re- ceives 70% commissions and 7% renewals on participating busi- ness, He is paid no bonuses or expenses. The general agent for the company in Oklahoma and Indian Territory received 85% commissions with no renewals. The general agent of the company in South Dakota receives 80% commissions without renewals. The company had a contract dated Feb. 15th, 1901, with the firm of Beemer, Smart, Wass & Beemer of Minneapolis, appointing them as superintendents of 120 Life Insurance Corporations of Wisconsin. agencies; their stipulated compensation was 90% on first year’s premiums, and a renewal fee of one-half the expense loading on all policies of every kind, written by the company during the life of the contract, and so long as such policies should remain on the books of the company, and such renewal premiums are paid. This amounted to 244% renewal commissions. All of the soliciting agents of the company were turned over to this firm, who in turn accepted existing contracts with these agents. It was the intention and purpose to place the entire mat- ter of soliciting new business in charge of this firm. This con- tract, with the exception of the renewals, is not in force at the present time.. A fair proportion of the business written by this firm remains on the books. This firm received commissions, as follows: 1901, $4,382; 1902, $17,381; 1903, $24,565 ; 1904, $13,- 785; 1905, $3,871. E. L. Simmons, another general agent, received commissions, as follows: 1903, $12,390; 1904, $31,053. After 1904 Mr. Sim- mons was placed on a salary basis. (p 314.) While writing on a commission basis he received 90%, with 1214% renewals. From 65% to 70% of the business written by him lapsed in 1905. (p 315.) The total number of policies issued by the company in 1905 was 1027. At the beginning of the year there were 1640 policies outstanding. During the year 1905, there was substantially 74% of the business written outside of this state. This business was written principally in Texas, Louisiana, Arkansas, Oklahoma and Indian Territory. (p 318.) The lapsed policies in 1905 were 786 of the value of $1,215,640. The number lapsed in Wis- consin was 119, of the value of $161,340. Of the lapsed policies of that year 13% were Wisconsin policies, and 87% were policies written outside of this state. A large number of the company’s policies written in Tennessee lapsed. It was claimed by the ofti- cers that this lapse of Tennessee business was of no particular in- jury to the company. The contract with the general agent at Baton Rouge stipulates for 70% first year’s commissions and 10% renewals, for the term of ten years, amounting to 70% com- missions and 100% renewals. It appears from the testimony that the greater portion of lapses in this company occur at the end of the first year, The next largest proportion at the end of the second year; that the largest Report of Joint Legislative Investigating Comunittec. 121 number of policies are surrendered at the end of the third year. The officers of the company stated that in their opinion, there is a direct relation between high commissions and excessive lapses. This is due to the fact that high commissions encourage rebating. Policies that lapse at the end of the first year result in no benefit whatever to the company, the first year’s premiums being ex- hausted in paying commissions and other expenses. Several officers of the company received commissions on busi- ness written by them. President Anderson received commis- sions in 1902, $2,311. From 1896 to 1901, he received $6,281. Mr. Brand, while assistant secretary and manager, received $1,679. In order to conceal the amount of commissions paid, these sev- eral amounts received by the officers as commissions, were dis- tributed among the other accounts, including officers’ salaries, traveling expenses, etc. The purpose of this distribution was to mislead with respect to the amount of commissions paid to agents. It was conceded that the books of the corporation were not ac- curately kept. (pp 324-25-26-27.) The records of the company show that Mr. Simmons, as general agent, received 90% first year’s commissions, 5% bonuses, and 1214% renewals, during the life of the policy. GAIN AND LOSS EXHIBIT. The gain and loss exhibit for 1905 shows loading $39,909. These figures were taken from slips or policy cards, by Mr. Ned- derson, the actuary of the company. These expenses include taxes and back taxes actually paid. The amount of loading re- ceived for the year 1904 is $56,074. The expenses for that year were $60,429. In 1904 the company exceeded the expense load- ing by about $4,000, in 1905 by $5,000. (p 343.) The loading for the year 1903 was $49,060. Total expenses $49,057.35. This does not include death losses or cash paid on surrendered policies. POLICY LOANS. Policy loans are made according to the rate book compiled py A. F. Timme in 1899. The ioan values stipulated are greater in 122 Life Insurance Corporations of Wisconsin. earlier years than the reserve. (p 391.) The company has about $14,000 loaned on its policies, and the loan in several! in- stances is above the amount of the reserve. (p 353.) REAL ESTATE LOANS. We find that this company, in some instances at least, did not carefully investigate the value of real estafe upon which loans were made. (p 417.) The company made 36 loans on real estate in Dane county. The lands mortgaged to secure these loans were valued by appraisers employed by this committee, and in every instance, the appraisal of these lands by the company was in excess of the appraisal made by such experts. Upon this ap- praisal we find that in some instances loans have been made, upon what seems to us a small margin of safety. The officers of the company, however, stated that the company has never lost any- thing on account of such loans, and have had no difficulty in col- lecting the same. In view of the history of this company, we recommend the re- peal of chapters 418 of the laws of 1891, 175 of the laws of 1895, and 270 of the laws of 1899. We call especial attention to the facts herein set forth in relation to the proxy system existing in this company, and the method of election of officers and trustees, in support of our recommendation elsewhere made to abolish proxy voting in mutual insurance companies, and to emphasize the necessity of our recommendation giving to each policy holder an opportunity to vote for such trustees, and authorizing the gov- ernor to appoint one independent and impartial trustee on the board of directors of each domestic insurance company. Owinz to the condition of this company, as disclosed by the evidence taken before this committee, we decided that it was the imperative duty of the committee to at once lay before the gov- ernor the testimony taken upon this investigation. Thereupon a transcript of such testimony was filed with the governor, who in turn referred it to the commissioner of insurance. Since the investigation of this company closed, the officers have filed with the committee the following statement of the com- pany’s business. This statement shows that the Fay receipt and contract of May 31st, 1902, has been fully adjusted and settled, and that the set- Report of Joint Legislative Investigating Committee. 123 tlement has been ratified and approved by resolution of the spe- cial annual members meeting of the company, held May 11th, 1906; that the annual members meeting omitted to be held on the second Monday of January, 1906, has been corrected by a special members’ meeting called by written notice to every policy holder, and publication thereof; that said meeting was held May 11th, 1906. That reductions of commissions paid to agents have been made, as suggested by the committee; that a new rate book has been adopted with reduced early surrender values, but without change in the rates of premiums; that the assessments due on the old ordinary life assessment policies issued by the company in 1897 and 1898, have been enforced, as suggested by the commit- tee. That as the result thereof, these policies to the amount of $72,500 have paid such assessments in the amount of $1,253.59, and $59,000 of these policies have lapsed; that the holders of other assessment policies of the company, to the amount of $54,- 000, have voluntarily changed their assessment policies, to full legal reserve or old line policies, through which there has been added to the assets of the company the sum of $6,618.00. This statement also contains an elaborate review of the stat- utes of the state, in which it is contended by counsel for the com- pany, that this company was exempt from the provisions of the general insurance laws of the state, and that the company was reorganized on the theory that the doing of old line life insur ance business after the reorganization, should apply to future policies only; that its past assessment policies should stand upon the contract made with the holder and the law in existence at the time of the issuing of such policies. FUNDAMENTAL PRINCIPLES OF INSURANCE, PUBLICITY AND CON- TRACT PROVISIONS AS TO EXPENSES OF INSURANCE MANAGE- MENT AND MORTALITY, REDUCTION AND LIMITATION OF PREMIUMS, ANNUAL AND DEFERRED DIVIDENDS. Many practices of a more or less technical nature, relating to the fundamental principles of insurance, have been examined into and found to be grossly inequitable in principle. The committee sought to determine the reasons for these unfair practices, and found that in most cases the only defense of the same was long established custom and usage. 124 Life Insurance Corporations of Wisconsin. It has been shown to the satisfaction of the committee among other things, (a) that the expense charges for insurance man- agement are excessive and apportioned unjustly as between dif- ferent classes of policies; (b) that premiums on most classes of policies are unnecessarily high; (c) that the dividend returns seldom correspond to actual conditions; (d) that discrimination is employed in the apportionment of dividends, as between annual and deferred dividend policies, and in interest rates on policy loans; (e) that excessive charges have been and are now exacted upon the surrender of policies for cash, and for paid-up and ex- tended insurance; (f) that unreasonable forfeitures of the re- serve are exacted during the first three years of the policy; (g) that the policies and loan agreements of many companies contain harsh provisions. It appears that in the aggregate effect, these methods and practices, running through a long period of years, have resulted in even greater loss to the policy holders than occasional abuses of a more sensational character. Owing to the nature of the investigation, as outlined above, and recommendations made, this branch of the report assumes a more technical form, the intelligent understanding of which ne- cessitates an explanation of some of the underlying principles of life insurance. MORTALITY TABLE. To determine the annual charge which will enable the com- pany to fulfil its policy obligations as they mature, a mortality table, which serves to measure the expected death rate, must be adopted. The mortality table is based on past experience, and shows how many, in a group of people all of the same age, say 100,000 at age ten, will survive to each higher age. The table generally employed in this country and now used by the North- western Mutual and Union Central Life Insurance companies, is known as the American Experience Mortality table. It is a fairly liberal table, and secures the safety of contracts based upon it, by a reasonable margin. It should be particularly noted that the fig- ures in the last column represent, as to any given group, suffi- ciently large, the amount in cents which must be contributed at the end of the year by each member thereof to pay $1,000 on account Report of Joint Legislative Investigating Committee. 125 of each death during the year. Experience shows that a group of one thousand persons is sufficiently large for the law of averages as indicated in this table to apply. The table is here reproduced. AMERICAN EXPERIENCE TABLE OF MORTALITY. Number living | Number dying Number dyiog Age. at beginning within the during year of year. year. per 109 0c0. 109,000 749 749 99,251 746 752 98,505 743 754 97,762 740 757 97 022 137 760 96,285 735 763 95,550 732 166 94,818 729 769 94,089 R27 773 93,362 725 717 92,637 723 781 91,914 T22 786 91,192 721 791 90,471 720 796 89,751 719 801 89,032 718 807 88,314 718 813 87,596 718 820 86,878 718 826 86,160 719 855 85,441 720 843 84,721 721 851 84.000 723 861 83,277 726 872 82,551 729 883 81,822 732 895 81,090 737 909 80,353 742 923 79,611 749 941 78, 862 756 959 78,106 7S 979 77,341 774 1,001 76,567 785 1,025 75,782 797 1,052 74,985 siz 1,083 74,178 828 1,116 73,345 848 1,156 72,497 870 1,200 71,627 896 1,251 70,731 927 1,311 69,804 962 1,378 68 , 842 1,001 1,454 67,841 1,044 1,589 66,797 1,091 1,633 65,706 1,143 1,740 64,563 1,199 1,857 63 , 364 1,260 1,989 62,104 1,325 2,184 60,779 1,394 2, 59,385 1,468 2,472 126 Life Insurance Corporations of Wisconsin. Number Jiving | Number dying | Number dying Age. at beginning within the during year of year. year. per 100,000. 57,917 1,546 2,669 56,371 1,628 2,888 54,743 1,713 3,129 53,030 1,800 3,394 51,230 1,889 3,687 49,341 1,980 4,013 47,361 2,070 4,371 45,291 2,158 4,765 43,133 2,243 5,200 40,890 2,321 5,676 38,569 2,391 6,199 36,178 2,448 6,767 33,730 2,487 7,373 81,243 , 2,505 8,018 28,738 2,501 8,703 26,237 2,476 9,437 23,761 2,431 10,231 21,330 2,369 11,106 18,961 2,291 12,083 16,670 2,196 13,173 14,474 2,091 14,447 , 1,964 15,861 10,419 1,816 17,430 8,603 1,648 19,156 6,955 1,470 21,136 5,485 1,292 23 555 4,193 1,114 26,568, 3,079 933 30,302 2,146 744 34,669 1,402 555 39,588 90 S847 385 45,455 91 462 246 © 53,247 92 216 137 63,426 93 9 58 73,418 04 21 18 85,714 95 3 3 100,000 INTEREST RATE IS ASSUMED IN ADVANCE. In addition to the adoption of a mortality table the company must assume an interest rate to measure the net future earning power of its investments. The interest rate assumed as a basis in most companies at the present time is 3%, they having reduced from 314%, 4% and even higher, within the last twenty years, owing to the steady decline in the interest earning power of high grade sccurities. Contracts of insurance are made to cover the exigencies of a long future term. Fifty or more years may elapse before the matur- ity of some of the policies written on the lives of the young men of today. For this reason the interest basis must be so low that there is the highest degree of certainty that it will be realized for Report of Joint Legislative Investigating Commuittee. 127 a long period’ to come. The policies now issued by the North- western Mutual are on a three per cent basis. Those issued by the Union Central are on a 314% basis. PREMIUMS ARE UNIFORM. One does not need to consult the mortality table to learn that a smaller number of deaths will occur within a year in a group of 100,000 average men at age thirty than in 100,000 at age 60. The American Experience table shows that we may expect the death within a year of about 843 in the first group, and only about 2,669 in the second. In order to pay $1,000 on account of each death each insured would have to contribute at the end of the year $8.43 in the first instance and $26.69 in the second in- stance. It is thus evident that the cost of insurance protection at age sixty is greater than at age thirty, in short, that it in- creases with age. This would require an increasing premium, if the insurance benefit were paid for year by year. In practice, however, the cost increases so rapidly at the higher ages that it results in the policy holder's being obliged to drop the policy when that period of life is reached. The practical difficulty of an ascending scale of premiums has been overcome by charging an equivalent level premium. EXPLANATION OF POLICIES AND PREMIUMS. The premium is the payment, usually annual, exacted of the insured or policy holder. The amount of the premium differs greatly with the kind of policy. Policies of insurance are issued on various plans, the most common being the ordinary whole life insurance, the limited payment life insurance, endowment insur- ance and term insurance. The ordinary whole life policy requires the company to pay the face of the policy to the beneficiary, at the time of the death of the insured, and requires the payment of a premium, usually an- nual, to the company, throughout the life of the insured. The number of premium payments on an ordinary whole life policy is therefore uncertain, depending upon the number of years the insured lives. The limited payment life policy requires the company to pay 128 Life Insurance Corporations of Wisconsin, the face of the policy to the beneficiary, at the time of the death of the insured. The premium payments to the company, how- ever, are limited in number, usually to some multiple of five, as ten, fifteen, twenty, and always cease in the event of the death of the insured. The endowment policy requires the company to pay the face of the policy, either, First. To the beneficiary at the time of the death of the in- sured, provided he dies within a stated number of years, called the term of the policy; or Second. To the insured, provided he is alive at the expiration of said term. The premium payments to the company are limited in number, usually to some multiple of five, as ten, fifteen, twenty, but never more than the term of the policy, and always cease in the event of the death of the insured. The term policy requires the company to pay the face of the policy to the beneficiary upon the death of the insured, provided he ‘dies within a stated number of years, called the term of the policy. This form provides only temporary insurance protection and all benefits thereunder cease at the end of the term. The premium payments to the company are limited in number, usually to some multiple of five, as ten, fifteen, twenty, but never more than the term of the policy, and always cease in the event of the death of the insured. Endowment insurance provides for payment of the face of the policy, whether the insured lives or dies, at the time of the death if within the term, at the end of the term if the insured is then alive. On this account, endowment insurance is considerably more expensive than the other forms which provide for payment only in case of death. The cheapest form of insurance is term insurance, next the ordinary life; then the limited payment life, and finally the en- dowment insurance. At the present time, the largest amount of insurance is written on the ordinary whole life plan. The limited payment life and endowment plans come next in order, and there is a growing de- mand for term insurance. These four plans cover practically all the insurance written at this time. Below is reproduced the net annual level premiums, for ages Report of Joint Legislative Investigating Coimmitiee. 126 25, 35, 45 and 35 for policies of insurance on various plans in the amount of $1,000 based on the American Experience table with 3% and 314% interest. These premiums are called net premiums, for the reason that they provide for death and endowment claims, but not for expenses of management. NET ANNUAL PREMIUMS, AMERICAN EXPERIENC:i 3 PER CENT. Twenty Ten Twenty Ten Twenty Ten Ordinary] pay- pay- year year 3 Year. life. ment. | ment endow- | endow- oe pean life. life. ment. ment. f r ! 25 $24.98 $41.98 $41.01 $88.74 $8.66 $8.14 35 1 29.85 49.73 41.97 89.30 10.91 9,42 ee 37.35 60.54 44.90 90.85 17.63 13,14 | 50.66 76.34 53.93 96.04 35.24 24.86 Net annual premiums. AMERICAN EXVERIENCE 3% PER CENT. $37.14 | $39.14 $86.45 $8.60 $3.10 ] QD). saieiesete ani toy Siecle $15.10 | $22.53 | 19.91 ; 27.40 | 44.78 1 40.12 87.02 10.80 9.36 28.35 |) 35.07 | 55.82 43.08 | 88.58 17.37 13.05 44.13 | 48.70 | 72.26 62.21 | 93.82 45.64 24.67 HOW TIIE RESERVES ARE ACCUMULATED. The word “level,” in insurance parlance, means that the pre- mium is the same or uniform from year to year. It is evident, however, that if a level premium is paid from year to year, each premium during the early years of the policy, must be in excess of the current mortality requirements of the company, in order to balance the heavier demand to be made in the later years, when the current mortality requirements, owing to the then advanced age of the policy holder, become excessive. The portions of the premium payments not currently used are held to the credit of the policy and improved at the assumed rate of interest. The total accumulation at any time is the reserve on the policy, which is really a deposit made by the insured with the company. Such reserve may be technically defined as the excess of the accumu- lated net premium payments over the accumulated provisions for death claims and other benefits. 9—TI. 130 © Life Insurance Corporalions of, Wisconsin. “RESERVES ON THE ORDINARY WHOLE LIFE POLICY. The following figures are given to illustrate the reserve ac- cumulations : By the American Experience Table of Mortality, with 37% in- terest, an ordinary whole life policy for $1,000 issued at age 35, aften ten years will have a reserve of $146; after twenty years, $328; after thirty years, $523; after forty years, $698; after fifty years, $844; after sixty years, $950, and at the end of sixty- one years, when the insured attains the age of ninety-six years, the reserve reaches the full face value of the policy, $1,000. With limited payment and endowment policies, the reserve accumulates much more rapidly. We herewith append a table, giving the reserves on various plans of insurance, each policy being for $1,000 issued at age 35, on the American Experience table with 3% interest. RESERVES AT THE END OF YEARS SPECIFIED, AMERICAN EXPERIENCE —— -TABLE, 3 PER CENT, POLICY OF $1000, AGE AT ISSUE 35. End of Ord. |20paxment| 20 year /10payment| 10 year 20 year | 10 year years. life. life. eudowm’nt life. endowm’nt| term. term. $ 40 $ 68 98 170 146 256 233 418 328 610 523 723 698 825 1,000 1,000 CHARGE MADE TO PAY DEATH CLAIMS IS NOT MADE ON “FACE OF POLICY,” BUT ON ‘AMOUNT AT RISK.” The reserves here given are those at the end of the policy year called the “terminal reserves.” If the insured dies during the year, the company pays the $1,000 face of the policy which in effect is a return of the reserve deposited and a payment of a loss equal to the difference between the face of the policy and the re- serve. This difference, which measures the real loss of the com- pany on account of the death, is called the “amount at risk.” It is to cover this ‘amount at risk” that a charge is made against the policy holder to provide for death claims. A specific example will serve to make this clear. According to Report of Joint Legislative Investigating Committee. 181 column 4 of the American Experience Mortality Table heretofore given, the charge for a full $1,000 at risk at age 54 is $17.40. According to the foregoing table of reserves, the reserve at that age at the end of the twentieth year is $328, leaving the amount at risk $672. A charge at the rate of $17.40 on this $672 is $11.70, which is the so-called cost of insurance. This amount is assumed to be charged at the end of the year. If discounted to the beginning of the year at 3%, the rate of interest assumed, we have $11.36, the “mortality charge” which would have to be pro- vided at the beginning of the year. See Ordinary Life Policy Table on page ...... , twentieth policy year. This is further illustrated by the policy tables hereinafter contained, showing expense charges, mortality charges and deposits as to be specified in various kinds of policies under various plans. This charge for the “amount at risk” is made by all companies doing a legal reserve business, and at a fixed rate for each age calculated according to the mortality tables adopted, which, it is assumed, will provide for the claims on account of deaths as they occur. The total of the ‘amounts at risk” is consequently the measure of the real amount of insurance furnished by the company. The total of the “cost of insurance” or ‘‘mortality charges” with in- terest, represents the total charges to the insured or the total actual provision made by the company to meet death claims for any year, called the “expected mortality.” The foregoing is all that is absolutely essential to the business of insuring lives from year to year. The other features of the business relate to the over-payments of the insured, the care of such over-payments, provisions for expenses called “loadings” and the return of excess charges, savings and surplus earnings, called “dividends.” This rule of making a charge upon the “amount at risk” to pro- vide for death claims applies to any kind of insurance issued un- der any plan. Keeping in mind this fundamental principle will serve to eliminate many misunderstandings. TOTAL RESERVE OF THE NORTHWESTERN MUTUAL AND UNION CEN- TRAL LIFE INSURANCE COMPANIES. The report of the commissioner of insurance of the state of Wisconsin shows that on December 31st, 1905, the Northwestern 132 Life Insurance Corporations of Wisconsin. Mutual had a reserve fund of $172,000,000; the Union Central over $40,000,000, and the thirty-five companies doing business in this state, a reserve fund in excess of $2,000,000,000. SAVINGS FROM MORTALITY. What has preceded shows that in the very nature of the con- tract large life insurance companies must accumulate immense re- serve funds, otherwise they would be unable to carry out their promises. But there may be an accumulation in excess of the required reserve, a surplus, over and above such reserve. This surplus is due chiefly to the following causes: The mortality table adopted may exhibit a higher mortality, that is, a greater number of deaths than that actually experienced by the company, in which case there will not be as many claims to pay as provided for. This is usually the actual state of affairs. It is well known that the American Experience Mortality Table provides a fair margin of safety. Jor example, the actual death claims during 1905 in the Northwestern Mutual, amounted to $4,989,673; the expected death claims to $7,147,262, thus effecting a saving from mortality of $2,457,589. The percentage of actual to expected death claims was only 67%, leaving a saving or surplus from over charges of about 33% of the expected loss. This saving from mortality is the first element of the so-called surplus. For the year ending December 31, 1905, the expected mortality loss of the Union Central was $2,175,658, while the loss actually experienced was only $1,196,177, giving a mortality saving of $979,481. -The actual loss was about 55% of the expected, a sav- ing from mortality of 45% of the expected loss. The report also shows that in all the thirty-five companies do- ing business in this state last year, there was a mortality saving of about $21,000,000, something over 18% of the expected loss. GAIN FROM EXCESS INTEREST. If the interest basis assumed is 3%, it may actually happen that the company earns more than this on its investments. The aver- age net interest earnings of the Northwestern Mutual and the Union Central have at all times been fully one per cent, and oc- easivnally as much as three percent over the interest basis em- Report of Joint Legislative Investigating Committee. 133 ployed in computing the premium. This furnishes another im- portant source of contribution to the surplus, and it is called the gain from interest. For the year ending December 31st, 1905, the net interest earn- ings, that is, the total interest earnings less investment expenses of the Northwestern were reported to be $8,850,228; the interest required to maintain the reserve $6,172,525, giving a net gain from interest of $2,677,703. Similarly for the Union Centrar, the total net interest earnings were $2,919,970, interest required to maintain the reserve $1,549,159, net gain from interest $1,370,811. The thirty-five companies doing business in this state made a gain of gross interest over the reserve requirements in 1905 of over $28,000,000. THE NET PREMIUMS ARE LOADED FOR EXPENSES. Up to this point nothing has been said concerning the pro- vision for the expenses of the company. The premiums which we have been dealing with are termed net premiums, and they are computed so as to be adequate to meet the death and endow- ment claims as they mature, and nothing more. However, there are many expenses of operation to be met, as agents’ commissions, medical examination fees, salaries of officers, clerk hire, taxes and other expenses. These expenses are met by adding what is termed “loading” to the above mentioned net premium. Thus, the net premium provides only for mortality and endowment claims, while the loaded, gross or office premium, provides both for the mortality and endowment claims and expenses of man- agement. The net annual premium based on the American Ex- perience table with 3% interest, for an ordinary whole life policy for $1,000, issued at age 35, is $21.08. If to this is added 32.4% of itself, namely $6.85, the sum is the loaded annual premium $27.93, actually charged by the Northwestern Mutual. It thus appears that about one-fourth of the premium charged each year on this policy is over and above the mortality and reserve require- ments, and may be used for expenses. In like manner the pre- mium for any other age may be found, by adding 32.14% of the net premium to itself. The loading added to the net premium, in the case of limited payment life and endowment policies, is one-eighth of itself, plus one-fifth of the net premium for the same ! ee: 134 Life Insurance Corporations of Wisconsin. age on the ordinary whole life policy. For example, the net pre- mium, age 35, for the twenty payment life policy, is $29.85, and one-eighth of this $3.73, plus one-fifth of $21.08, or $4.22, gives a loading of $7.95, which added to $29.85, gives $37.80, the pre- mium actually charged. For the twenty year endowment policy, with twenty annual premiums, age 35, the net premium is $41.97. By the same rule, adding $5.24, and $4.22, gives the loading $9.46, and the premium, $51.43, now charged by the Northwestern Mutual. 4 In the Union Central the method of loading differs from that of the Northwestern Mutual, in that the net premiums are based on an interest earning assumption of 3.14%, and a slightly differ- ent choice of the factors. It will be considered more in detail in another place in this report. SAVING FROM LOADING FOR EXPENSES. These facts have been stated to show that there is, or should be, a third important source of saving, under a prudent manage- ment, namely saving from loading for expenses. It is proper that the loading added should be sufficient to meet every legitimate expense and a liberal estimate is made. If any excess exists at the end of the year, such excess should be returned to the individ- ual policy holder, in the ratio in which his policy contributed to the total overcharge or expense surplus. This is the third im- portant source of saving. The Northwestern Mutual reports for the year ending Decem- ber 31st, 1905, the loading expense portion of the premiums to be $6,403,060, the actual insurance expenses $5,156,504, leaving a gain from loading of $1,246,556, the expense incurred being about 80.14% of the loading provided for same. LAPSES AND SURRENDERS, When a policy holder defaults in payment of premium and his policy lapses before it acquires a surrender value, under the rules of the company he loses the entire reserve. The non-forfeiture laws of many states provide that the policy shall have a surrender value after the payment of three full annual premiums; but this surrender value is considerably less than the reserve value, espe- Report of Joint Legislative Investigating Committee. 135 cially in the early years of the policy. When the insured sur- renders his policy the entire reserve liability of the company is re- leased and the excess of this reserve over the value granted the insured by way of cash, paid up insurance, extended insurance or any other benefit is the measure of the loss to the policy holder. This is called a surrender charge. The Northwestern Mutual makes a surrender charge of the entire reserve until three annual premiums have been paid, after which the charge is $15.00 per one thousand of the face of the policy, decreasing by $1.25 per $1,000 each year. By the operation of this rule after fifteen years from the date of issue, the surrender value of the policy is equal to the full reserve. The following table illustrates the loss sustained by a policy holder in case of lapse or surrender within the first fifteen years on a policy issued at age thirty-five on the ordinary life plan, for $10,000, annual premium $279.30. SURRENDER CHARGES ON AN ORDINARY LIFE POLICY, AGE 35, AMOUNT $10,000. Years in force when lapsed or su erent ere Mig wiciass abs 1 2 3 4 5 Keserve released by lapse or surrender . ase oe os is $538 $622 Amount granted the insured . 400 550 Surrender charge or loss sustained by insured. ... 129 261 158 138 132 6 it 8 9 10 11 12 13 14 15 $829 $981 «$1,137 = $1,297 = $1,460 = $1,628 = $1,799 = 1,974 = $2,152» $2,833 710 880 1,040 1,220 1,390 1,57) 1,760 1,910 2,130 2,330 119 191 97 77 70 58 39 34 22 3 It thus appears that the insured would sustain the maximum loss of $261 by failing to pay the third premium. Since the first dividend is paid at this time, but contingent on the payment of the third premium, he would lose that also. The Northwestern Mutual for the year 1905 reports as total reserve released on lapsed and surrendered policies, $5,579,597, amounts granted in- sured on same $5,040,401, a loss to the insured of $539,196. For the Union Central reserves released $637,829, amounts granted $539,326, difference $98,503. The report for the thirty-five companies doing business in this state is, total reserve released by lapse and surrender $58,400,249, amounts granted on the same, $43,967,457, total loss to the in- sured of $14,432,792. 136 Life Insurance Corporations of Wisconsin. THE SOURCES OF SURPLUS. To recapitulate—the saving from mortality, gain from excess interest, saving in expense from loading and gains from lapsed and surrendered policies are the chief sources from which the surplus is derived. We wish to emphasize that the surplus is a fund entirely apart from the reserve. Upon the integrity of the latter depends the solvency of an insurance company. If the re- serve is intact, the whole surplus might be dissipated without dis- turbing the ability of the company to meet its policy obligations as they mature. The insurance companies have been quick to recognize this fact and can hardly escape the conclusion that the accumulation of these gigantic surplus funds for which there is no strict accountability, is the result of well laid plans of shrewd insurance managers. This immense fund affords opportunity to carry out the most lavish and liberal plans of expense manage- ment, without danger of arousing the attention of the policy hold- ers. In the year 1905 alone, the following surplus gains were reported through the four sources above described; the North- western Mutual, $6,921,044; the Union Central, $2,183,172, and the thirty-five companies doing business in this state, about $60,- 000,000. The total surplus held at the present time by these thirty-five companies is officially reported to be in excess of $330,- 000,000, that of the Northwestern being about $34,690,000, and the Union Central about $8,140,000. LOSSES BY FORFEITURE, The problem of life insurance is to increase its social efficiency by extendinz its benefits to the greatest possible number, elimi- nate forfeitures, and reduce the cost to the lowest possible figure, as well as to adjust the cost on the most equitable basis as be- tween the members of the company. That the lapse rate is high and that there is a large amount of money lost by people who allow their policies to lapse before any returns beyond the value of the term insurance, are secured, is a matter of common knowledge. The following table compiled from the reports of the insurance Report of Joint Legislative Investigating Commnuttce. 137 department, shows the average size of policies of the Northwest- ern Mutual Life Insurance Company: Terminated by Year, Issued. In force. Death. Lapse. Surrender. $2,289 $2,168 $1,696 2,337 1,974 1,643 2,427 2,017 1,402 2.551 1,892 1,471 2,464 1,873 1,627 2,459 1,920 1,615 2,479 1,971 1,667 2,484 1,941 1,762 2,501 2,029 1,864 2,314 1,859 2,175 2,700 1,878 2,211 2,942 1,844 2,223 Similar computations for other companies show like results. Irom this table it appears that the averages of policies for 1905 were: Issued, $2,572; in force, $2,382; terminated by death, $2,942; lapsed, $1,844; and surrendered, $2,223. It is clear that the average policies lapsed and surrendered are much smaller than the average policies written or in force. This raises the following suggestive questions: 1. Are these policies carried by people of limited means? 2. Are these lapses and surrenders due to inability to pay the premiums? If the holders of such policies receive their just dues at the time of termination, no injustice is done, but under the harsh conditions contained in many of the policies now in force, great injustice may be done—and has been done—to thousands of holders of small policies. It was the desire of the committee to determine by concrete facts just what was paid by policy holders, and what was received by them as benefits for the money paid. For this purpose, sched- ules were sent to all the companies doing business in this state, calling for a detailed history of the policies issued during a cer- tain specified period, showing the number remaining in force, the number terminated each year, together with the manner of termi- nation and the amounts paid on death, maturity or surrender and as dividends; also, the total amount of premiums paid, and the amount carried to the policy holders’ credit as a reserve. The schedules were prepared for different classes of policies as 138 Life Insurance Corporations of Wisconsin. follows: 1. Ordinary Life; 2. Limited Payment Life; 3. En- dowment; 4. Term; 5. All others; and 6. Recapitulation. For the purpose of testing the argument made by some compa- nies that “holders of deferred dividend policies are much more persistent than annual dividend policy holders,” these were again divided into annual and deferred dividend classes. . The tables following were compiled from schedules furnished by twenty companies doing business in this state. These sched- ules cover in detail, the history of 5,905 policies issued during the month of June, 1885. Of these 2,222 or 37.59% were issued on the annual dividend plan and 3,693 or 62.41% were on the de- ferred dividend plan. The table below shows the percentage terminated by lapse each year and total for the period, of annual and deferred dividend policies. POLICIES ISSUED IN JUNE, 1885, TERMINATED BY LAPSE. 2,222 policies 3,683 policies issued on the issued on the annnal divi- deferred divi- Year, dend plaa. dend plan. Per cent of Per cent of issue lapsed. issue lapsed. 4.64 6.82 15.00 16.70 2.21 4.48 68 1.47 c 1.09 From the foregoing table it appears that in the annual dividend class 4.64% lapsed on account of failure to pay the first, year's Report of Joint Legislative Investigating Committee. 139 premium, while in the deferred dividend class 6.82% lapsed be- cause of failure to pay the full first year's premium. In the an- nual dividend class 15% failed to pay the second year’s premium while in the deferred dividend class 16.70% failed to pay the sec- ond year’s premium. In the annual dividend class 2.21% failed to pay the third year’s premium while in the deferred dividend class 4.48% failed to pay the third year’s premium; and so on through the entire period. The lapse rate appears to be consid- erably higher in the deferred dividend class. The totals show a difference of about one-third in favor of annual dividends. It has been suggested that perhaps it is not safe to draw such important conclusions from the record of policies issued during a single month, and that varying economic conditions might give different results for other periods. Fortunately, the schedules also called for the total number only of policies issued during the years 1885, 1890, 1895 and 1900, together with the number terminated and the method of termina- tion for each year. The results, as shown in the tables below, prove conclusively that the lapse rate is higher among deferred dividend policies than among annual dividend policies. ISSUE OF 1885. Per cent. of Per cent. of an-| deferred divi- Year. nual dividend | qend policies policies lapseu. lapsed. 2.32 14.07 12.55 13.49 5.22 6.84 1.51 2.61 67 1.03 55 83 82 61 Bl 46 30 “51 229 34 18 +20 17 14 14 15 AUB.) il ecatiaSpavSron repaid a'r: 14 CS 15 .08 16 +05 lt 03 SLI 02 M9 |eaaiaarn ies Saale HOM — | yeeicecesetacernes-ctad bet sa 25.52 41.54 140 Life Insurance Corporations of Wisconsin. ISSUL OF 1890. Per cent. of Per cent. of an-| deferred divi- Year. wual dividend | qend policies policies lap:ed. lapsed. 4.69 13.60 13.87 17.54 3.76 6.46 1.86 2.13 1.20 1.22 16 1.05 49 255 45 aha 37 224 29 wld 15 05 19 -07 .08 +06 06 04 .09 -02 08 -01 28.39 43.89 ISSUE OF 1895. Per cent. of Per cent. of an-| deferred divi- Year nual dividend | gend policies policies lapsed. lapsed. 5.35 13.57 16.32 26.45 3.96 7.47 1.64 Lat 83 +33 46 225 -39 okt 620 13 15 +13 -20 +13 28 -06 29.79 50.46 ISSUL OF 1900. Porcent of \Percent of defer- Year, annual div-dend| red dividend policies lapsed. | policies lapsed. 4.51 5.51 11.70 14.70 3.72 4.28 1.28 89 94 80 69 +20 22.87 25.88 Report of Joint Legislative Investigating Committee. 141 In some of the above tables there appears to be a slight differ- ence in favor of deferred dividend policies in the later years of the policy, but the table is overwhelmingly in favor of annual divi- dends. PREMIUMS AND RETURNS, A great economic loss in life insurance is due to the large num- ber of policies which terminate by lapse during the early years of the policy, before the surrender values take effect. The only benefit to the insured resulting from such policies, is the value of the term insurance for such time as the policies have been in force. In case of endowment policies this is only a small frac- tion of the premium paid. Of the 5,905 policies issued during the months of June, 1885, 354 lapsed on account of failure to pay the first year’s premium in full. The total premiums paid on these 354 policies amounted to $15,350. The value of term insurance at gross term rates for the time the policies remained in force was $9,282, or about 60.46% of the premiums paid. There were 948 policies lapsed on account of failure to pay the second year’s premium. The total of the premiums paid on these policies was $87,093. The value of the term insurance was $36,085 or about 41.44% of the premiums paid. This includes policies of all kinds and for all ages. If fizures were obtained for endowment policies only, this difference be- tween the premiums paid and the value of the term insurance would be even more marked. But taking the amounts as they are and considering that no surrender values are paid on the policies that lapse the first and second year, it is clear that there is a vast amount of money collected by insurance companies for which no benefit is received by the policy holder. Next to the loss by forfeiture resulting from policies lapsed be- fore the surrender value takes effect, is the loss resulting from an excessive surrender charge. The only justification offered for a surrender charge is the claim that if the reserves are paid in full upon surrender, it will result in adverse selection to the company, and that it is legiti- mate to scale the surrender value in such amount as will cover the cost of bringing in another member equally good to the com- pany. In many cases, however, the surrender charge was deter- 142 Life Insurance Corporations of Wisconsin. mined, not by what it would cost to bring in a new member, but by “‘what the traffic would bear.” It was stated in the testimony that the present surrender charge made by the Northwestern Mutual is amply sufficient to take care of any adverse selection that might result from the surrender of policies before maturity. This surrender charge is much less than forfeitures on deferred dividend policies. Some authorities advocate the entire abolitien of the surrender charge, on the ground that the surrender of policies will not resul in “adverse selection,” and that a policy holder should have the right to with- draw the reserve deposit or accumulation on his policy at any time. The experience of deferred dividend contracts compared with annual dividend contracts, as shown in table 1, supra, leads to but one conclusion; namely, if deferring dividends does not deter policy holders from lapsing, scaling down the surrender values does not deter members from surrendering. EFFECTIVE PUBLICITY. A contract of the importance of one involving insurance for life or a long term of years, and in many cases in the aggregate amounting to more than any other single transaction during the life of the insured, would seem to deserve the fullest examination and understanding of its provisions on his part. The important questions in connection with such a contract are what is the insured required to pay each year for death claims, what for expenses, and what return does the company promise on the excess moneys deposited with it? In none of the policies of life insurance which have been submitted to the committee are these essential facts set forth; and yet, these items are absolutely determined upon in advance by the company before any policy is issued by its adoption of tables of expense charges and of mor- tality and the assumption of a given rate of interest. Nor does it seem desirable that these items should be set forth merely by naming the table and rate of interest employed, leaving them to computation on the part of the insured. It is safe to say that out- side of the actuaries of the company and a very few others who make a special study of the subject, no one would get any benefit from such a statement. But the facts can be set forth in dollars o 9 Report of Joint Legislative Investigating Comittee. 148 and cents for each particular polic. If a table setting forth these facts is required to be placed before the prospective policy holder and this is actually done, it would go far towards placing the en- tire responsibility of choice, as between companies and plans of insurance, on the good business judgment of the policy holder. While the companies always have demanded freedom of action as absolutely necessary to progress and reform in insurance, they have with equal unanimity expressed themselves in favor of publicity. They opposed many provisions in the bills recom- mended by the New York committee as interfering with their freedom of development, and doubtless would find cae for criti- cism in any measure which might be proposed. Bu., cf the offi- cers and agents of the companies are sincere in their declaration for publicity, they cannot consistently oppose a provision requiring them to place before the prospective policy holder, at the time when he can make best use of it, the most essential facts with ref- erence to the contract he is asked to enter into, enabling him to determine the portion of his payments devoted to insurance pro- tection and the portion to insurance expenses of management. Freedom of action should be granted the company in fixing the expense, the mortality and reserve provisions at pleasure, but within limits recognized by law as safe and reasonable. The in- sured is entitled to a full and frank statement of what is to be done with his money. This would have a most stimulating ten- dency in the direction of economical management. TABLE SHOULD BE REQUIRED TO RE INSERTED IN POLICY. A table should be required to be inserted in every policy showing in dollars and cents separately for each year during the possible history of the policy, the amounts set apart to provide for expenses and for death claims, and the balance belonging to the insured being the deposit or reserve. The insured would then be able to compare the amount charged to provide for expenses with the amount charged to provide for death claims, which latter is the real measure of the insurance furnished. Companies would thus be compelled to offer contracts of insurance which would appeal to the prospective policy holder as being fair and equitable in the charges so made. 144 Life Insurance Corporations of Wisconsin. INSURANCE COMPANIES ARE BUSINESS INSTITUTIONS. An insurance company is not an eleemosynary institution; pre- miums are based on cold scientific facts. It is therefore clear that no good reason can be advanced as an objection to this plan, un- less it can be successfully contended that it is necessary and jus- tifiable to conceal from the policy holder the disposition which is being made of his money; that is, the premiums paid in. We do not believe it necessary to sell policies of insurance by subterfuge or by withholding from the insured anv of the facts relating to the expense incurred in securing or maintaining his policy. It is the privilege of the applicant to know and decide what he is willing to pay for insurance protection and insurance manage- ment, and to reject any proposition if it cannot be furnished upon what seems to him reasonable terms. We do not believe that the state should permit any concealment of the facts or misrepresen- tations to the insured. To question this position is equivalent to a declaration that the policy holder is not entitled to know how his money is being spent. Such a proposition is intolerable. It is safe to assume that fully ninety per cent of the policy hold- ers have no knowledge of the sources of dividends received by them. Tables and comparisons which follow, together with the fact that the returned dividends are used as an advertising asset demonstrate to a certainty that high premiums are collected by insurance companies upon participating policies, not because the interests or safety of the business require it, but chiefly that the companies may have funds for extravagant commissions, and for dividends as an advertising asset. But it is urged by officers of insurance companies, and some in- surance experts that this return to the policy holder of a portion of excessive charges facilitates the writing of new business and satisfies the old policy holders. This, if so, can only be true where the solicited citizen and the policy holder do not know that the moneys returned are but a portion of excessive premium payments collected. Neither common experience nor the testimony taken before this committee justifies the belief that insurance agents, in laying before the prospective participating policy holder the dividends paid by his company, make a practice of informing him that these dividends represent but a portion of excessive charges collected from the policy holders. Report of Joint Legislative Investigating Committee. 145 We do not believe that a business of such magnificent propor- tions, with all its possibilities for good in the protection of Ameri- can homes, requires the arts of deception to either promote or popularize it. We are fully convinced that the premiums now charged are excessively high, and can be reduced in accordance with the suggestions made in this branch of the report, without retarding the healthy growth of the business, or affecting the safety of the companies. TABLE SHOWING EXPENSE AND MORTALITY PROVISIONS AND DE- POSIT RECOMMENDED. The committee recommends that a law be enacted requiring that in every policy of insurance written or issued in this state after 1907 there shall appear an agreement and table of the fol- lowing tenor: “The company agrees that during the term of this policy, the premium payments herein provided shall be credited when paid as of the policy anniversary to the individual account of the in- sured, and on each policy anniversary a credit shall be made of interest on the balance, herein called the “deposit” at the last pre- ceding policy anniversary, and charges shall be made for the en- suing year against such account, for the provision for insurance expense, herein called the “expense charge,” and the provision for death claims, herein called the “mortality charge.” The ex- pense charge, mortality charge and deposit for the beginning of . each policy year, according to the ..............0-00e table of mortality, and interest at the rate of ........ per centum per annum, are as follows: 10—L. 146 Life Insurance Corporations of Wisconsin. | ‘ Mortal. Policy Expense a Deposit.| Policy |Expense| ity | Deposit. Year, charge. | charge year. | charge. | charge. 1 2 3 4 5 6 7 8 9 10 - - The effect of the foregoing requirement may be briefly summed up as follows: The company must print in the policy a table showing the policy holder how much of his money is set apart each year for expenses of insurance management, and how much is set apart for insur- ance protection. The company must also state in tabular form for each year the discounted terminal reserve or deposit necessary to mature the policy according to its terms, We exhibit below such a table, as it would appear in the policy, computed for an ordinary life policy issued at age 35, for $1,000. The assumptions, made merely by way of illustration, in the com- putation of the annual premium $26.15, are as follows: First: That the company will earn 3% interest on its funds. Second: That it will experience a mortality. equal to that shown by the American Experience Table. Third: That it will expend in each year for insurance man- agement on account of this policy $5.07 available at the beginning of the policy year. Report. of Joint Legislative Investigating Committee. 147. REGULAR FULL RESERVE PLAN, American Experience Mortality Table, Interest Rate, 3%. Ordinary Life Policy, Amount $1,000, Age 35, Annual Premium $26,15. Mortal- ‘ Mortal- Policy yea ee ity Deposit.|| Policy | Expense ity Deposit. charge. | charge. year. | charge. | charge. $507 | $357 | $12 51 31 $507 | si785 | $526 15 5 07 859 | 25 37 32 507 | 18 64 544 38 5 07 861 | 38 60 33 507 | 19 46 FG? 313 5 OF 864 | 52 20 34 507 | 20 33 579 95 5 07 867 | 6617 35 507 | 2121 597 22 5 07 g7a | 8052 36 507 | 2213 614 09 5 07 876 | 95 % 37 507 | 23 03 630 °S 5 07 8 82 110 37 38 5 07 23 91 GAB GT 5 07 889 | 125 87 39 507 | 24 73 G82 42 5 07 898 | “141 75 40 507 | 25 51 677 87 5 07 907 | 158 02 41 507 | 2621 693 0S. 5 07 9 21 174 63 42 5 07 26 88 708 07 5 07 9 35 191,60 43 5 07 27 55 722 8t 5 07 9 54 | 208 89 44 507 | 28 22 737 39 5 07 975 | 226 49 45 507 | 2887 751 73 507 | 1001 | 244 85 46 507 | 2065 765 72 507 | 1031 | 262 47 47 507 | 30 36 779 42 507 | 1062 | 280 80 48 507 | 3103 79? 85 507 | 1096 | 299 34 49 507 | 3155 806 17 507 | 1136 | 318 04 50 507 | 3200 819 43 507 | 1177 | 336 89 51 507 | 32.58 822 51 507 | 1224 | 355,84 52 507 | 33 40 845 15 507 | 1271 | 374’s9 53 507 | 94 48 B%7 10 507 | 1324 | 39398 54 507 | 35.53 868 37 507 | 1379 | 413 10 55 507 | 3627 879 21 507 | 1438 | 43219 56 507 | 36 8! 889 88 5 07 15 01 451 23 57 5 07 37 87 899 74 507 | 1567 | 470 18 58 507 | 40 00 907 81 507 | 1635 | 489 02 59 507 | 40 75 915 37 507 | 1708 | 507 69 60 507 | 4178 922 13 61 5 07 0 00 970 87 We also indicate the first twenty years of a similar table, as it would appear in the policy, under the Select and Ultimate method, Full and Modified Preliminary Term plans, and other methods chosen to illustrate the flexibility of the plan proposed. Explanations and schedules further illustrating these tables will The policy in each case is an ordinary whole life for $1,000, issued at age 35 with annual premium of $26.15. The rate of interest assumed is 3%. appear in the appendix to the report. 148 Life Insurance Corporations of Wisconsin, SELECT AND ULTIMATE METHOD. ‘American Experience, Select and Ultimate Mortality Table, 1n- terest Rate, 3%. Ordinary Life Policy. Amount $1,000. Age 35. Annual Premium $26.15. Mortal- : Mortal- . Expense . : Policy |Exper se : . Policy year. charge. a ne Deposit. year, charge. iene Peposit. $4 32 $6 02 11 $5 07 $9 07 $158 02 5 61 21 67 12 5 07 9 21 174 63 6 47 36 93 13 5 07 Yo 35 191 60 7 35 51 77 1¢ 5 07 9 54 208 89 8 24 66 17 15 5 07 9 75 226 49 3 72 89 52 16 5 07 10 01 244 35 8 76 95 26 17 5 07 10 31 262 47 8 82 110 37 18 5 07 10 62 280 80 8 89 125 87 19 5 07 10 96 299 34 8 98 141 75 20 5 11 36 318 OL The rates of mortality assumed in computing the above table are as follows: First year of insurance, 50 per cent of the full American Experience rate. Second year of insurance, 6& per cent of the full American Experience rate. Third year of insurance, 75 per cent of the full American Experience rate. Fourth year of insurance, 85 per cent of the full American Experience rate. Fifth year of insurance, 95 per cent of the full American Experience rate. hereafter, 100 per cent of the full American Experience rate. It will be noted that after the fifth year this table is identical with that heretofore given, and it so continues through the whole period. FULL AND MODIFIED PRELIMINARY TERM PLANS, American Experience Mortality Table, Interest Rate 3%. Ordinary Life Policy, Amount $1,000, Age 35. Annual Premium $26.15. = | Mortal- 7 Mortal- f eae it: | Deposit.|| Policy ) nso} j 2 r. i eposit. it: D * Policy yea j clare | apo | Pp year. | large, Bie eposit. $17.46 $8.69 }........, 1 $4.41 $9.19 $147.41 "4.41 8.71 13.03 12 4.41 9.33 164.22 4.41 8.72 26.44 13 4.41 2.48 181.43 4.41 8.76 40.21 14 4.41 9.66 198.95 4.41 8.79 54.37 at) 4.4] 9.88 216.78 4.41 8.84 68.90 16 4.41 10,15 234.87 4.41 8.88 83.83 17 4.41 10.44 253.22 4.41 8.94 99.14 18 4.41 10.76 271 80 4.41 9.01 114.85 19 4.41 11.12 290.57 4.41 9.10 130.93 20 4.41 11.51 809.52 Report of Joint Legislative Investigating Committee. 149 PLAN PROVIDING EXPENSE CHARGES IN ACCORDANCE WITH ACTUAL CONDITIONS. The next plan provides for a loading or expense charge, avail- able at the beginning of the policy year, as follows: First year, $14.50; second year, $8.50; third year, $6.50; fourth year, $8.50; fifth, sixth, seventh, eighth, ninth and tenth years, each $6.50; every year thereafter throughout the life of the policy $3.00. It would enable the company to provide for nine renewal commissions, the first and third being higher than the others as an inducement to the agent to collect the second and fourth premiums which are ordinarily the most difficult ones to renew. After the renewal commission period is over the expense provision drops to $3.00 per annum. American Experience Mortality Table, Interest Rate, 3%. Ordinary Life Policy. Amount $1,000. Age 35. Annual Premium, $26.15. | i : Expense Morv'lity| +. || Policy | Expense jMort’lity : Policy year. charee, charge. | Deposit. | year, | charge. | charge. Deposit. 1 ol $14.50 $8.66 | $2.99 || 11 | $3.00 $9.45 $124.48 8.50 8.71 | 12.02 |! RW : 3.00 9.58 141.78 6.50 8.75 23.28 13 | 3.00 9.73 159.45 8.50 8.82 32.81 14 i 3.00 9.92 177.46 6.50 8.88 44.56 15 | 3.00 10.16 195.78 6.50 8.95 56.60! 16 | 3.00 | 10.42 214.38 6.50 9.02 68.93 17 ‘ 3.00 10.73 233 23 6.50 9.12 | 81.63 | 18 | 8.00 | 11.06 262.33 6.50 9.22 | 94.41 | 19 ! 3.00 ' 11.42 271.63 6.50 | 9.35 | 107.64 20 | 3.00 1 11.82 291.11 ! | PRELIMINARY TERM MODIFIED TO LIMIT THE EXPENSE ALLOWANCE TO THAT PROVIDED UNDER THE 20 PAYMENT LIFE POLICY ON THE FULL PRELIMINARY TERM PLAN, We herewith show the table as it would appear in the policy for a modified preliminary ten-year endowment insurance for $1,000, issued at age 35 with annual premium $101.73, based on the American Experience Table with 3% interest. The expense charges are limited in accordance with the following provision for reserves. If the premium charged for term insurance under a limited payment preliminary term or endowment preliminary term policy exceeds that charged for like insurance under a twenty 150 Life Insurance Corporations of Wisconsin. payment life preliminary term policy of the same company, the reserve thereon at the end of any year including the first, shall not be less than the reserve on a twenty payment life preliminary term policy issued in the same year and at the same age, together with an amount which shall be equivalent to the accumulation of a net level premium sufficient to provide for a pure endowment at the end of the premium payment period, equal to the difference between the value at the end of such period of such a twenty pay- ment life preliminary term policy, and the full reserve at such time of such a limited payment or endowment policy. At the end of the premium payment period, ten years, the value of the above ten year endowment policy is $1,000; and the value of the twenty payment life preliminary term policy issued in the same year and at the same age is $242.28. The difference is $757.72 and the net level annual premium sufficient to provide for this as a pure endowment is $60.53. Preliminary Term Modified on 20 Payment Life Basis, American Experience Mortality Table, Interest Rate 3%. Ten Year Endowment. Amount $1,000. Age 35. Annul Premium, $101.73 Policy year. Expense charge. sr | Deposit. $32.51 $8.14 $61.08 9.73 7.48 147.43 9.73 6.78 237.07 9.73 6.03 380.15 9.73 5.22 426.84 9.73 4.35 527.30 9.73 3.39 631.72 9.73 2,36 740.31 9.73 1.24 853.28 De Mpeecacasaerdnwravara siaveiecere 970.87 FIRST PREMIUM HIGHER THAN SUBSEQUENT PREMIUMS. The following plan which is based on the American Experience mortality table and provides the full net premium legal reserves, calls for a first premium of $35.65 and subsequent annual pre- miums of $25.65. The total present value of the expense charges is the same as in the preceding cases based on the American Ex- perience table. / Report of Joint Legislative Investigating Committee. 151 Amer'can Experience Mortality Table, Interest Rate, 3%. Ordinary Life Policy. Amount $1,000. Age 35. Annual Premium, 1st—$35.65; Others—$25.65. Mortal- . Mortal- Policy year. Expense] “ity Deposit || Policy | Expens ity Deposit. charge. chaige. year, charge. charge. 4.57 8.59 25.37 12 4.57 9.21 - 174.63 57 8.61 38.60 13 4.57 9.35 | -- 191.6) 57 8.64 52.20 14 4.57 9.54 208.2) 57 8.67 66.17 15 4.57 9.75 220.49 8.72 80.52 57 8.76 95.26 57 8.82 110.37 57 8.89 125.87 57 8.98 141.75 16 4.57 10.01 | 244.35 17 4.57 10.31 262.47 18 4.57 10.62 230.80 19 4.57 10.96 299 BL 20 4.57 11.36 318.04 on a x 2 $14.57 $8.57 $12.51 il $4.57 $9.07 $158.02 ENDOWMENT INSURANCE, We next pass to the consideration of endowment insurance poli- cies and exhibit several tables as they would appear in the policy. The first table is for a ten-year endowment policy issued at age thirty-five for $1,000. The assumptions, made merely by way of illustration, in the computation of the annual premium, $98.11, are as follows: First. That the company will earn 3.144% interest on its fund. Second. That it will experience a mortality equal to that shown by the American Experience Table. Third. That it will expend in each year for insurance manage- ment on account of this policy the following amounts available at the beginning of the policy year: Ist year, $28; 2nd year, $14; 3rd year, $7; 4th year, $14; 5th, 6th, 7th, 8th, 9th and 10th years each, $7. Policy year. Expense charge.|Mort’lity chanre Deposit. $28.00 $8.09 $62.02 14.00 7.50° | 140.80 7.00 6.80 230.04 14.00 6.12 316.08 7.00 5.30 412.95 7.00 4.48 514.08 7.00 3.47 619.71 7.00 2.42 730.09 7.00 Wet 845.48 i. OO:-» | lenpasueatsrasaemanen 966.18 152 Life Insurance Corporations of Wisconsin. The first column shows the “Policy Year ;” the second the “Ex- pense Charge” or amount provided at the beginning of the policy year for the insurance expenses for the policy year; the third the “Mortality Charge,” or amount provided at the beginning of the policy year for mortality for the policy year; the fourth shows the “Deposit,” which is the balance to the credit of the policy after the two preceding items have been provided for at the be- ginning of the policy year. This table shows the applicant for in- surance, that during the fifth policy year the company agrees to expend not more than seven dollars for insurance management on account of this policy, and that a charge for death claims for the policy year of $5.31 will be made at the beginning of the year. There is a deposit at this time to the credit of the policy amount- ing to $412.96. Similarly for any other year in the history of the policy. FURTHER ANALYSIS OF THE TABLE. A footing of the items in this table shows that the total pre- mium payment called for contingent upon the survival of the in- sured is $981.10 and that this sum is to be apportioned as follows: $105 for expenses of insurance management; $45.40 for death claims, or insurance protection; and the balance $830.70 for the reserve deposit. The items going to make up the latter are sup- posed to be invested within a reasonable time, but it is the practice of companies to charge the expense attendant upon the invest- ment and care of this fund against the interest earnings realized upon them. In other words, investment expenses are charged against investment earnings. This is a very important point, for it emphasizes the fact that the items under expense charge are used for so-called insurance expenses of management only, stich as agents’ commissions, home office expenses, traveling expenses, taxes and expenses of inspection of risks. The expenses attend- ant upon medical examination and inspection of risks might prop- erly be charged against the gains from mortality, and investment expenses and taxes against the gain from interest. The point to be brought out particularly, however, is that no portion of the $105 provided for expenses is used for the care of the investment of the reserve deposits of $830.70. The policy holder will probably notice that in this schedule the insurance Report of Joint Legislative Investigating Committee. 153 expense is in excess of the cost of insurance protection and per- haps conclude that insurance management comes dear, if it is more than the insurance itself. A total collection of $105 for in- surance expenses, while the total collection for death claims is only $45.40, would seem to indicate that the expense assumption ought to be sufficient, but we are aware of no insurance company which keeps its insurance expenses in this form of policy within the figures set forth therein. It was admitted in the testimony before the committee that the loadings for the expenses and other. contingencies on the endowment policies were much too large. To make this clear, we will next exhibit the corresponding ac- tual schedule of the Equitable Life of New York on this same policy. Schedule Showing an Analysis of a Participating Ten Year En- dowment Policy Issued by the Equitable, American Expe- rience Table 8%, Age 35, Amount $1,000. Annual Pre- mium, $107.70. Policy year. Expense charge |Mort'tity charge Deposit. A saticiieaentenmntur ne eh ais aa ma eMdan ents aye $18.40 $7.96 $81.34 2 aie aig 18.40 7.31 165.77 3.. 18.40 6.62 253.42 4.. 18.40 5.89 344.43 £ 18.40 5.10 438.96 18.40 4.26 537.17 18.40 3.32 639.27 18.40 2.32 745.43 18.40 1.21 855.89 SAO slecwargta Na stecteiaeargioers 970.87 Ovals) “scenemiersgectet eae we ee $184.00 PASS99 | ssciciseeesinidtasaes isles a Each annual premium $107.70, is loaded for insurance and con- tingent expenses $18.40. The table shows how each premium is apportioned as regards insurance expenses, death claims and re- serve deposits, indicating that most of the money is deposited for investment, and that the insurance feature is comparatively small. The footings show that the total possible expenditure for insur- ance management as far as loading is concerned, is $184.00, while the collections for death claims amount to only $43.99. Since the expense for the care of the reserve deposit of $849.01 is charged against the earnings of such funds, and does not come 154 Life Insurance Corporations of Wisconsm. out of the loadings, it appears that the company, in the event of the survival of the insured, collects for caring for the insurance more than four times what it collects for the cost of the insur- ance. In particular, during the last three years of the policy, the company collects over $55 to care for $3.53 worth of insurance. NON-PARTICIPATING TEN YEAR ENDOWMENT POLICY OF THE EQUITABLE. This company adopted in 1905, a new table of non-participating rates, and for this same policy the annual premium is $95.04, with an expense loading of $8.02, or more than $10.00 less than in the preceding case. For the sake of comparison, we append a schedule, showing a division of the premium payments as be- fore. : Analysis of Equitable Non-Participating Ten Year Endowment Policy, American Experience Table 3.14%, Age 35, Amount $1,000, Annual Premium $95.04. Policy year. Expense charge. Mort'lity charge Deposit. | $8.02 $7.94 379.08 8.02 7.32 161.55 8.02 6.64 247.59 8.02 5.92 337.36 8.02 5.18 431.06 8.02 4.29 528.88 8.02 3.36 631.05 8.02 2.35 737.81 8.02 1.22 349.44 B02 Naseer ayerneraista-cn nna 966.18 $80.20 SEIT Lascieasaaccaieeeese The footings show that in the case of the non-participating policy the company has arranged for an expense provision of $80.20, almost double the cost, $4.17, of the insurance furnished. It costs no more to care for the investment of the reserve deposits of $849.01 on the preceding participating policy, and the surplus savings derived from interest and mortality must be about the same in each case. The conclusion we draw from this comparison is that unless the company is avowedly selling this policy at a loss, it must be charging the participating policy holder $103.80, the difference Report of Joint Legislative Investigating Committee. 155 between the expense total in the participating and non-partici- pating cases, simply in order, by some method of apportionment, to return it in whole or in part in the form of an alleged dividend. That only a part of it is returned would follow, in case the com- pany allowed its agent a higher commission on participating than on non-participating business, a practice which is very common. RESERVES MADE UP FROM SURPLUS OF OLD POLICY HOLDERS. It should be remarked that while the annual expense provision in the Equitable ten year endowment policy is $18.40, it has not been the practice of the company to keep within this provision. On the present scale of commissions paid to agents, the expense loadings for two or three years would have to be anticipated. For example, a commission of 35% of the first premium would require $37.70, from which it appears, deducting $18.40, that this expenditure alone would create a deficit in the reserve of $19.30. Other expenditures increase this deficit, with the practical re- sult that the reserves during the early years of the policy, are made up from the surplus of the older policy holders. The actu- ary of the Northwestern Mutual testified that it took about three years before the expense attendant upon getting new business was equalized by the loadings, enabling the policy to supply its ‘own reserve, without borrowing from the surplus of other pglicy holders. Similar remarks apply to the expense charge in the table illustrating the Equitable non-participating ten year en- dowment policy. The annual expense loading here is $8.02, and this, together with all gains from interest, mortality and other sources on the policy, would not be sufficient to offset the de- ficit, after expenses of obtaining the business are met. The only alternative is to make up the deficit from the current loading on other policies from the general surplus. It is the practice of officials and agents of insurance companies to speak of this excess of first year’s expenses as causing a de- ficit in the reserve during the early years of the policy, to be made up from the excess loadings in the first few years within a period of from three to five years. They concede that this is actually done during the first three to five years. The law re- quires that the company shall be charged, as its liability by which to determine its solvency, with the’ full legal reserve from 156 Life Insurance Corporations of Wisconsin. the first year. This reserve, of course, comes from the premium. The first year’s expense is invariably far in excess of the loading ; and, instead of saying that this causes a deficit in the reserve, it is certainly more correct to say that there is a deficit in the load- ing which is made up from current loadings on older policies and from the surplus. It will readily be seen that the possible expense provision on a level premium under the present legal reserve requirement does not in any sense conform to the facts. It is also apparent that if the excess of the first year’s expense is made up from the excess of the loadings during the succeeding two to four years, and the loadings are continued during the subsequent years of the pol- icies, the same must be largely in excess of the reasonable re- quirements for expenses and collected only for the purpose of providing a fund for extravagance or from which to return divi- dends. In the preceding illustrations we have chosen policies issued by the Equitable, for the following reasons: First. Because it is a.stock company and is authorized to is- sue policies both on the participating and stock plan; and Second. Because the premiums on the participating plan are heavily loaded, and its stock or non-participating premiums are those adopted by a number of representative companies in 1905, and presumably were found, after investigation to be adequate. From the foregoing comparisons of the loadings in participat- ing and non-participating policies, one of two conclusions is in- evitable. Either, First. The loading in the non-participating policy is exces- sively low and the policy written at a loss which is borne by the participating policy holders in the company; or Second. That the loadings in the participating policies are excessively high. In determining which conclusion is correct, we are mindful of the fact that the profits on the non-participating policies belong, without question, to the stockholders; that the stockholders de- termine the rate of loadings. We believe that it would be giv- ing to such stockholders attributes of unselfishness not generally possessed by stockholders in corporations, as well as to disre- gard their business judgment and challenge their official integ- rity, if we should assume that these stock policies are written at Report of Joint Legislative Investigating Committee. 157 a loss. .Our conclusion is that stock policies are written at a profit, and that the loading in the participating policies is ex- cessively high. THE VARIOUS BILLS DO NOT INSURE A REDUCTION IN PREMIUMS. ‘None of the bills heretofore proposed or passed have set a definite limit on the expense provision, although they have all fixed some sort of limitation on the mortality and interest pro- visions. But the chief source of discontent has arisen in the matter of the expense of insurance management, and this com- mittee would feel that it had not squarely met the real issue if it should evade this point. The New York law provides a partial limitation for agency | expenses, particularly for the first year, by allowing the first five years mortality saving, plus the first year’s loading for first year’s commissions, and not to exceed 714% of the following nine premiums for renewal commissions. Nothing is said, how- ever, as to how much “these loadings shall be. The law, there- fore, does not insure a reduction in premiums. In fact, the tendency of this measure will be to increase present premiums in order to obtain a slightly increased loading for agents’ com- missions in the first year and for renewals. We feel that it is better to fix a sum beyond which the premiums shall not go, no matter what the system, and leave the companies practically to make their own expense adjustment, within such limitations. — LIMITATIONS OF EXPENSE LOADINGS IN PREMIUMS. The general public has been more free to pass judgment on the expense management of life insurance companies than on other and mote technical phases of the subject, chiefly because it comes more readily within the comprehension of the ordinary business man. It is almost universally believed that insurance companies have been too liberal with the money of the policy holders; that they have exercised a most lavish expenditure in reaching out for business, and spent millions to produce an im- pression of magnificence. These considerations have led the people to look for a reduction in premiums, and we believe a sur- vey of the general conditions justifies this expectation. It is 153 Life Insurance Corporations of Wisconsin. our opinion that the premiums charged by most companies can be substantially reduced. PREMIUMS CHARGED ARE EXCESSIVE. The question before us resolves itself into three parts: First. Are the premiums charged by most companies unneces- sarily large? Second. To what extent, if any, can they safely be reduced? Third. Wow can such a reduction be brought about? There are several very clear indications that the premiums now charged are too large. Perhaps the most certain evidence is the immense surplus which has been accumulated by insurance com- panies through the unreturned over-charges made in premiums on deferred dividend policies. The three big New York com- panies alone hold over $193,000,000 of undistributed surplus, and all the companies doing business in this state now hold an amount in excess of $330,000,000. These gains are derived chiefly from the accumulated and undistributed dividends, which arise in turn from excessive premiums charged the policy holders. Another circumstance pointing very distinctly to high premium collections, is the extravagant initial commissions, and the ex- cessive renewal interests received by the insurance agents, the high and rapidly increasing salaries of officers, and in general the lavish expenditure of funds which seem to be inexhaustible in supply. PREMIUM RATES OF THE THREE BIG NEW YORK COMPANIES UNNE- CESSARILY HIGH. If the premiums collected by the Equitable were not too high, the company would not now have an undistributed surplus of over $62,000,000, nor would it have paid salaries of from $50,- 000 to $100,000 to its officers, and fabulous sums to agents to procure new business. If the premiums collected by the Mutual Life were not calculated to provide more than a reasonable mar- gin for safety, that compatiy would not have an accumulation of $78,000,000 over and above its reserve liabilities, nor could it afford to pay its executive a salary of $150,009, and other off- cers and agents in like munificent manner. Again, without charzing premiums which covered more than its legitimate needs, Report of Joint Legislative Investigating Committee. 159 the New York Life could not roll up an undistributed surplus fund of $53,000,000, beyond the reserve requirements, nor could it pay commissions of 60% and over, with substantial prizes and bonuses, and agents’ club banquets, as inducements for increased business. All the extravagant expenditure of these companies, from campaign contributions and “Andy Field Houses of Mirth,” to the footing of the meat bills of the executive, lead to but one conclusion—too much money has been collected in premium charges. The same conclusion is borne out by the large sur- plus of the Northwestern Mutual, Union Central and other com- panies, attention to which has already been called in this report. PREMIUMS OF SOME COMPANIES ARE LOWER. In addition to the above mentioned evidence of excessive premium collections, we have the convincing proof of substantial companies of long standing, which have been offering the same policies for the last ten to forty years, for premiums which are considerably lower. The net annual premium for a policy of insurance for $1,000 for various ages at issue and plans based on the American Experience Table with 3% interest, is given in the following schedule: TABLE I. SHOWING NET ANNUAL PREMIUMS. Ordinary 20 payment 20 year Age at issue. whole life. ife. endowment, QU “srstereleterdysnainareie’ sia Bo eusiaisesibvalinare ateieAl stares Wa $14.72 $23.48 $40.81 16.11 24.98 41.01 18.28 27.19 41.37 21.08 29.85 41.97 24.75 33.14 43.01 29.66 37.35 44.90 36.36 42.95 48 .24 58.27 61.62 63.29 The following companies now issue an ordinary whole life policy (with participation in the dividends), on a three per cent basis, American Experience Table, and load the same for ex- penses, by adding a percentage of the net premium given in the above table. The schedule also shows the percentage added, the corresponding actual loading and the actual premium charged, for a whole life policy of $1,000 issued at age 35. 160 Life Insurance Corporations of Wisconsin. TABLE IL. SHOWING PERCENTAGE OF LOADING. Per cent. of Actual Actual premiom Company. loadiug. loadinog. age 35, Now York Lie icy oniessssea cove sune 3314 $7 03 $28 11 Equitable, NuiV sci sasaciaces sae 3314 7 03 28 11 JPVAPOlAE es vax ceen, ac 4 HoSeN ene 3344 7 03 28 11 Northwestern Mutual ..............5 32% 6 85 27 93 Praden tall ie si aos scirasien dada cineicaice 3B. 6 75 27 83 Germania Life... 0... ee cee eee 31% 6 59 27 67 National Life, Vt................005- 30 6 33. 27 41 Connecticut Mutual................- 25 5 27 26 35 Mntual Benelit .............. ...... 25 5 27 26 35 If we apply these percentage loadings to the net premiums given in Table I, column 2, we arrive at the following premiums actually charged by the highest and lowest companies on the . preceding list: TABLE III. N. Y. Life, Mat. Benefit, Age at issue. Fquitable, Connecticut Difference. Travelers. Mutual. $19.62 $18.40 $1.22 21.49 20.14 1.35 24.38 22.85 1.53 28.11 26.35 1.76 33.01 30.94 2.07 39.55 37.08 2.47 48.48 45.45 3.03 60:72 £6.93 3.79 77.69 72.83 4.36 VARIATIONS IN LOADING TOO WIDE. This table shows that the New York Life and other companies loading 33.1-3% collect from one to five dollars more than the Mutual Benefit and other companies loading 25% on each $1,000 of ordinary whole life insurance issued on this basis. We wish to emphasize the word “collects” here, for the company making the larger charge may return a dividend sufficiently great to balance the account. However, the question is not only one of the eventual cost, but of unnecessary and needless large premium collections. What is a reasonable premium which is beyond all peradven- ture safe? Trom this point of view the Mutual Benefit is not Report of Joint Legislative Investigating Committee. 161 collecting enough or the New York Life is collecting too much. The Connecticut Mutual and the Mutual Benefit collect pre- miums which are loaded 25%. With this loading they conduct their business with safety, and return a portion of the premiums collected in the form of annual dividends. In addition, it ap- pears from official reports, that the Mutual Benefit has accumu- lated a contingent surplus of $7,576,303 and the Connecticut Mu- tual a contingent surplus of $4,897,647. Furthermore, the Con- necticut Mutual adopted and has been doing business on these premium rates since 1882, almost twenty-five years, EFFECT OF OVER COLLECTION. This difference of collection means much to the policy holders of this country. Since its premiums have been on a 3% interest basis, the New York Life has increased its insurance in force by almost $1,000,000,000. A fair average of the difference between a 25% and a 33 1-3% loading per $1,000 of insurance, would be $2.00. Hence, the New York Life is collecting on these policies every year, at a moderate estimate $2,000,000 more than neces- sary. In a similar manner the Equitable is making an over- collection of at least $1,000,000, and the Mutual Life quite as much. It would probably be a low estimate to say that at least $5,000,000 more than required is collected annually by the in- surance companies of this country. Where the company mak- ing the collections retains the dividends from ten to twenty years, this over collection soon accumulates to an enormous figure. An over-collection of $1,000,000 each year would accu- mulate in twenty years at 4% compound interest to over $30,- 000,000. The actuary of the Mutual Life recently testified that in his judgment the companies would be able to earn this rate. LOADING ON 314% POLICIES. Attention has been called to the loading on 3%’ policies. We now pass to a consideration of the premium charges made by the companies on a 314% basis. Many of these companies are loading their net premiums for ordinary whole life insurance so heavily for expenses, that the actual premium collected is quite as high as that collected by three per cent companies, although 11—I. 162 Life Insurance Corporations of Wisconsin. the 314% net premiums average more than $1.00 lower for each $1,000 of tnsurance. The usual method of loading for expenses in the participating ordinary whole life policy is to add a per- centage of the net premium, plus a fixed charge. For example, the annual premium charged for an ordinary whole life policy by the Mutual Life of New York, is found by adding to the net premium 36% of itself, plus a fixed charge of eighty cents per thousand of insurance. To illustrate, the net premium on a 344% basis, age 35, is $19.91. Add to this 36% of itself, or $7.17, plus the fixed charge of 80 cents. The sum is the loading of $7.97, and $27.88, the premium actually collected. In case of the limited payment life or endowment policy, the loading is made up of three portions: Furst. Twenty per cent of the net premium on the policy in question. Second. Sixteen per cent of the net premium on an ordinary life policy issued at the same age. Third. A fixed charge of eighty cents per thousand of in- surance. With the Union Central the rule is as follows: Furst Fifteen per cent of the net premium on the policy in question. Second. Fifteen per cent of the net premium on an ordinary whole life policy issued at the same age. Third. A fixed charge of one dollar per thousand of in- surance. FURTHER SCHEDULES TO SHOW EXCESSIVE PREMIUM CHARGES. We append tables showing for ages 25, 35, 45 and 55, the an- nual premium charged for participating policies for $1,000, the loadings contained in such premiums, the corresponding net pre- miums, and the percentage of loadings to net premiums, for the New York Life, the Equitable, the Northwestern, the Mutual Benefit, Connecticut Mutual, Mutual Life, Union Central, Provi- dent Life & Trust, and also the non-participating rates charged by several of these companies prior to 1905, and at the present time. The New York Life, the Equitable, Northwestern Mutual, Mutual Benefit and Connecticut Mutual rates, are based upon the Report of Joint Legislative Investigating Committee. 163 American Experience Table with 3% interest, and.the remaining companies on the same table, but with 314% interest assump- tion. The schedules are for ordinary life, twenty payment life, ten payment life, twenty year endowment and ten year endow- ment policies, in the severdl companies mentioned. The first table, which is a summary of the results exhibited in the follow- ig schedules, shows that there is a wide variation in premiums actually collected. The difference between the highest and low- est premium collected, for precisely the same participating policy, on the ordinary life plan averages about $2.00; on the twenty payment life plan about $5.00, on the twenty year endowment plan about $6.00; on the ten payment life plan about $9.00, and on the ten year endowment plan about $8.00. The non-partici- pating rates are considerably below the lowest of the participat- ing rates charged in all cases, the non-participating rates being from two to nine dollars lower than the lowest participating pre- miums, according to the kind of policy. 164 Life Insurance Corporations of Wisconsin. SUMMARY OF PREMIUM RATES. Excess of Participating premium, 3 highest par- Non-par- | ticipating dso. prominme | pear apne ‘ in use prior |particip’ting promicm | premium, | Difference, | "7 feet to. 1905. ORDINARY LIFE POLICY. QD 4 science sarnnonanccg 321.49 19.80 1.69 16.46 5.03 OO 2st Seatac 28.11 26.35 1.76 21.70 6.41 By eee diddy us Renatecaiod 39.55 37.08 2.47 30.90 8.65 DO hetiaeeais mis aaimielacn 60.72 56.93 3.89 48.10 12.62 TWENTY PAYMENT LIFE POLICY. PAD « scgisnalgs evesasateeieysseuervaces 31.83 26.75 5.08 24.56 7.27 OO! Redarethyernidabalereneitreseassy 38.34 33.28 5.06 29.87 8.47 gD) iecatscecsvadenaisratenarravinatend ose 48.52 43.46 5.06 38.23 10.29 OD. duawamats sequins ini 66.69 60.79 5.90 53.08 18.61 TWENTY YEAR ENDOWMENT POLICY. IDE seravsistanevenatanate ssareatenveras 60.52 44.82 5.71 42.66 7.7 BO) sean ata teiate aegines 52.47 46.70 5.77 43.73 8.74 AD: gram sudardeeretarsice iil 57.32 51.45 5.87 46.96 10.36 DD; a dare heageGumueaie’ 70.51 64.65 5.86 56.91 13.69 TEN PAYMENT LIFE POLICY. 2D aaaieenineG AIR NS 51.67 42.34 9.33 49.47 11.20 30) eieniessc isa es She 61.53 52.00 9.53 48.81 12.72 AD. sagaicrbidttsahosaisiniclaveiesaiossiang 75.57 65.82 9.75 69.84 14.73 BO. ised seve secusaaeysceltenevesniers 96.66 86.75 9.91 78.76 17.90 TEN YOAR ENDOWMENT POLICY. QO” sciecienmrpeemiee tens 106.96 99.90 7.06 94.23 12.73 BO! deisscsrstons inten at arezarevapect 108.41 109.90 7.51 94.85 13.56 WD: seisiovacsin sts nieteceis ara at 111.63 103.58 8.05 96.55 15.08 65 wea Pe eeoeeenenes 120.45 111.58 8.87 102.26 18.19 Report of Joint Legislative Investigating Comittee. 165 TABLE SHOWING FOR AGES 2, 35, 45, AND 55, THE ANNUAL PRUMIUMS CHARGED, THE LOADINGS CONTAINED IN SUCH PREMIUMS, THE NET ANNUAL PREMIUM, AND PERCENTAGE Us LOADING TO NET PREMIUM, FOR THE NEW YORK LIFE, EQUITABLE, NORTHWEST- ERN MUTUAL, MUTUAL BENEFIT, CONNECTICUT MUTUAL, MUTUAL LIFE, UNION CENTRAL, PROVIDENT LIFE & TRUST, AND THE NON- PARTICIPATING PREMIUM RATES, IN USE NOW, AND IN USE PRIOR TO 1905. ORDINARY LIFE POLICY, AMOUNT $1,000. American Experience Mortality Table, 3 Per Cent. Interest. Participating premium. N. Y. Life,| North, i Mutual Con. Age. Equitable:| Mutual. |P™dential) Benotit. | Mutual. 25 Premium........ ........- $21.49 $21.35 $21.27 $20.14 $20.1 Geoald in Big sce siess: scree, secs'a ores 5.38 5.24 5.16 4,03 4.03 Net premium... ........ 16.11 16.11 16.11 16.11 16.11 Percent of loading to net, premium..,............- 33.4% 32.44 32. 25. 25. 35 Premium.......... eee eee 28.11 27.93 27.83 26.35 26.35 Loading......... 7.03 6.85 6.75 5.26 5.26 Net premium 21.08 21.08 21.08 21.08 21.08 Percent of loading to net : premium............ ... 33.4% 32.4% 32, 25. 25. 45 Preomtatts, 0.3 ovceseesenses 39.55 89.51 39.16 37.08 37.08 Goad 10 +, 11a ce neenver enue 9.88 9.64 9.49 TAL 7.41 Net Premium......... .... 29.67 29.67 29,67 29.67 29.67 Percent of loading to net PI. MIOM.... .2ce cee eee 33.4% 32.4% 32. 25. 25. So Premiuiivcssecsacess sense 60.72 60.34 60.11 56.93 56.93 Jooad.ng..... oa 15.18 14.80 14.57 11.39 11.39 Net premium............. 45,54 45.54 45.54 45.54 45.54 Percent of 10a premium................ 33.4% 32.1% 32. 25. 25. Excess of highest participating premium over lowest participating premium: Age 25, $1.35; age 35, $1.76; age 45, $2.47; age 55, $3.79. 166 Life Insurance Corporations of Wisconsin. ORDINARY LIFE POLICY, AMOUNT $1,000. American Experience Mortality Table, 314 Per Cent Interest. Participating premium. Non-rparticipating. Mutual ion |Prov. Life; In use Prior to 4ge.- Life. Central. jand Trust. | Dow. 1905. Premivimd osc os esi veasdongs $21.34 $20.63 $19.80 { $17.37 $16.46 LOXOine xa35635 vicgse devin 6.24 5.53 4.70 2.27 1.36 Net Premium ............ 15.10 15.10 15.10 15.10 15.10 Per cent of loading to net premium ............ 41.3 36.6 81.1 15 9 85 PHEMIUM scadejenavinindsune 27.88 26.88 26.50 22.89 21.70 ELON GUE sscessieigietisisisined deap0ieioee 7.97 6.97 6.59 2.98 1.79 Net premium ............. 19.91 19.91 19.91 19.91 19.91 Per cent of loading to net premium ........... 40.0 35.0 33.1 15 9 45 Premium .............0.06- 89.36 87.85 38.00 32.60 30.90 LOading® rssraneweereravvine 11.01 9.50 9.65 4.25 2.55 Net premium ............- 28.35 28.35. 28.35 28.35 28.35 Per cent of loading to net premium ........... 38.8 33.5 34.0 15 9 55 Premium ............0.eeee 60.82 58.37 59.40 £0.75 48.10 Loading cere teen nese eee es 16.69 14.24 15.27 6,62 3.97 Net premium ............. 44.18 44.13 44.13 44.13 44.13 Per cent of loading to net premium ........ abl 37.8 32.3 34.6 15 9 . EXCESS OF HIGHEST PARTICIPATING PREMIUM OVER LOWEST PARTICIPATING PREMIUM. Age 25 Age 35 Age 45 Age 55 $1.54 $1.38 $1.61 $2.45 EXCESS OF HIGHEST PARTICIPATING PREMIUM OVER LOWEST NON-PARTICIPATING PREMIUM. Age 26 Age 35 Age 45 Age 55 $4.88 $6.18 $3.46 $12.72 Report of Joint Legislative Investigating Committee. 16% TWENTY PAYMENT LIFE POLICY, AMOUNT $1,000 American Experience Mortality Table, 3 Per Cent Interest. Participating premium. N. Y. Life} North. Prud n- Mut. Conn, Age. LEquitable.! Mutual. tial. Benefit. Matual. | 25° PLCOMWNIM- sci wsaecers oaie $31.83 $31.33 $30.66 $30.12 $29.98 TOGGUDR siannisseank Gea te ance 6.85 6.35 5.68 5.14 5.00 Net premium ............. 24.98 24.98 24.98 24.98 24.98 Per cent of loading to net premium ........... 27.4 25.4 2257 20.6 20 Bb Prewitt: yiesagouanacaninss 38.34 37.80 36.95 86.22 35.82 Loading ..eececeeeeseeeees 8.49 7.95 7.10 6.37 5.97 Net premium ............ 29.85 29.85 29.85 29.85 29.85 Per cent of loading to net premium ........... 28.4 26.6 23.8 21.3 20 45 Premium «scsvicseccccssees 48.52 47.95 46.78 45.73 44.82 TO Ging: i cicisjeccspisieceeenedisonouer 11.17 10.80 9.43 8.38 7.47 Net premium ............. 87.35 87.35 37.35 87.35 37.35 Per cent of loading ..... 29.9 28.4 25.2 22.4 20 65 Premium ..... aurea aes sree 66.69 66.10 64.32 62.68 60.79 FLORID > 4 hacvensawnacanen tale 16.03 15.44 13.86 12.0% 10.13 Net premium ............ 50.66 50.66 50.66 50.66 50.66 Per cent of loading ..... 31.6 30.5 27.0 23.7 20 EXCESS OF HIGHEST PARTICIPATING PREMIUM OVER LOWEST PARTICIPATING PREMIUM. Age 25 $1.85 Age 35 $2.52 Age 45 $3.70 Age 55 $5.90 168 Life Insurance Corporations of Wisconsin. TWENTY PAYMENT LIFE POLICY, AMOUNT $1.000. Participating premium. Non-participating. A Mutual Union | Prov. Life| In use Prior to Be. Life. Central. | & Trust. now. 1905. 25 Premium ..........ceeeeees | $30.25 $29.17 $26.75 $25.35 $24.56 | Loading ......... apbereiaees i TI 6.64 4.22 2.82 2.03 ' Net premium ............. | 22.53 22.53 22.53 22.53 22.53 Per cent of loading to! net premium ........... : 34.2 29.5 18.7 12.5 9 35 Premium ..... dienRorerane 36.87 35.50 33.28 30.94 29.87 Loading ......... Heavens 9.47 8.10 5.88 3.54 2.47 Net premium ............. 27.40 27.40 27.40 27.40 27.40 Per cent of loading to net premium ........... 34.6 29.6 21.5 12.9 9 45. PLOMIUM) «ives ecerevaesaies 47.42 45.58 43.46 39.82 88.23 Loading ......... svigeriees 12.35 10.51 8.39 4.75 3.16 Net premium ............. 35.07 35.07 85.07 35.07 35.07 Per cent of loading to net premium ........... 35.2 30.0 23.9 13.5 9 $5. PremMiwM. sssasd vss seawes ¢ 66.30 63.62 61.84 55.67 £3.68 Loading sx. gaged sas 17.60 14.92 13.14 6.97 4.38 Net premium ............. 48.70 48.70 48.70 48.70 48.70 Per cent of loading to net premium ........... 36.1 30.6 27.0 14.3 9 EXCESS OF HIGHEST PARTICIPATING OVER LOWEST PARTICIPATING PREMIUM. Age 25 $3.50 Age 35 $3.59 EXCESS OF HIGHEST OVER LOWEST NON-PARTICIPATING PREMIUM. Age 26 $5.69 Age 35 $7.00 Age 45 $3, 96 PARTICIPATING Age 45 $0.19 PREMIUAL Age 65 $4.46 PREMIUM Age 53 $13.22 Report of Joint Legislative Investigating Committee. 169 TWENTY YEAR ENDOWMENT POLICY, AMOUNT $1,000. American Experience Mortality Table, 3 Per Cent Interest. | Participating premium. 1 Age. Equitabie:| Mutual, /PFedential] Boneat | wacual. 25 Premium wise caseasss pirat $50.53 $49.35 $49.15 $48.15 $49.21 Loading ..... Rinitiace setae slogans 9.52 8.35 8.14 7.14 8.20 Net premium ............. 41.01 41.01 41.01 41.01 41.01 Per cent of loading to net premium ........... 23.2 20.3 19.8 17.4 20 35 Premium ..... mene MamaNedy, 52.47 51.43 51.22 49.85 50.36 Oddi ng! 4 2s seaside ccateee. 10.50 9.4€ 9.25 7.88 8.39 Net premium ............. 41.97 41.97 41.97 41,97 41.97 Per cent of loading to net premium ........... 25.0 22.5 22.0 18.8 20 45 Premium so cccveseiec ener 57.32 56.44 53.22 54.22 53.88 TOMAIN Gs e5-850s dissieiesins asise 12.42 11.54 11.32 9.32 8.98 Net premium ............. 44.90 44.90 44.90 44.90 44.90 Per cent of loading to net premium ........... 27.7 25.7 25.2 20.8 20 55 Premium 2 es0% sc eeversessces 70.51 69.78 69.51 66.35 64.71 TOWMGINS wevsssisisicsis cisicitin 16.58 15.85 15.58 12.43 10.78 Net premium ....... eirenbed 53.93 53.93 53.93 53.93 53.93 Per cent of loading to net premium ........... 30.7 29.4 28.9 23.0 20 EXCESS OF HIGHEST PARTICIPATING PREMIUM OVER LOWEST PARTICIPATING PREMIUM. Age 25 Age 35 Age 45 Age 55 $2.38 $2.62 $3.44 $5.80 170 Life Insurance Corporations of Wisconsin. TWENTY YEAR ENDOWMENT POLICY, AMOUNT $1,000. American Experience Mortality Table, 3144 Per Cent Interest. P .riicipating premiam. Non-participating. Age Mutaal Union Prov, Life| In use Prior to ci ife. Central. Trust. now. 1905. 25 Premium ..... paiorwavare tes haa $50.18 $48.28 $44.82 $43.21 $42.66 HOAGIOG csiehascmasieansaee 11.04 9.14 5.68 4.07 3.52 Net premium ............. 39.14 39.14 39.14 39.14 39.14 Per cent of loading to ; net premium ........... 28.2 23.3 14.5 10.4 9 85 Premium ..........eeeeeee 52.13 50.12 48.70 44.62 43.73 LOVING sssvcsisaaecneccesee 22.01 10.00 6.58 4.50 3.61 Net premium ............. 40.12 40.12 40.12 40.12 40.12 Per cent of loading to net premium ........... 29.9 24.9 16.4 11.2 9 45 Premium 57.03 54.79 51.45, 48.44 46.96 Loading 13.95 11.71 8.37 5.36 3.88 Net premiuw ............. 43.08 43.08 | 43.08 43.08 43.08 Per cent of loading to net premium ........... 32.4 27.2 19.4 12.4 9 55: PROMI .i36 g5 ss sieciediasiece 70.51 67.66 64.65 59.43 56.91 LOAGing vs a5 sesxamcvasvaies. 18.30 15.45 12.44 722 4.70 Net premium ............ 52.21 52.21 52.21 52.21 52.21 Per cent of loading to net premium ........... 35.1 29.6 23.8 13.8 9 EXCESS OF HIGHEST PARTICIPATING PREMIUM OVER LOWEST PARTICIPATING PREMIUM. Age 25 $5.36 Age 35 $5.43 Age 45 $5.58 Age 55 $5.86 EXCESS OF HIGHEST PARTICIPATING PREMIUM OVER LOWEST NON-PARTICIPATING PREMIUM. Age 25 $7.52 Age 35 $8.40 Age 45 $10.07 Age 55 $13.60 Report of Joint Legislative Investigating Committee. 171 TEN PAYMENT LIFD POLICY, AMOUNT $1,000. American Experience Mortality Table, 3 Per Cent Interest. | Participating premium. N.Y. Life,} Fo th. Mutral Conn. Age. Equitable.]| Mutual. Prudential) Be efit. | Mutual. 25) Premium 50s. einsdacesee $51.C7 $50.45 $49.71 $49.24 $30.38 TONNE os. weitiies Cosy saad 9.69 8.47 15 7.26 8.40 Net premium ............. 41.98 41.98 41.98 41.98 41.98 Ter cent of loading to net premium ........... 23.1 20.2 18.4 17.3 20 35 Premium ............. eee ee 61.53 60.16 59.21 58.58 59.67 TOMI: erica nian 11.80 10.43 9.48 8.55 9.94 Net premium ............. 49.73 49.73 49.73 49.73 49.73 Per cent of loading to net premium ........... 23% 21.0 19.1 17.8 20 45 PVOMIMM tessceccveneumesdsar 75.57 74.04 92.75 71.81 72.65 THORNS 4. ksicsineiccaecenirenneites 15.03 13.50 12.21 TLR 12.11 Net premium ............. 60.54 60. 54 60.54 60.54 60.54 Per cent of loading to net premium ........... 24.8 22.3 20.1 18.6 20 55 PYeMiwU ny siisceasiciacsivnsececs 96.66 94.99 93.09 91.58 91.61 OXIDE ein sessresaciercmeies 20.32 18.65 16.75 15.24 15.27 Net premium ............. 76.34 76.34 76.34 76.34 76.34 Per cent of loading to net premium ........... 26.6 24.4 21.9 20.0 20 EXCESS OF HIGHEST PARTICIPATING PREMIUM OVER LOWEST PARTICIPATING PREMIUM. Age 25 Age 35 Age 45 Age 55 $2.43 $2.95 $3.76 $5.08 172 Life Insurance Corporations of Wisconsin. TEN PAYMENT LIFE POLICY, AMOUNT $1,000. American Experience Mortality Table, 34% Per Cent Interest. Participating } remium. N.n-participating. Mutual Union Prov. Life] In use Prior to Age. Life. | Central. | &Trust.} now. 1905. 25 Premium ......... earilte eran 347.77 $45.93 $42.34 $41.05 $40.47 LOWS csciciiccasassaaiccs 10.64 8.83 5.21 3.92 3.34 Net premium ............. 37.13 87.13 37.18 37.13 37.13 Per cent of loading to net premium ........... 28.7 23.8 14.0 10.6 9 Bb) Premiini ¢ vsesenowsie csssonea 57.72 55.48 52.00 49.63 48.81 LORI Ss ii4 cs easimadaasaesre 12.94 10.70 7.22 4.85 4.03 Net premiwm .sasecsescnsn 44.78 | 44.78 44.78 44.78 44.78 Per cent of loading to net premium ........... 28.9 23.9 16.1 10.8 9 45 Premium ......... Pe cie ewe 72.82 69.44 65.82 62.13 60.84 HOIUOE: 24 saciaceeuveonene 16.50 13.62 10.00 6.31 5.02 Net premium ............. 55.82 55.82 55.82 55.82 55.82 Per cent of loading to net premium ........... 29.6 24.4 17.9 11.3 9 55 Premium 94.57 90.72 86.75 80.99 78.76 Loading 22.31 18.46 14.49 8.73 6.50 Net premium ............. 72.26 72.26 72.26 72.26 72.26 Per cent of loading to net premium ........... 30.9 25.5 20.1 12.1 9 EXCESS OF HIGHEST PARTICIPATING PREMIUM OVER LOWEST PARTICIPATING PREMIUM. Age 25 Age 35 $5.43 $5.72 Age 45 $6.50 Age 55 $7.82 EXCESS OF WIGHEST PARTICIPATING PREMIUM OVER LOWEST NON- PARTICIPATING PREMIUM, Age 25 Age 35 $7.30 $8.91 Age 45 $11.48 Age 55 $15.81 Report of Joint Legislative Investigating Committee. 178 TEN YEAR ENDOWMENT POLICY, AMOUNT $1,000. American Experience Mortality Table, 3 Per Cent. Interest. Participating premium. Age. Buuitable;| Maruai, [Pradential) Bont | afacual. 25 Premium $106.22 $103.06 $102.61 $101.85 $106.49 Loading 17.48 14.82 13.87 13.11 17.75 Net premium ........... 88.74 88.74 88.74 88.74 88.74 Per cent of loading to net premium .......... 19.7 16.7 15.6 | 14.8 20 85 Premium ...........s0e--e 107.70 104.68 104.23 103.10 107.16 GOAGiINE ciacis oes geacdos 18.40 15.38 14.93 13.80 17.86 Net premium ........... 89.30 89.30 89.30 89.30 89.30 Per cent of loading net premium .......... 20.6 17.2 16.7 15.5 20 45 Premium. ssaiscssveiwidacenasiecs 110.94 108.14 107.69 105.92 109.02 LONGING,» sgiovs penises sree sisiese 20.09 17.29 16.84 15.07 18.17 Net premium ............ 90.85 90.35 90.85 90.85 90.85 Per cent of loading to net premium ........... 22.1 19.0 18.5 16.6 20 5G Premium: ccsacsuvandirsene ve ves 119.64 117.16 116.68 113.74 115.25 Loading ........... : 23.60 21.12 20.64 17.70 19.21 Net premium 96.04 96.04 96.04 96.04 96.04 Per cent of loading tc 5 net premium ........... 24.6 22.0 21.5 18.4 20 EXCESS OF HIGHEST PARTICIPATING PREMIUM OVER LOWEST PAR- TICIPATING PREMIUM. Age 25 Age 35 Age 45 _ Age 55 $4.37 $4.60 $5.02 $5.90 174 Life Insurance Corporations of Wisconsin. TEN YEAR ENDOWMENT POLICY, AMOUNT $1,000. American Experience Mortality Table 3% Per Cent. Interest. | Participating premium. | Non-participating. | Mutual Union |Prov. Life} In use Prior to Age. Life. Central jand Trust. now. 1905. 25 Premium ..... a Pineithe eae wes $106.96 : $102.68 $99.90 $94.07 $94.23 LOWGi ng cvwers wisiencseves 20.51 16.23 13.45 7.62 7.78 Net premium ave-sins aalueatssoes 86.45 86.45 86.45 86.45 86.45 Per cent of loading to net premium ........... 23.7 18.8 15.6 8.8 |, 9 85 Premium ............ ea foie 108.41 ; 104.06 100.90 95 O04 94.85 Loading: sass seassemenaca 21.39 17.04 13.88 8.02 7.83 Net premium ............ 87.02 87.02 87.02 87.02 87.02 Per cent of loading to net premium ........... 24.6 19.6 15.9 9.2 9 45 Premium ....... nieistess ayesiats 111.63 107.12 103.59 97.35 96.55 Loading ........... secceas 23.05 18.54 15.00 8.77 7.97 Net premium ...... meee 88.58 88.58 88.58 88.58 88.58 Per cent of loading to net premium ........... 26.0 20.9 16.9 9.9 9 55 Premium ..... die sieleiceeienis 120.45 115.51 111.58 104.17 102.26 LOAGING: cssevssesserecccsns 26.63 21.69 17.76 10.35 8.44 Net premium ............ 98.82 93.82 93.82 93.82 93.82 Per cent of loading to net premium ........... 28.4 23.1 18.9 11.0 9 EXCESS OF HIGHEST PARTICIPATING PREMIUM OVER LOWEST PAR- TICIPATING PREMIUM. Age 25 Age 35 Age 45 Age 55 $7.06 $7.51 $8.05 $8.87 EXCESS OF HIGHEST PARTICIPATING PREMIUM OVER LOWEST NON- PARTICIPATING PREMIUM. Age 25 Age 35 Age 45 Age 65 $12.89 $13.56 $15.08 $18.19 Report of Joint Legislative Investigating Committee. 175 SUMMARY OF LOADINGS. A summary of the loadings on the various policies included in the preceding schedules is added. In showing the @¥fference between the highest and lowest loading for a given plan of pol- icy at a given age, no account is taken of the different interest assumptions made in computing the corresponding net premium, for the reason that these interest rates have been adopted on the theory that they will be realized. The loadings added for ex- penses and contingencies may therefore be properly compared. The average excess of the highest loading over the lowest load- inz on participating policies is: Ordinary life, $3.45; twenty payment life, $4.86; twenty year endowment, $5.97; ten payment life, $6.37; ten year endowment, $7.99. The average excess of the highest loading on the participating plan, over the lowest loading on the non-participating plan is: Ordinary life, $8.06; twenty payment life, $8.78; twenty year endowment, $9.90; ten payment life, $10.88; ten year endowment, $14.93. A comparison of the highest loadings on the ordinary life pol- icy with the highest on the 20 year endowment policy and 10 year endowment policy issued at the same age, shows a heavy discrimination against the latter. The annual loading at age 35 on the ordinary life policy is $7.97 and on the 10 year endowment policy is $21.39. The average amount of insurance at risk under the latter plan is about one-half the amount of insurance at risk on the ordinary life plan for the same period, that is from age -35 to 45, and on this basis the loading on the 10 year endowment plan would average about $42.78 per $1,000 of insurance at risk, or over five times the loading added at the same age on an ordin- ary life policy. The present value of the loadings at different ages on the same plan also seem to be unfairly levied. For ex- ample, the present value of the New York Life loadings on the ordinary life plan are: INDI’ Sucoeale tira onary 3 sa wise 25 35 45 55 Present value of loading...$118.73 $139.96 $168.20 $203.31 It thus appears that the present value of the amount collected in the premiums for expenses on the ordinary life plan, is almost twice as much at age 55 as at age 25. 176 Life Insurance Corporations of Wisconsin. TABLE STIOWING FOR AGES 25, 85, 45 AND 55, THE HIGHEST AND LOW- EST LOADINGS ON PARTICIPAL£NG POLICIES IN THE PRECEDING SCHEDULES AND THE DIFFERENCE BETWEEN THOSE LOADINGS. ALSO THE EXCESS OF THE HIGHEST LOADING ON PARTICIPATING POLICIES OVER THE LOWEST LOADING ON NON-PARTICIPATING POLICILS. ae ors Excess Participating Policies. of highest par ticipating Age. loading over lowest non- Highest Lowest . pearl loading. loading. Difference. | p Oe” ORDINARY LIFE POLICY. $6.24 $4.03 $2.21 $4.83 7.97 5.26 2.71 6.18 11.01 7.41 3.60 8.46 16.69 11.39 5.30 12.72 TWENTY PAYMENT LIFE POLICY. 7.72 4.22 3.50 5.69 9.47 5.88 3.59 7.00 12.35 TAT 4.88 9.19 17.60 10.13 7.47 13.22 TWENTY YEAR ENDOWMENT POLICY. OES ae aap i iaeleed deanoad tide etire ara’ 11.04 5.68 5.36 7.52 aD, Gib ara ses lanaeatpnedbtaMsnateeusvaGy elas FS] 12.01 6.58 5.43 8.40 By a Syetcemgemeieielaustel cnntialvinieteatang 13.95 8.37 5.58 10.07 DD Agsdawocrasasapamesnivasis€ 18.30 10.78 7.52 13.60 TEN PAYMENT LIFE POLICY. 10.64 5.21 5.43 7.30 12.94 7.22 5.72 8.91 16.50 10.00 6.50 11.48 22.31 14.49 7.82 15.81 TEN YEAR ENDOWMENT POLICY. 20.51 13.11 7.40 12.89 21.39 13.80 7.59 13.56 23.05 15.00 8.05 15.08 26.63 17.70 8.93 18.19 Report of Joint Legislative Investigating Committee. 177 USAGE ONLY DEFENSE OF UNFAIR LOADINGS. It was admitted throughout the examination that the present adjustment of the loadings as between different kinds of policies is unscientific and works great discrimination. Especially is this true as between the ordinary life and the short term endow- ment policies. In the case of the latter it was admitted that these were necessarily much less profitable to the insured at all times during the period than a combination of a term policy and a deposit of the difference in the premiums in a bank. No de- fense has been suggested for this condition other than long es- tablished custom and the practice of companies in paying com- nussions. The money paid by the insured in excess of the cur- rent expense and mortality requirements is, in fact, a deposit made by the insured, and it is net apparent that it is essentially different from a deposit in a bank. No good reason has been disclosed why such deposit should be charged with any expenses other than investment expenses and taxes. : The committee does not believe that it should attempt to pre- scribe any ratio of adjustment of the loadings between different kinds of policies. If the expense and mortality provisions and the amount of the deposit for each year be placed before the policy holder in a table such as heretofore recommended, the real situation will be apparent to the insured and the companies alike and this matter quickly remedied. GUARANTEED DIVIDENDS. A conclusive admission on the part of some companies that the present premium rates can be reduced is found in the policies which they now issue under the name of “Guaranteed Annual Dividend” and “Advanced Dividend” and “Premium Reduction” policies. These policies are written on various plans, as ordin- ary life, twenty payment life, and twenty year endowment, and guarantee stipulated annual dividends, and in addition hold out the hope to the insured of additional dividends at certain dis- tribution periods. The premium rates on these policies never exceed and are frequently lower than the highest participating rates shown in the preceding schedules, and under the latter, no guarantee of dividend reductions is made. 12—I. 178 Life Insurance Corporations of Wisconsim. For example, the Reliance Life, on American Experience 3% basis with the same premium as the New York Life and Equit- able, guarantees annual dividends on the ordinary life policy is- sued at age 35 for $1,000, premium $28.11 of something over $5.00 each year, amounting in twenty years to $102.56. At age 55, premium $60.72. The guaranteed annual dividends are over $11.00, and amount in twenty vears to $229.12. On the twenty payment life plan, aye 35, premium $38.34, the guaranteed an- nual dividends are over $6.00, and amount in twenty years to $124.03. Age 55, premium $66.69, the guaranteed annual divi- dends are over $12.00, amounting in twenty years to $241.84. Under the twenty year endowment plan, age 35, premium $52.47, the guaranteed annual dividends are over $7.00, and amount in twenty years to $153.22. Age 55, premium $70.51, guaranteed annual dividends over $12.00, amounting in twenty years to $250.27. These dividends are provided for in the premiums col- lected, and if they were not guaranteed, the premiums could be reduced. LOADINGS AND DIVIDENDS. It may be urged that while the premiums of some companies exceed those of others, owing to the heavier loadings, the larger dividends returned make the eventual cost less in the higher pre- mium company. This is not true in practice, and in any event, the insured has no guarantee that such will be the case. The following exhibit of annual dividends declared in 1905 shows that just about the reverse has been true. The tables are for policies issued at age 35, amount $1,000, and with premiums based on the American Experience Mortality table. The -first three show the annual dividend on 3% policies issued in 1900, the second three the annual dividend on 4% policies in 1895. It will be observed that where the loading is high it usually follows that the net cost, which is the difference between the premium collected and the dividend returned, is also high. We conclude that the collection of high premiums with heavy expense load- ings, with no guaranteed dividend returns to the insured, pro- vides the means for and stimulates excessive expenditures for insurance management, Report of Joint Legislative Investigating Committee. 179 “ANNUAL DIVIDEND IN 1905 ON POLICIES ISSUED IN 1900. At Age 35, Amount $1,000, American Experience 3 Per Cent.* Company. | Premium, | Loading. | Dividend. | Net cost. ORDINARY LIFE POLICY, NET PREMIUM, $21.08. Equitable ..............0005 $28.11 $7.03 $2.77 $25.34 New York Life............. 28.11 7.03 3.28 24.83 Northwestern Mutual.... 27.93 6.85 6.55 21.38 Mutual Benefit ........... 26.35 5.26 3.56 22.79 Connecticut Mutual ...... 26.35 5.26 4.35 22.00 TWENTY PAYMENT LIFE POLICY, NET PREMIUM $29.85. New York Life............ $38.34 $8.49 $3.28 $35.06 Equitable ..........-.....4. 38.34 8.49 3.55 34.99 Northwestern Mutual .... 37.80 75 7.02 80.78 Mutual Benefit ........... 36.22 6.37 4.29 31.93 Connecticut Mutual ..... 35.82 5.97 4.59 31.23 TWENTY YEAR ENDOWMENT POLICY, NET PREMIUM $41.97. Equitable ..... 52.47 10.50 4.15 48.32 New York Life ......... 52.47 10.50 6.12 46.35 Northestern Mutual .... 51.43 9.46 7.67 43.76 Conn. Mutual ........... 50.36 8.39 8.13 42.23 Mutual Benefit .......... 49.85 7.88 5.27 44.58 *The Union Central has no policies issued on the American Experience 3 per cent basis. 180 Life Insurance Corporations of Wisconsin. ANNUAL DIVIDENDS IN 1905 ON POLICIES ISSUED IN’ 189. At Age 35, Amount $1,000, American Experience 4 Per Cent. Company. | P-emium. Loading. Dividend. Net cost, ORDINARY LIFE POLICY, NET PREMIUM $18.44. Mutual Life .............- $27.10 $8.26 $3.55 $23.55 New York Life........... 27.10 8.26 4.98 22.12 Equilable ........ Fit isveteioieieny 26.38 7.54 3.61 22.77 Union Central ........ aa 26.38 7.54 | 6.67 19.71 Mutual Benefit ........... 26.00 7.16 5.25 20.75 TWENTY PAYMENT LIFE POLICY, NET PREMIUM $25.26. Miuliwal ites sscssecssasis $35.00 $9.74 $4.25 $30.75 New York Life............ 35.00 9.74 4.98 30.02 EE Quitadle scicscecageseccns 34.08 8.82 4.20 29.88 Union Central ............ 34.08 8.82 7.57 26.51 Mutual Benefit ............ 33.97 8.71 6.39 27.58 TWENTY YEAR ENDOWMENT POLICY, NET PREMIUM $38.35. Mutual Life .............. $30.90 $12.55 $5.57 $45.33 New York Life............ 50.90 12.55 9.35 41.55 Equitable: cucscesessecenns 49.79 11.44 5.40 44.39 Onion Central ............ 49.79 11.44 10.02 39.77 Mutual Benefit ........... 49.87 11.52 8.44 41.43 #The Northwestern Mutual has no policies issued on the American Experience 4 per cent. basis. Report of Joint Legislative Investigating Cominittee. 101 INTEREST AND MORTALITY ASSUMPTION. The propriety of a limitation on the rate of interest which a company might assume to make on its investments, has been recognized for many years, and the rate has been changed from time to time to conform to the steady decline in interest earning power of first class securities. No company would question the wisdom of requiring a valuation of the reserve liabilities, and the computation of premiums within the limit set by some recognized standard table, making ample provision for the mortality experi- ence to be expected in a normal company. We believe that it is quite as feasible to anticipate and provide for the future expenses of management, to compute the pre- miums on such expense assumption, and hold reserves which will provide both for future mortality and expenses. All companies now assume a future rate of interest and a future rate of mor- tality. Their officers can have no control over either of these factors. Their control over the expenditures, however, is ab- solute. Why then can they not anticipate and provide for the latter, by assuming a safe and reasonable expense rate? Recent investigations have shown that the present abuses in insurance are largely due to the fact that this third factor, that of expense, has not been the subject of strict accounting and limitation. Had there been a limitation of the expense provision contained in the premium charges and a strict accounting, many extrava- gances which have been the subject of bitter criticism and led to public distrust in the management of some of our insurance companies, would have been avoided. With the results of this and other investigations before us, we feel that it is imperative to recommend, in addition to the interest and mortality limitations, a further limitation on expenses of management. INTEREST LIMITATION. The net rate of interest assumed in computing premiums and reserves should be not less than 214% nor more than 4%. 182 Life Insurance Corporations of Wisconsin. MORTALITY LIMITATION. The mortality provision should be the cost of insurance calcu- lated according to a mortality table adopted by the company, which table, if other than the American Experience, Actuaries or American Experience Select and Ultimate, should not exhibit at any age and for the same duration, a lower death rate than that shown at the corresponding age and duration by the British Offices Select OM Mortality Table. The cost of insurance should be based upon the amount at risk, which latter should be defined as the excess of the face of the policy over the reserve. RESERVE LIABILITY. The reserve should be sufficient, with the premiums coming due, to provide for the current cost of insurance for each year, and the current expense provision for each year, and to mature the contract according to its terms, said reserve to be calculated on the same mortality and interest and expense assumptions as the premium. LIMITATION OF EXPENSE PROVISION. The expense provision should be fixed by the company subject to the limitation that the present value of the expense provision, at any age of issue, for any plans or kinds of insurance, com- puted according to the table of mortality adopted and rate of in- terest assumed, should not exceed one-fourth of the net single premium upon an ordinary life policy at the same age computed according to the American Experience Table of mortality with interest at 3%. MAXIMUM EXPENSE PROVISION. The following table exhibits the present value of the total ex- pense charges provided for each $1,000 of insurance under the recommendations of this committee. The total provision for ex- pense at a given age will be the same on all plans of insurance. Report of Joint Legislative Investigating Committee. 183 Seo Tota] ex; ense ee provislon. Total ex »ense Lee. ‘ i provision. $77.34 78.35 79.40 80.47 81.59 82.74 $117.00 119.20 121.46 83.92 85.14 86.41 87.71 89.05 90.43 91.86 93.33 94.85, 96.41 98.02 99.63 101.40 103.16 104.97 106.84 103.76 110.74 112.77 114.86 The companies should be permitted to distribute the expense provision at their pleasure through the whole or any part of the policy, subject only to the limitations that the expense provision for any year shall not exceed: (a) In the first year, the difference between the premium and the mortality charge; (b) In any of the four succeeding years, the mortality charge for such year, or one-half the difference between the premium and the mortality charge for such year, whichever is the greater. (c) In any year after the fifth year, the expense provision of any previous year of the policy. The necessary change in the valuation law to permit companies to make use of this freedom in the distribution of its expense provisions is herein recommended. The need of such a change in the valuation law and in the manner of distributing the ex- pense provision was recognized by the New York insurance law recently enacted, requiring, in effect, the adoption of a net pre- mium for the first year which is less than the following net pre- miums by the estimated savings on the mortality for the first five 18+ Life Insurance Corporations of Wisconsin. years according to the American Experience Select and Ultimate Table of Mortality. This is merely a method of making a larger first year’s pro- vision for expenses out of a level premium incidentally conform- ing the mortality provisions more closely to the facts than the tables now in use. VALUATION. For the purpose of determining the solvency of the company, it should be charged as its liability on its policies, with reserves computed as now provided by section 1958 of the statutes of 1898, as amended by chapter 519 of the laws of 1905, except that policies written in the state after 1907 shall be valued separately according to the tables of expense and mortality adopted, and rate of interest assumed, within the limitations above specified. THE PLAN ELASTIC AND ADAPTABLE TO VARYING CONDITIONS. The foregoing plan has the virtue of being in accord with two fundamental principles, freedom and publicity. With respect to methods of valuation, the New York law provides for the select and ultimate and prohibits preliminary term. The Massachu- setts committee prohibits select and ultimate and preliminary term, and advocates the full legal reserve system. The Chicago committee of fifteen commends the modified preliminary term but rejects the select and ultimate. Each plan is opposed by some insurance companies. Other states may adopt still other combinations of various systems. «\ process of this kind in fifty different states would render hopeless any attempt to secure uni- formity. It has been shown in this branch of the report by tables and illustrations that the plan proposed will permit the use of the present full legal reserve system, the select and ultimate method, the full and modified preliminary term plans, or any other plan which may be devised in the future and possibly be a great im- provement on all which have preceded it. The limitations provided with respect to the tables of expense and mortality and rate of interest while permitting all these plans, still provide ample safe-guards, and with the publicity in- Report of Joint Legislative Investigating Committee. 185 sured by the table proposed to be required in the policy and ap- plication, will, we believe, do much to remedy the present evils in life insurance, and place it upon a basis of honesty and fair dealing with competition for real economy. We, therefore, recommend its enactment into law. HIGH COMMISSIONS HAVE INCREASED EXPENSES. It is not the intention of the committee to enter into a discus- sion of the past and present expenditures of insurance companies and exhibit a labyrinth of puzzling percentages, to show that the expenses incident to insurance management have greatly in- creased in recent years. Mr. Gage Tarbell, second vice-president of the Equitable of New York, testified before the Armstrong committee that: “In the 70’s the companies paid a very much lower commis- sion than they do now. The general commission, I think, paid by the principal conipanies during that time ranged during the different years in the 70’s perhaps, of the first year’s premiums from 20 to 25% up to about 35% of the premiums, and they began to grow during the later 70’s quite perceptibly”........ “Commissions were more or less increased until say, about 1880, the first year’s commissions paid by most companies I think was about 60%........ Renewals running from 714%, I think with most companies, to 10% with some companies, and bonuses varying from $2 to $5 per thousand, generally to from 5 to 10% of the first year’s premiums, and these condi- tions went on, I think, all through the 80’s.” We stand squarely upon the proposition that a company which cannot transact business in this state on these allowances, should be permitted to retire from the state. In passing upon the limi- tations proposed, the state cannot take into consideration the past experience of insurance companies in the ambitious race for “bigness.” Any company which cannot conduct its business upon the expenses herein provided is one which the state cannot afford to encourage or foster. Such a company cannot reason- ably appeal to the state to protect it in its extravagance, and the state should never hesitate to exercise its sovereign power in the protection of its citizens. 186 Life Insurance Corporations of Wisconsin. REDUCTION IN PRESENT VALUE OF EXPENSE PROVISIONS. The following table shows the maximum present values of all expense provisions allowed on a $1,000 policy for various plans and ages under the proposed limitation, and the excess over such maximum present values of the loadings for expenses now used by the several companies therein indicated. The present values of these loadings are calculated on the American Experience, Se- lect and Ultimate, table of mortality, with 3% interest for the New York Life, Northwestern Mutual, and Mutual Benefit, and 314% interest for the Mutual Life, Union Central, and Provident Life and Trust. On this basis the table shows that the present value of the loadings on the New York Life ordinary life 3% policy issued at age 35 is in excess of the allowance herein ‘recommended by $36.55 Similarly, the excess loading on the Mutual Life 10 year endowment 344% policy issued at age 55 is $60.27, while the Provident Life and Trust is $10.60 within the allowance provided on the same policy. The minus signs indicate that most of the companies are al- ready within the allowance recommended on the 10 payment life plan. If these companies should maintain their present loadings, and in addition, use a sum estimated to be equal to the first five years’ mortality savings for expenses, as provided under the select and ultimate method and permitted under the New York law, the ex- cess shown in the table over the maximum allowance proposed would be increased to the extent of the savings from mortality so used for expenses. For example, at age 35, ordinary life plan, 3%, the estimated saving is $10.75, which, added to $36.55, gives an excess of $47.30 over the allowance proposed for a simi- lar policy written in this state. Report of Joint Legislative Investigating Committee. 187 TABLE SHOWING THE PRESENT VALUES OF REDUCTION IN THE EXPENSE PROVISION REQUIRED UNDER PROPOSED LIMITATION. 20 payment Ordinary life. life. Age. 20 year 10 pax ment ife. endowment. 10 \ear endowm: nt. MAXIMUM PRESENT VALUES OF ALL EXPENSE PROVISIONS ALLOWED. RD. ciidcerdhenvenie min awraie/siare | $89.05 $89.05 $39.05 $89.05 DA) aisihascnstarsepetaisteieeree a 104.97 104.97 104.97 104 97 OO: cecdesnaraistrs Sees 126.15 126.15 126.15 126.15 DD sw ancemecaneaairnnt 152.48 152.48 152.48 152.48 $89.05 104 97 126.15 152.48 EXCESS OVER ABOVE OF THE PRESENT VALUES (COMPUTED ON THE AMERICAN EXPERIENCE, SELECT AND ULTIMATE, MORTALITY TABLE) OF EXPENSE PROVISIONS CONTAINED IN PREMIUMS NOW CHARUED BY THE NEW YORIS LIFE, 3 PER CENT. D> eCwcteces merteeuneateesteseredens $31.03 $9.51 35 36.55 15.66 45 44.17 26.71 55 55.44 44.80 NORTHWESTERN MUTU D8 aucaciwwnn aaa neater $27.90 $2.31 35 32.93 7.99 45 40.03 18.91 55 50.24 87.54 MUTUAL BENEFIT, OD) el tenia mn mnann $9.90 —$15.10 BDI iikosol awecemegiaaes 0.92 —14.46 Dictation wtabaadocaced 1.59 —11.47 DD) ies se sanmaweeamantre 3.53 —4.55 MUTUAL LIFE, 3% $39.73 $17.72 “44296 24.42 53.35 36.52 66.46 56.63 $25.08 32.78 ~ 26.15 5.70 28.73 12.29 34.32 24.78 UNION CENTRAL, 3% PER CENT. PROVIDENT LIFE & TRUST, 3% PER CENT. 25 $7.95 —$30.69 35 13.00 —24.62 45, 31.17 —15.5 55 47.83 3.64 $47.92 —$3.18 44,22 4.43 43 82 0.55 51.57 13.07 AL, 3 PER CENT. $31.09 —$16,61 29.45 —16.11 31.77 —12.34 42.59 —0.54 3 PER CENT. $13.63 —$26.96 7.00 —32.12 1.39 —31.14 0.50 —28.32 PER CENT. $33.33 $9.12 59.12 3.07 57.69 10.19 64.94 25.75 $37.36 $15.05 31.63 —15.62 28.09 —13.61 31.08 —5.09 —-$10.50 —$45.38 15,07 —44.63 15.90 43.52 —4.68 —36.72 $60.44 51.89 43.21 39.79 $37.69 26.07 19.60 19.58 $23.07 12.61 —8.28 $82.84 73.64 6.31 69.27 $16.97 37.31 27.05 20.80 $23.67 10.93 —2.20 —10.60 188 Life Insurance Corporations of Wisconsin. PREMIUM LIMITATION. The committee recommends, in accordance with the plan here- tofore proposed, that after 1907 no company shall be permitted to issue in this state any policy of life insurance, wherein the stipulated premiums, calculated on the tables of expenses and mortality adopted and the rate of interest assumed, provide for more than an annuity of the expense charges set forth in the table therein contained, and the mortality charges, and to ma- ture the policy according to its terms. Under this provision and the preceding expense limitation, the maximum uniform annual premiums for policies of $1,000 for various plans and ages are given in the following table. They are calculated on the tables of mortality and with the rates of in- terest therein indicated. The question of limiting the premiums to these figures is not at all one of theory. Its feasibility has been amply demonstrated for a period of from ten to forty years, by the practice of some of the safest and oldest companies in the country. The bulk of the business is written on the ordinary life, twenty payment life, and twenty year endowment plans, and the premiums now charged on these plans by a number of companies of unques- tioned strength, are equal to or less than the maximum premiums proposed. These companies have paid good dividends on smaller premiums, and have, in addition, accumulated and main- tained an adequate contingency reserve. Report of Joint Legislative Investigating Comuutice. 189 MAXIMUM ANNUAL PREMIUMS ALLOWED UNDER PROPOSED UIMI- TATIONS. Ordinary | 20 pavment 20 year 10 partment 10 year Age. life. life. endowment. | life. endowment, AMERICAN EXPERIENCE, 3 PER CENT. 25 $20.14 $31.23 $47.25 $52.48 $99.24 35 26.35 87.31 49.43 62.16 101.73 45 87.08 46.69 54.23 75.67 105.99 55 56.93 63.32 66.59 95.43 115.13 AMERICAN EXPERIENCE, SELECT & ULTIMATE, 3 PER CENT. 25 19.67 80.51 46.56 51.33 98.22 35 25.76 36.50 AR. 64 09.87 100.56 45 86.20 45.60 53.16 74.03 104.46 55 53.02 61.23 64.52 92.50 112.33 OFLFICES, SELECT O[M], 3 PER CENT. 25 19.49 30.09 45.93 50.78 97.57 35 26.05 36.65 48.49 61.04 100.17 45 36.78 46.20 53.66 74.60 101.56 55 54.89 61.35 64.78 92.54 112.58 AMERICAN EXPERIENCE, 3% PER CENT. RD” svasieisististsietisieers singed 19.46 29.02 45.64 47.S4 97.16 S5. gasemsiexs vais sraenated 25.55 35.16 47.88 57.46 99.70 AD, ieee ea ats SE eS 36.19 44.76 52.78 71.25 104.02 DD, ceiailvaseyassteierecosiasslapeleisieea 56.01 61.82 65.33 91.72 113.23 AMERICAN EXPERIENCE, SELECT AND ULTIMATE, 3% PER CENT. DD» seaalale ie eteiard Wosincesaraiejslaia 18.95 28.28 44.93 46.67 96.13 BD welesiniia wins iia einai 24.92 34.31 47.06 56.14 98.51 QB scvisiey oe we oxesnietn ts 35.26 43.64 51.63 69.57 102.47 OD “a ais;o aja cde nyohist neta 54.04 59.66 63.18 88.73 110.44 BRITISH OFFICES, SELECT O[M], 3% PER CENT. QD: axils ata chieaumetigsaranprasreunigns 18.74 27.84 44.27 46.09 95.46 DD cate MRCS REA cts ahateyors 25.20 34.47 46.90 56.34 98.12 45 wastes “iimineness 35.86 44.26 52.17 70.20 102.59 DD “ovate araids ale iascintaretaieisicts 53.93 59.79 63.46 88.79 110.64 ACTUARIES, 4 PHR CENT. DOL ~ssiciena ui teenies acerese oierens 19.46 27.75 44.14 44.85 95.07 95° acc he sitasres Reareartes 25.99 34.43 46.91 56.03 98.00 AD) sscoavcuaceeameais aise eo 37.34 45.01 52.92 69.71 103.07 OO! wadthwawiiwnmeane caer 57.76 63.16 66.76 91.25 113.56 190 Life Insurance Corporations of Wisconsin. REDUCTION IN ANNUAL PREMIUMS ON THE AMERICAN EXPERI- ENCE TABLE OF MORTALITY. The following table shows the reduction in annual premiums required on a $1,000 policy under the proposed limitation. The table contains a statement of the maximum annual premiums al- lowed on the American Experience Table of Mortality with 3% interest, at ages 25, 35, 45 and 55, and for various plans of in- surance. It also indicates the excess above or amount below such maximum premiums now charged by the New York Life, Northwestern Mutual, and Mutual Benefit on the 3% basis. The second half of the table also shows the maximum annual pre- miums allowed on the American Experience Table of Mortality with 314% interest for the same plans and ages, and the excess above or amounts below such maximum annual premiums, now charged by the Mutual Life, Union Central, and Provident Life and Trust on the 314% basis. It will be observed for example, that in the case of the New York Life on the ordinary life plan at age 25, there is a reduc- tion of $1.35 per $1,000 policy, while on the same policy at age 55, there is a reduction of $3.79. It also shows the present an- nual premium of the New York Life on the 10 payment life pol- icy at age 25 is 81 cents below the maximum allowed under the proposed limitation. The table further shows a reduction on the ordinary life plan in the Northwestern Mutual at age 25 of $1.21 and at age 55 of $3.41 while it shows the annual premium in the Northwestern on the 10 payment life is $2.03 less than the maximum allowed at age 25, and +4 cents less than the maximum allowed at age 55. An examination will indicate a similar reduction on different forms of policies referred to in the table. Whenever the minus sizn is used, it indicates that the com- panies are at present writing that form of policy at a premium less than the maximum allowed under the proposed plan by the amount following the minus sign, Report of Joint Legislative Investigating Committee. A TABLE SHOWING THE REDUCTION QUIRED UNDER THE PROPOSED LIMITATION. 191 IN ANNUAL PREMIUMS RE- Age. ife. Ordinary 20 Year 20 payment endowment. life. 10 payment life. 10 Year endowment. MAXIMUM ANNUAL PREMIUMS ALLOWED ON AM. EXP. 3 PER CENT. 20. | Ghanaian werwccuebene $20.14 30” wed ahlaaeR Aims 26.35 Ws | ease Gia Gadonsvaisecideesnnee 37.08 5D. to pay premiums within the deferred term. The latter provision has resulted in so much hardship in the way of heavy forfeitures on policies of duration sufficient to have acquired a large reserve as to bring about the prohibition of such contracts by statutory enactment in most states. The semi-tontine and full tontine policies are both in the nature of a wazer. In effect, the semi-tontine policy holder wagers his dividends that he will sur- vive a fixed term of years, and meanwhile, continue to pay his premiums. The tontine policy holder, in addition to this dividend wager, wagers the value of his policy that he will continue to pay the premiums throughout the deferred period. Report of Joint Legislative Investigating Committee. 199 ANNUAL DIVIDENDS. It was developed during the investigation that the annual divi- dends declared by the Northwestern Mutual and Union Central, are apportioned in accordance with the “contribution to surplus” plan. This method aims to return to each policy holder at the end of the policy year, the exact amount of overcharge contrib- uted to the general surplus. The contribution formula assumes three sources of gain, namely, gain from excess interest, gain from mortality and gain from loading. At any time in the his- tory of the policy its reserve may be invested and earn a higher rate of interest than the assumed rate required to maintain it. The mortality experience may be lower than expected by the as- sumed table. The loading added to cover expenses of manage- ment and contingencies may be more than actually required for this purpose. For example, in 1905, the net interest earning of the North- western Mutual was 4.38%, while 3% was required to maintain the reserve on policies issued since 1899. It thus appears that every one thousand dollars of reserve on these policies, earned $13.80 more than required, while the excess interest earning on the 4% policies was $3.80 per one thousand dollars of reserve. In the case of the Union Central, the net rate of interest earned for 1905 was 5.535%, making an excess interest earning of $15.35 per one thousand of reserve on 4% policies. The following table exhibits these facts more clearly: EXCESS INTEREST EARNING PER ONE THOUSAND DOLLARS OF RE- SERVES IN 1905. | Gross Net Excess on E cess on Excess on Company. rate of rate.of 4 percent | 3% percent] 3 per cent interest. interest. reserves. reserves. reserves. North. Mut......... 4,730 4.380 $380 date onew savas $13 81 Union Cent......... | 6.090 5.535 15 35 | G20¢B5 lesen nereteeeae The older policies of both companies, comprising the bulk of the insurance in force, are on a 4% basis, and*on account of their age have necessarily accumulated large reserves. The im- portance to the policy holder of the difference of 1.155% in the net rate of interest earned on invested assets as affecting divi- dends based on actual conditions is strikingly shown here in the 200 Life Insurance Corporations of Wisconsin. interest gains of the two companies under 4% policies. One com- pany gains $3.80, the other company gains $15.35. It appears that each 1/10 of 1% gain in the net rate of interest earned over the assumed rate means a saving of one dollar for each one thou- sand dollars of reserve. This clearly demonstrates the import- ance attaching to wise management in the investment of the re- serve funds, to the end that the largest possible rate of interest consistent with sound investments be earned. It has already been noted in this report that there is a consid- erable gain from mortality on the basis of the mortality tables adopted by companies doing business in this state. The actual mortality experienced by the Northwestern in 1905 was only 67% of the expected mortality, and the actual mortality of the Union Central was only 55% of the expected mortality. The expected mortality in both cases was shown by the American Experience Table. This means that for every one thousand dollars in death claims the Northwestern Mutual was prepared to pay, it was called upon to pay only $670, leaving a saving of $330. Similarly for the Union Central, for every one thousand dollars of death claims expected and provided for in 1905, there were only $550 actually paid, leaving a saving of $450 from that source. In the case of the third element, the gain from loading, the Northwestern Mutual incurred an expense of about 8014% of the loading pro- vided therefor, while the Union Central expended more than the loading provided for such expense. It thus appears that in the case of the Northwestern Mutual, if dividends were returned in exact accordance with the conditions realized in 19035, there would be returned a dividend to each policy holder on the basis of an interest earning of 4.88%, a mortality gain of 33%, and a gain on loading of about 20%. This would mean an excess interest earning on 3% policies of 1.38% and on 4% policies of .38%. It was developed in the course of the inves- tigation, however that, although dividends are returned in accord- ance with the contribution plan, the factors employed in comput- ing these dividends are not positively in accord with actual con- ditions. For example, in 1905 the interest factor used by the Northwestern Mutual was 4.14%. The mortality gain assumed was 21.72% and in computing the gain from loading, it was as- sumed that 12.14% of the total premium was used for expenses, the balance of the loading, if any, being the gain from loading. Report of Joint Legislative Investigating Committee. 201 In the case of the Union Central, the net interest actually earned was 5.535%. The mortality gain was 45% and there was an actual loss on loading. The factors employed, however, were 5% on interest and 36% on mortality. In computing the gain from loading it was assumed that a percentage of the total premium, together with a fixed charge of $2.00 per $1,000 of in- surance, was used for expenses, the balance of the loading, if any, being the gain from loading. The above mentioned percentage varies from 10% to 18%, according to the plan of insurance and duration of the policy. The fact that the dividend factors were not in agreement with actual conditions was discussed at consid- erable length before the committee and it appeared that the chief reason for varying the factors was to grade the dividends in such a way that there might be a slight increase in the dividend returns to the policy holder year by year. While the actual conditions might call for a decrease in dividends in a given company, the dividends declared might, and usually were increasing. The effect of this, the officers testified, was to keep the policy holder satished. It was also brought out in the testimony before the committee that the effect was to conceal from the policy holders the true condition of affairs. The interest factor used by the Northwestern in 1905 was 4.144% while the net interest.earned by the company, as reported, was only 4.38%. From which it appears the company declared unearned interest gains of $1.20 per one thousand dollars of re- serves. On the other hand, they allowed a mortality gain of 21.14% on death claims, when the actual gain on death claims was 33% of the amount expected. It seems that there was a shifting of the source of dividend earnings, the policy holder re- ceiving more gain from interest than his reserve had earned and less gain from mortality than the experience would call for. The effect of this would be a discrimination in favor of policy holders with large reserves, for the larger the reserve, the smaller the amount at risk. Accordingly the large reserve holder would gain $1.20 per one thousand dollars of reserve and would not lose so much on account of the change in the mortalty factor, owing to the fact that his amount at risk was small. In the testimony be- fore the committee it was not clear that any rule was followed in the determination of these factors, other than that the factors were decided upon by the executive committee. It appeared that 202 Life Insurance Corporations of Wisconsin. this matter was not necessarily under the control of the actuary. The mainspring of action, however, seemed to be a desire on the part of the company management, to produce a schedule of divi- dends which would be, at least, slightly increasing in order, as they said, to keep the policy holder satisfied. In order that the manner of apportioning dividends adopted by the Northwestern Mutual Life Insurance Company may be thor- oughly understood, we have inserted a dividend statement on a form prepared by the committee and filled in by this company. DIVIDENDS FoR 1902. Name: L.S. Davis. Year of issue: 1884. No. of policy: 124814. Age at issue: 35. Kind of policy: Ordinary life. Mortality table: Actuaries’ (semi-tontine) Distribution period: 20 years. Interest basis: 4%. Amount: $5,000. Annual premium: $132.45. REGULAR SURPLUS. Gain from interest............... $10.75 Gain from mortality.............. 14.15 Gain from loading............... 19.45 Total regular surplus............ $44.35 ADDITIONAL SURPLUS. Interest on tontine fund........... $37.32 Gain from death................. 16.14 Gain from lapse.............00005 0.00 Total additional surplus....... $ 53.46 Tontine fund of preceding year...... 1,244.16 Tontine fund of 1902...........00. $1,341.97 Interest factor used in computing regular surplus....... 4.8% Mortality factor used in computing regular surplus...... 21.14% Loading factor used in computing regular surplus...... 11% Rate of improvement of tontine fund Ea stee dered date 3% Report of Joint Legislative Investigating Commuttee. 203 It will be noted that the dividend statement divides the surplus into two portions called (a) regular surplus, (b) additional sur- plus. The regular surplus is computed on the assumption that the policy is an annual dividend policy and is the surplus credited to this policy on that hypothesis. We shall first explain the method by which the regular surplus is computed and consider the additional surplus later under the description of tontine divi- dends. The statement of regular surplus shows that there are three sources of gain: Interest, $10.75; mortality, $14.15; loading, $19.45, making a total annual dividend of $44.35. This is the dividend which would be declared on a similar policy if it were on the annual dividend basis. The figures are arrived at as fol- lows: The policy was issued in 1884 at age 35, and based upon the actuaries’ mortality table, with an interest basis of 4%. The annual premium was $132.45 or $26.49 per $1,000. The policy in 1902 was in its eighteenth year and the dividend declared in 1902 would be the dividend for that year. At the beginning of this year and immediately after the payment of the annual premium the status of the policy would be as follows: 1. Initial reserve per $1,000 of insurance.......... $268.37 2. Expected cost of insurance per $1,000 of insurance 13.17 3. The annual premium per $1,000 of insurance.... 26.49 ‘+. The net annual premium per $1,000 of insurance... 19.87 5. Annual loading = 1/3 of annual premium....... 6.62 6. Expense charge for the policy oa per $1,000 of TTISUTATIC Co cicts cose sueieperecatenesaraiece'e tm Soenelacniansiag dis 2.91 Y. Saving from loading = (5) less (6) ee 3.71 8. Interest rate assumed in computing the dividend... 4.8% 9. Mortality assumed in computing the dividend.... %78544% Since the rate of interest credited is 4.8% and the premium is based on an interest assumption of 4% the interest gain on the re- serve is 8%. The total interest gain then, on the initial reserve of $268.37 is equal to 008 x 268.37 = $2.15 per $1,000 of insurance. The mortality assumed in computing the dividend being 7814% of the mortality provided for, there is a gain of 2114% on the expected cost of insurance, that is, 215 x $13.17 = $2.83 per $1,000 of insurance. * 204 Life Insurance Corporations of Wisconsin. Finally, the loading per $1,000 of insurance for expenses was $6.62, being one-third of the net premium. In computing gains from loading the company has charged an actual expenditure for insurance management of 11% of premium received. 11% of $26.49 is $2.91. Deducting this from the loading we arrive at a saving from loading of $3.71 per $1,000 of insurance on this particular policy. This saving from loading is improved at inter- est at the rate assumed by the company in computing the divi- dend, namely, 4.8% and therefore amounts at the end of the policy year to $3.89. This gives for the $5,000 policy the fol- lowing: Gain from interest = $2.15 x5 — $10.75 Gain from mortality = 2.83x5—= 14.15 Gain from loading = 38.89x5= 19.45 Total regular surplus........ $44.35. The annual dividend credited to this policy, then, is $44.35. We wish to emphasize particularly that the rate of interest in com- puting this annual dividend is 4.8%. The reserve fund and the saving from loading were improved at the rate of 4.8% during the year. We shall find later in this report that the tontine ac- cumulations credited contingently on this policy were improved at a much lower rate, namely, at the rate of 3%. The following table submitted by the company shows the inter- est, mortality, and expense factors employed in computing an- nual dividends from 1872 to 1905: Report of Joint Legislative Investigating Commiltee. 205 ANNUAL DIVIDEND FACTORS. Year of Taterest. Mortality. | Expense. Ts 80. 12.5 Also $1.50 per $1,000. 7.927 80. 12.5 Also $1.50 per 31,000, 7.927 80. 10. Also $1.50 per $1,000, 7.927 85. 9. Also {0.75 per $1,000. 7.927 80. 8. 7.927 90. Ts SP 7.927 90. 6. Paip up Pouiciges. 7. 90. 6. —— So 6.833 89.5 6. Interest. Mortality. 6. 87. 6. pics Fi 5.625 80. 8. 5.5 90. 5.6 78.5 9.1 5.5 91.5 5.6 78.5 8.5 5.5 91.5 5.5 78.5 8.5 5.5 91.5 b.4 78.5 8.5 5.4 91.5 5.3 78.5 8.5 5.3 91.5 5.2 78.5 85 5.2 91.5 5.1 738.5 8.5 5.1 87.5 5.0 78.5 8.5 5.0 87.5 4.8 78.5 11.0 4.8 87.5 45 78.5 12.5 £5 S19 THE MORTALITY FACTOR. The table shows that the mortality assumed in computing divi- dends was 80% from 1872 to 1874, 85% in 1875, 90% from 1876 to 1880, 89.14% in 1881, 87% in 1882, 80% in 1883, and 78.14% from 1884 to the present time. Since 1883, the rate of mortality assumed on paid up policies averages about 11% higher than the rate assumed with respect to the premium paying policies. The actuary testified that the rate of mortality on paid up policies was a little higher than the general average of the company. It was admitted that the sudden changes in assumptions as to mortality, namely, from 80% to 85% in 1875, from 85% to 90% in 1876, decreasing to 78.14% from 1879 to 1884, did not accord with the experience of the company. While the mortality since 1884 has been assumed to be 78.14% of the tabular mortality, it appears from the gain and loss exhibit that the percentage of ac- 206 Life Insurance Corporations of Wisconsin. tual to expected mortality from 1895 to 1904, has been as fol- lows: Yoar, | Per cent. | Year, Per cent. Le a mE Re | 69.76 63.02 1396 .. es 53.68 63.72 1897 se 61.33 60.94 1893 mew 62.21 66.27 1899 .. 61.45 66.37 The actuary was unable to say what the percentage of actual to expected mortailty was in 1884 when the factor 78.14 was de- termined upon, but stated that in 1905 it was in the neighborhood of 65 to 70. In justification of this practice of making a differ- ence of 10% in the mortality factor employed and the factor re- sulting from actual experience, it was stated that it was not con- sidered wise to distribute in accordance with the actual expe- rience, leaving nothing for surplus. It was admitted that in the course of ten years at this rate, the accumulations from this source, would amount to something over one year’s tabular mor- tality, but no good and sufficient ground could be offered to dem- onstrate that such an accumulation was necessary A study of the testimony leads us to the conclusion that the changes in the factor used in returning mortality gains to the policy holders were quite arbitrary. EXPENSE FACTOR. The same table shows that the expense factor has varied con- siderably since 1872, diminishing from 12.14% of the premium, plus a charge of $1.50 per thousand of insurance in 1872 to 6% of the premium in 1878, and then increasing to 12.14% of the pre- mium in 1903, where it remains at the present time. The actuary of the company testified that there was no definite provision for expense charges against paid-up policies. It was admitted that the change from 814% to 11% in 1901 was not due to a real increase in expense as between the two years, but to a conviction on the part of the company that there had been an increase in the ex- penses, and that the provision made had been somewhat too low. There was a real increase of expense reflected in the change in the expense factor, and the same thing was true with respect to the Report of Joint Legislative Investigating Committee. 207 change in 1903 to 12.%%. The change from 8.14% in 1901 to 12.4% in 1903 represented an advance of about 50% in the ex- pense charge, but the actuary testified that expenses did not in- crease this amount within the period, and admitted that the pro- vision of 8.14% expense charge had been too low for some con- siderable time. Another reason was offered for the rapid increase of the ex- pense charge within this period, based on more liberal terms made by the company after 1901, with respect to surrender charges. The testimony shows that gains from surrenders and lapses were employed to offset the expenses of new business. For example, from the gain and loss exhibit of 1905 it appears that the reserves released by surrenders and lapses were $5,579,597, and that the total surrender values allowed amounted to $5,040,400, leaving a difference of $539,000. The actuary testified that this saving was first deducted from actual expenses before the expense charge was made against the premiums. The following table admitted in the testimony, taken from the gain and loss exhibit, gives the percentage of reserves returned on surrenders from the North- western Mutual for the year 1905. The ratios are as follows: Year. USO. dicccatay 2 diva od euen sip) scans a ede au aac alae tected ardhcedeal 3 52.09% VBI G sot aate iam Stee alee $ PAG Ne Ro wae Made 19.57% WS OG discs dele tha te acta tok gah tte eecty ade le Aca Bre weno ee 77.13% BSS Mice Se saul ee trata ahaa ti seat tas. ia as Aad ear ates oo TV 44% E002 oaeeecwearaerh Ae kauads mace aes 73.67% DIO 0 ae scorn sa eigelig ote cece aoe utensil toed Gree rioaay a aha e ae 75.52% TI RL daGeG4- yeu Mees eamess de eaasau ae Keoa can 84.59% NYO Bee ateriacht 5:8 SR SA See clea Suk bit BAe ee Se 85.28% 1G.0 Bek cadence he PCat peas oe 1a ON Gear i ane 87.15% TOA akan Weenie y Se see ees he Pa RE BSS 89.19% DOOD ante Tats Betue, stet ak tosis gone bahaca’ grein ce saengs tue a aeas 90.34% These figures show that there was a marked increase in the ra- tio between 1895 and 1896. In 1895 it appears that the company forfeited nearly one-half of the reserve funds on surrender. The actuary of the company admitted that the introduction of the gain and loss exhibit in 1895, probably had something to do with :he 208 Life Insurance Corporations of Wisconsin. liberalizing of the terms of surrender from 52.09% of the reserves released in 1895 to 79.57% of the reserves released in 1896. In 1901 there was another marked increase when the ratio went from 75.52% to 84.59%. The final and most liberal scale of surrender charge began to have a marked effect in 1901 and thereafter. During these years, the gain from surrenders continually dimin- ished, and as a smaller proportion was received from that source to be offset against tthe expense, a larger ratio of expense charge against premiums became necessary. APPORTIONMENT OF TONTINE SURPLUS. The company, after setting aside from the surplus earnings, profits, savings, and gains for the year, such sums for contingency reserve and other purposes as it may determine upon, annually apportions the balance in accordance with the method already de- scribed, to all policies entitled to participate therein. In the case of an annual dividend policy the amount so apportioned is dis- tributed. In the case of a deferred dividend or tontine policy, the amount so apportioned, called “Regular Surplus,” is provision- ally credited to the policy and carried to a separate fund, called the “Tontine Fund,” and there left to accumulate at interest. Policies in the first group and in the second group, in other re- spects alike, receive a like apportionment. Each tontine policy is also provisionally credited each year with its share of what is called “Additional Surplus.” The additional surplus is made up of three items, interest on tontine accumula- tion, gain from death, and gain from lapse. The tontine accumu- lation of the preceding year is improved at interest and provides the first item, “Interest on Tontine Fund” (see following sched- ule). The surplus derived from tontine policies terminated by death in any year is provisionally apportioned at the close of that year to the surviving tontine members, having regard to their respec- tive ages. This provides the second item “Gain from Death.” For the purpose of apportioning the surplus from policies termi- nated by death the tontine business is divided into three groups corresponding to the distribution period: 10 year groups, 15 year groups, and 20 year groups. The 10 year group contains all 10 year deferred tontine policies in force at any time. Similarly Report of Joint Legislative Investigating Committee. 209 for the 15 and 20 year groups. The apportionment of surplus terminated by death is an apportionment to these several groups. On the ascertainment of surplus forfeited by each group, such surplus forfeited is annually apportioned to the members of that particular group. For example, surplus forfeited by death out of the twenty year group is annually apportioned to the members of the 20 year group. The surplus provisionally apportioned to tontine policies lapsing in any year, together (in the case of the full tontine policy only) with the values of the paid up insurance which might have been claimed, had they not been tontine policies, is provisionally appor- tioned at the close of that year to the remaining tontine members who have incurred and surmounted the risk of lapse during the same year, each class being treated separately. This is the third item “Gain from Lapse.” By risk of lapsing is meant the spe- cial risk of adding to the tontine surplus by failing to pay pre- miums. A class includes those of the same year of issue and the same tontine period. For the purpose of apportioning the sur- plus forfeited by discontinuance of the policies by virtue of lapse or surrender (the voluntary discontinuance of the policy by the policy holder) each group is subdivided into classes. There would be in a 10 year group 10 classes, each class depending upon the year of issue, as the class of 1895, the class of 1896, and so on. In the 15 year group there would be 15 classes and in the 20 year group 20 classes. The apportionment of surplus forfeited by vol- untary discontinuance is on the basis of these classes. That is, the surplus from each class of a 10 year group thus forfeited is ascertained and apportioned to the persisting members of that class year by year. Similarly for the 15 year group and for the 20 year group. The amount of surplus forfeited by each class of each group is ascertained and apportioned to the particular class and group to which it belongs, and that ascertainment and apportionment is made each year. The surplus account of full tontine policies and semi-tontine policies is kept separate. The foregoing statements are illustrated by the following schedule, which shows the dividend provisionally apportioned in 1902 to policy No. 154,441: 14—I. 210 Life Insurance Corporations of Wisconsin. DIVIDENDS FOR 1902. Name: J. K.Patton Year of issue: 1887. No. of policy: 154441. Age at issue: 54. Kind of policy: Ordinary life. Mortality table: Actuaries’. (semi-tontine) Distribution period: 20 years. Interest basis: 49%. Amount: $3,000. Annual premium: $171.81. REGULAR SURPLUS. Gain from interest.............08- $ 9.57 Gain from mortality............6. 22.26 Gain from loading.............-. 25.20 Total regular surplus......... $57.03 ADDITIONAL SURPLUS. Interest on tontine fund........... $39.87 Gain from death................. 54.39 Gain from lapse. 0.00. cscensees vers 1.51 Total additional surplus....+.. $ 95.77 Tontine fund of preceding year.... 1,328.99 Tontine fund of 1902............. $1,481.79 Interest factor used in computing regular surplus...... 4.8% Mortality factor used in computing regular surplus..... 21.U%% Loading factor used in computing regular surplus...... 11% Rate of improvement of tontine fund................. 3% The regular surplus apportioned to this policy, as if it were an annual dividend policy, is $57.03. The additional surplus appor- tioned to this policy is $95.77, and is made up of the following items: Interest on tontine fund, $39.87; gain from death, $54.39 ; gain from lapse, $1.51. The regular and additional surplus ap- portioned for the year, together with the tontine fund of the pre- ceding year make a total tontine fund of $1,481.79, provisionally credited to this policy in 1902. Report of Joint Legislative Investigating Committee. 211 It will be noticed that the interest factor used in computinz regular surplus was 4.8%, while the rate of improvement of the tontine fund was 3%. Had the tontine fund on this policy been improved at the rate of interest used in computing regular sur- plus, the provisional credit to this fund would have been increased by $23.92. The above policy was issued in 1887 on the ordinary life plan for amount $3,000, and the statement indicates the provisional credit at the end of the fifteenth year. It thus appears that the loss of interest credit on the tontine fund amounted to $7.97 per $1,000 of insurance in 1902. TOTAL TONTINE FUND. The total dividends accruing contingently to tontine policy hold- ers constitute what is called the tontine surplus. This fund amounted, Decembcr 31, 1905, to $24,903,433. It appears from the testimony that the Northwestern kept an individual account with each deferred dividend or tontine policy holder and that from this account they are able to furnish a full statement of all apportioned dividends provisionally credited throughout the life of each policy. The company has in the past furnished a statement to its deferred dividend policy holders upon demand only, but such statement did not contain all the in- formation set forth in the preceding schedule called for by the committee. Had the statement furnished the policy holders con- tained all the information in the foregoing schedule, the discrimi- nation hereinafter explained would not have been attempted. The policy mentioned in the foregoing schedule calls for an in- terest earning on reserve of 4%, and the statement shows that in the year 1902, the regular surplus dividend was based upon an interest rate of 4.8%. The company reported to this committee an annual gross rate earned of 4.65%, and a net rate of 4.21% for this year. The testimony shows that the net rate represented the interest earned after deducting all the expenses incident to the care of investments. It thus appears that while the net rate earned was 21-100% in excess of the 4% required, the company was distributing divi- dends to annual dividend policy holders and apportioning a regu- lar surplus dividend to tontine policy holders on the basis of 4.8% 212 Life Insurance Corporations of [Visconsin, an excess of 8-10%. The dividend was consequently much higher than the excess of the net rate of interest over the re- serve requirement would provide, and this excess on the reserve fund at that time amounted to about $785,000, the total reserve being about $133,000,000. The balance of the total assets con- sisted of a tontine fund of about $24,000,000, an unassigned sur- plus of about $5,000,000, and about $3,000,000 of apportioned dividends, salaries and other items. ANNUAL DIVIDENDS TAKEN IN PART FROM TIIE EARNINGS ON TON- TINE SURPLUS. The source of the $785,000 of dividends apportioned but not earned on the net reserves may be in part explained by the man- ner in which the tontine fund was treated. The $24,000,000 of tontine surplus held at this time was not improved at 4.21%, the net rate of interest actually earned, nor at 4.8%, the rate of in- terest used in computing the regular dividends. The rate used was 3%, causing a loss in this respect to the owners of this fund of $290,000 on the basis of the net rate earned, and $432,000 on the basis of the rate used for apportioning the annual dividends. During the examination of the actuary of the Northwestern, a circular issued by the company after it began issuing deferred dividend policies, was introduced. This circular described the manner of keeping tontine accounts, and contained the followinz statement: “To keep in view the equitable rights of each ton- tine and semi-tontine policy, a provisional account or memo- randum of its contributions to the undivided surplus is kept, and also of its fair share of special tontine profits, adding interest from year to year, at the current rate used in the ordinary divi- dend calculations.” (Test. p 442.) Notwithstanding this specific promise, the rate used in improv- ing the tontine funds was scaled every year except 1889, as in- dicated in the following table. INTEREST RATES AND DIVIDEND FACTORS. The following table shows the gross and net rates of interest earned on mean invested assets by the Northwestern Mutual from 1883 to 1905 inclusive. The net rate is derived from the Report of Joint Legislative Investigating Committee. 213 gross by deducting from the earnings of the assets the following items of expense: real estate expenses, real estate taxes, loan expenses, salaries of officers and clerks of loan and abstract de- partments, expenses of trustees and executive committee (con- sisting principally of salaries of members of executive and fin- ance committees not receiving officers’ salaries), two-thirds of legal expenses and one-fourth of miscellaneous expenses, viz: rent, supplies, postage, exchange, furniture and fixtures. No account has been taken in the preparation of the table “net rate earned on mean invested assets” of the special expense factor in- cident to the creation and care of what is known as the tontine fund of the company. The rate of interest employed in computing annual dividends and the rate of interest employed in improving the tontine fund for the same years are also given. INTEREST RATES OF NORTHWESTERN MUTUAL BARNED ON MIAN IN- VESTED ASSETS, AND DIVIDEND FACTORS. Rate ct Rate of Im- Year. Gross rate. Net rate. annual rovement of dividend. ‘ontine Fund. 6.17 5.47 5.625 5.5 6.18 6.53 5.6 5.5 6.08 5.48 5.6 5.5 6.08 5.387 5.6 5.5 6.24 5.59 5.6 5.5 6.03 5.37 5.6 5.5 6.12 5.49 5.6 5.5 5.86 5.25 5.6 5.5 5.91 5.37 5.6 5:0 5.63 5.17 5.6 5.0 5.53 5.03 5.6 5.0 5.49 6.01 5.5 5.0 5.72 5.24 5.4 5.0 5.46 4.94 5.3 5.0 6.41 4.81 5.2 5.0 5.25 4.67 5.1 5.0 5.00 4.40 5.0 5.0 4.80 4.24 5.0 4.0 4.98 4.52 4.9 3.0 4.65 4.21 4.8 3.0 4.63 4.21 4.5 3.0 4.77 4.40 4.5 3.0 4.73 4.38 4.5 3.5 5.51 4,96 5.27 4.72 It was admitted in the testimony that in the investment of funds the tontine surplus was not separated from the other funds of the company, but that all were invested together. 214 Life Insurance Corporations of Wisconsin. A study of this table exhibits the following striking facts: First. The net rate of interest is about 12% below the gross rate of interest. Second. The rate of interest employed in computing the an- nual dividend and regular surplus in every year since 1883, has been in excess of the net rate of interest earned on mean invested assets, averaging about 3/10 of 1% in excess of the net rate. Third. The rate of improvement of the tontine fund, has al- ways, with the exception of the year 1899, been less than the rate employed in computing regular surplus, the difference being very small about 1/10 of 1% from 1883 to 1890, varying from 6/10 of 1% to nothing in 1891 to 1899 and varying from 1 to 1.8% in the period from 1900 to 1905. In the first period the tontine fund was necessarily small, since the company began writing these policies in the early eighties and they had not time to accumulate a very large fund. The slight difference of 1/10% in this period had but a trifling effect upon dividends con- tingently apportioned to tontine policy holders. In the second period, from 1891 to 1899 the tontine fund had grown, but still the effect of the average difference of about 3/10% between the rate employed in computing annual dividenés and in improving the tontine fund was not sufficient to exercise a considerable ef- fect upon the contingent dividend apportioned to the tontine policy holders. In the third period, however, the tontine fund had acquired large proportions, and it was in this period also, that the difference between the annual dividend rate and the ton- tine improvement rate reached its maximum. It was admitted in the testimony that the effect of this discrimination as between annual dividend policies and tontine policies was small in the early years of the policy, in fact might mean but a few cents each year, but that in the later years, as the policy was approaching the end of its tontine period when the contingent tontine dividend apportioned had attained a considerable figure, the difference in the annual interest credited on the tontine accumulation might be as large as three, four or five dollars per $1,000 policy. It is unnecessary to add that the effect of the wide difference between the rate of interest used to calculate the annual divi- dends and the rate of improvement of the tontine fund em- ployed in 1900 and subsequently, has been to considerably dimin- ish the earnings to the tontine policies whose tontine period had Report of Joint Legislative Investigating Committee. 215 been completed within these years, as well as the dividends now credited to such policies still in force. A calculation made from the tables furnished by the company indicates the amount of the credits thus diverted from the ton- tine fund and apportioned as annual dividends within the last six years was in excess of $2,000,000. The tontine fund by be- ing credited with a less rate of interest contributed to the general surplus a certain sum of money, which sum of money helped to enable the company to make a credit of 4.8% as an interest fac- tor in distributing its annual dividends. The actuary admitted that only part of that came back to the tontine policy holders through the annual dividends credited to them. (Test. p 455.) The testimony shows that during the first part of the period of issuing these tontine policies, prior to about 1890, the com- pany in its dividend statement made a separate item of interest on the tontine additions to the dividend; that later, this practice was discontinued, and in the statement furnished the policy holder the tontine additions, including interest, were stated in one lump sum. It also appears that the commissioner of insur- ance of this state, made inquiry of the president of the North- western as to whether or not such discriminations were made, and the latter replied in writing that there were no discrimina- ‘tions. ; CONSIDERATION OF EXPLANATIONS OFFERED. Each tontine policy contains a stipulation that if kept in force and the insured survives the tontine period it shall share in the surplus until the contributions found to have arisen from the policy are returned. It was not denied on the investigation and we do not believe it will be denied, that each policy holder is en- titled to an equitable share of the surplus apportioned and aris- ing upon or derived from contributions to the gains of the com- pany. The officers of the company have given various reasons for improving the tontine fund at a lower rate of interest than that employed in calculating annual dividends. Prior to the investi- gation complaining policy holders were informed by the actuarial department, “That the reason why this fund was improved at a less rate 216 Life Insurance Corporations of Wisconsin. than the gross rate of interest earned by the company was that the expense must be charged against the gross interest rate, such as cost of making investments and care of investments, taxes and other expenses connected with the company’s in- vestments ; also that the tontine fund should bear the expenses incurred wholly in the interest of the tontine members; that the tontine fund in the company is a matter that is, as it were, a department by itself and the care of the tontine fund is in no sense an advantage to the company at large.” (Letter to W. H. Cobban dated Nov. 22, 1905. (Test., p 450.) Recognizing that the extra expense of caring for the tontine fund would be a mere trifle, the policy holder might well un- derstand from this explanation that he was being allowed practi- cally, the net rate of interest earned by the company. When upon the investigation the difference in the rate of interest was pointed out and estimated upon the total tontine fund to be from $240,000 to $400,000 for each year since 1899, this explana- tion was abandoned. It was then insisted by the actuarial department that in former years the tontine fund was improved at a higher rate than the net rate of interest. The company was then required to furnish the committee with a statement showing year by year from the time the first tontine policy was issued to the present time, the gross rate of interest, net rate of interest, net rate at which the tontine fund was improved. This has already been fully dis- cussed. In this connection it appears that from December 31, 1898, to December 31, 1901, there was a decrease in the general surplus of over $1,000,000; that at the same time the company practically discontinued writing tontine policies. In 1901 the tontine fund was improved at only 3% interest while the net rate of interest earned by the company was 4.52% and the annual dividend rate 4.8%. Wad the tontine fund been improved at the same rate as the annual dividend rate, to-wit, 4.8%, either the annual dividends would have been decreased, or there would have been an additional showing of a decrease in the general sur- plus of $432,000. It was conceded by the actuary that this condition might have had an influence with himself and the committee in causing them Report of Joint Legislative Investigating Committee. 21% to improve the tontine fund for that year at 1.8% less than the annual dividend rate. (Test., p 454.) Since December 31, 1901, the general surplus has been increased by $4,000,000. The fair inference from the testimony is that in view of the company’s literature stating that the tontine fund would be im- proved at the rate employed in ascertaining the annual dividends, the policy holder understood that his tontine dividend would al- ways be improved at the same rate as that used in ascertaining annual dividends. That this inference would be justifiable was not seriously questioned upon the examination. The officers of the company further sought to explain this dis- crimination between the tontine and annual dividend policy holders, by asserting that in some years the annual dividend rate was in excess of the net rate earned by the company for the year, and that the tontine policy holders received more than they were entitled to by way of annual surplus apportioned to them as dividends. In connection with this explanation there are cer- tain facts which must be noted: First. The annual dividend policy holders for these years likewise received more than they were entitled to. This excess was paid to them annually and if error thus occurred, it has never been corrected. The dividends of the tontine policy holders remained with the company. Second. The excess amount allowed in dividends for any particular year was drawn from the earnings on the tontine fund, and the tontine policy holders received in return but a part of such excess which was taken from their earnings, while they suf- fered a loss equal to the entire amount of the excessive annual dividends allowed and paid to annual dividend policy holders. From whatever point this subject is examined we are led to the inevitable conclusion that the tontine policy holders have been greatly discriminated against in order to increase the annual dividends. The- extent of this discrimination is emphasized by the testi- mony which shows that during the last five years when the com- pany was devoting itself almost wholly to writing annual divi- dend policies, the discrimination in the rates is greatest. 218 Life Insurance Corporations of Wisconsin. OTHER COMPANIES HAVE DISCRIMINATED. Inquiries were made by the committee of other companies do- ing business in this state, as to the rate of interest at which the annual dividends were computed and the tontine fund improved. The replies of some of these companies indicate a similar dis- crimination. The claim has been made by companies having tontine funds that this fund does not constitute a technical legal liability; that it is only a conditional liability ; that it is a fund upon which the managers may draw at any time to maintain the solvency of the company. The testimony shows that the officers of the North- western exercised the power to draw upon this fund to increase the annual dividends. If this is justifiable then the companies may draw upon this fund to promote the interests of the company in other respects. Some states have prohibited the writing of deferred dividend policies. The companies have but little further interest in the way of competition in maintaining a high rate of dividends upon these policies. So long as the tontine fund belonging to each class is not ascertained and a permanent record thereof made a diversion of considerable part of these funds can be made with little fear of detection. The foregoing considerations emphasize the necessity of now requiring each company doing business in this state to make an ascertainment as to each class of tontine policies, of the share accumulated to each such class, and a credit of the same in a per- manent account, and a report thereof to the commissioner of in- surance showing the method of such ascertainment with the factors used in apportioning the regular surplus contribution to each accumulation, the rates of interest at which the accumula- tion has been improved, and the net rate of interest earned by the company from year to year, from the date of issue to the present time, and the rate of interest at which annual dividends have been calculated from year to year, during the same period. Also, that a like ascertainment and report should be required for each succeeding year. That a contingent apportionment shall be required to be made to each individual policy holder of his share, and in future an annual statement made to each such policy holder. Report of Joint Legislative Investigating Committee. 219 This report and statement will, in a measure, expose to public scrutiny, the past treatment of deferred dividend policy holders, and prevent future discriminations. It is believed that no company will object to such ascertain- ment and publicity thereof, unless its past treatment of tontine surplus has been such as will not stand the test of public opinion or its future purpose is to secretly discriminate against these policy holders. UNION CENTRAL DIVIDENDS. The annual dividends of the Union Central are also appor- tioned in accordance with the contribution plan. The dividend consists of three parts, namely, a contribution from interest, a contribution from mortality, and a contribution from loading, which are separately calculated and then added together to form the dividend. THE MORTALITY FACTOR. The practice of this company in returning the gains from mor- tality has shown considerable variation within the last ten years. From 1894 to 1900 the factor used in computing mortality gains was 30% from age 21 to age 39, thereafter decreasing 1% each year to age 65. In submitting his report to the committee the actuary states, “T have never been able to ascertain why this was done, and be- lieving that the same percentaze should be allowed to all entrants of all ages, I have, during the last five or six years, gradually eliminated this feature in such a way as to avoid violent fluctu- ations in the results, until at the present time the percentage al- lowed is uniform upon all plans and for all ages.” The following table exhibits the factors used in computing the mortality gain for annual dividends of 1894: 220 Life Insurance Corporations of Wisconsin. Mortality Mortality Age. | factor. Age. factor. Per cent. Per cent. QU TO? BO, sssvasnaien siacarnava eelbuotaatacarecy, 30 17 AU)! sp ciara cca nmrhaavaseeneara aa ace a7 29 15 GL. sa caeutidehigeaaeeeetinies Ae oe 28 15 WO) ca sudwspavaseba aucvacanansGesensstient kee ae ie Oe 27 14 ASE g seit tess din acroetere Gunaiaraiess sale Diels! $i ers 26 13 44 25 12 45 24 11 46 23 10 47 22 9 48. 21 8 49. 20 7 00. 19 6 Gl. cAdciseeuamtenter diac se skied si 18 5 4 These percentages held until 1897, in which year the dividend basis, so far as the mortality gains are concerned was the same as that of 1894, except for ages beyond 56, which were as fol- lows: Mortality Mortality Age. | factor. | Age. factor. Per cent. Per cent. 11 . 5 9 4 7 3 6 2 2 The mortality gains were computed on the 1897 basis until 1901, when the percentages were again changed, as shown in the following schedule: Age. Age. phon Mortality Factor. Per cent. Per cent. 40 3 Report of Joint Legislative Investigating Committee. 221 In 1902, the mortality factor was 40% from ages 21 to 55 and graded from that point down to 30% at age 65. In 1903, the factor from ages 21 to 56 was reduced to 3814% and graded to 311%4% at age 65. In 1904, the factor was reduced to 37% from age 21 to age 57 and graded down to 33% at age 65. In 1905, the factor was reduced to 36% from age 21 to age 57, and was 35% from age 58 to age 64 and 34% at age 65. It appears from the official returns of the company that the factors employed in computing mortality gains on paid-up pol- icles, single premium policies, and reversionary additions, did not materially differ from the percentages employed on premium paying policies. At the present time, according to the above quoted statement, the same percentage is applied to all policies, irrespective of age or plan. The following table taken from the gain and loss exhibit shows the percentage of actual to expected mortality from 1895 to 1905: Year. | Percentage. Year. Percentage. 70.00 59.46 70.00 56.47 75.98 58.02 64.23 64.15 57.27 55.59 69.35 EXPENSE FACTOR. The expense charge of the Union Central has been a percent- age of the gross premium plus a fixed charge of $2.00 per thou- sand of insurance. The percentage of the gross premium taken as expense charge depends upon the plan of policy and the num- ber of years it has been in force. The percentages used since 1894 are in accordance with the following schedule: PERCENTAGE OF PREMIUM FOR EXPENSES FROM 1894 TO 1900 INCLU- SIVE. \ Se. loianitaey 20 pay- | 15 pay- | 10 pay- | 10 year | 15 year | 20 year Dividend. life. |ment Inte iat life/ment dite end. cud, end Perct. } Peret. Perct. | Perct. | Perct. | Perct. | Per ct. 16 12 j 12 10 11 12 12 14 12 7 12 10 ul 12 12 13 12 12 10 11 12 12 12 12 12 10 11 12 1? 11 12 12 10 11 12 12 222 Life Insurance Corporations of Wisconsin. PERCENTAGE OF PREMIUM CHARGED FOR EXPENSES FROM 1901 TO 1905 INCLUSIVE. pts Ordinary] 20 pay- | 15 pay- | 10pay- | 10 year | 15year | 20 year Dividend. life. meut life] end. end. ment ais ae life 3 l4 17 15 14 12 11 d2 13 16 14 13 11 10 11 12 15 13 12 10 10 10 11 14 12 11 10 10 10 10 13 11 10 10 10 10 10 12 10 10 10 10 10 10 il 10 10 10 10 10 10 10 10 10 10 10 10 10 LIFE RATE ENDOWMENT POLICY. From 1871 to 1891, a large part of the business of the com- pany was done on the life rate endowment plan. Since 1891 comparatively little insurance has been written on this plan. The actuary of the company described the policy as follows: “The life rate endowment policy is simply an ordinary life policy in which there is a special agreement that there are no dividends or profits withdrawn by the insured, but they are left with the com- pany as a fund to accumulate, and when that fund equals the face of the policy it is matured as an ordinary endowment. There is a clause in the policy itself which covers that special feature.” This provision as it appears in the most recent form of life rate endowment policy, issued in June, 1904 is: “This policy will mature as an endowment, and will be payable in cash to the insured, when the premiums paid on the policy and its equitable proportion of the company’s profits combined, less its share of losses and expenses shall become equal to its face value.” A separate account is kept with the life rate endowment policies, as follows: Credit the first premium less expenses, and interest upon the same, charge for the mortality, which gives the credit at the end of the first year; then add the second premium less expenses, credit interest gain, charge for mortality, which gives the credit at the end of the second year. This process is continued from year to year until the policy matures as an endowment in ac- cordance with the above provision. Specific examples illustrat- ing the method of keeping this account appear in another part of the report (see p 87). A table showing rates of interest, ex- Report of Joint Legislative Investigating Committee. 223 pense and mortality used in calculating credits on life rate en- dowment and life guaranty policies for the years 1886 to 1905 in- clusive, is given in the appendix to this report. The credits on life rate endowment policies are carried to a separate fund called the life rate endowment surplus fund. This fund at the end of the year 1905, amounted to $5,206,503. INTEREST RATES AND DIVIDEND FACTORS. The following table shows the interest earned by the Union Central on mean invested assets of the company from 1880 to 1905 inclusive, showing the gross rate and the net rate separately. The items of expense deducted from the gross rate in arriving at the net rate were loan expense and real estate expense. The rate of interest employed in computing annual dividends is given from 1894 to 1905, and the rate of interest employed in improv- ing the life rate endowment fund is given from 1886 to 1905. INTEREST RATES. Mean invested assets, 1880 to 1905. Rats of im- Rate of provement of Year. Gross rate. Net rate. annual Jife rate en- dividend. dowment fund. Per cent. Per cent. Per cent. Per cent. O00 ~ llavsevadrsnseaniotetass |e ceeieeoalisinanes aeoa aad eG sis . Bi2Oar oil cats: diel dus nisigeteud Seatwi| ues veece lee Oe id toda toes eid bach cleiajeravel eres . 6.837 6.499 6.832 7.135 7.129 7.09 6.429 7.00 6.570 6.00 5.930 6.00 6.163 6.00 6.613 6.09 6.413 6.00 6.636 6,00 6.786 6.329 6.00 6.00 6.714 6.140 6.00 6.00 6.844 6.313 6.00 6.09 6.882 6,420 6 00 6.00 6.924 6.211 6.00 6.00 6.521 6.152 6.00 5.59 6.228 5,269 6.00 5.00 6.231 5.554 5.50 5.00 6.097 5.291 5.00 5.25 6.177 5.875 5.00 4.19 6.058 5.443 5.00 5.25 6.090 5.535 5.00 5.25 Average 1894 to 1005 ..... 6.463 5.878 5.625 5 529 Qa-£ Life Insurance Corporations of Wisconsin. It appears from this table that the company has earned a high rate of interest, and that the interest factor which it has em- ployed since 1894 in computing annual dividends has, with the exception of the year 1900, been below the net rate of interest earned by the company. The rate of interest employed since 1886 in improving the life rate endowment fund, exceeded the net rate of interest in but one year, 1899. There was a material difference in the rate of interest used in computing annual divi- dends and improving the life rate endowment fund in the period from 1899 to 1901. In 1899 the difference amounted to 1-2%, in 1900'to 1%, in 1901 to 1-2%, in each case the excess being in favor of the annual dividend. In each year of the period from 1902 to 1905 inclusive there has been a small difference, the ex- cess, about 1-4% being in favor of the life rate endowment fund. The actuary testified, in explanation of this difference that the company had tried to get as near the true rate as possible on the life rate endowments, but on the annual dividends their object had been rather to avoid violent fluctuations from year to year, to use a round rate and maintain it as long as possible rather than go into fractional rates and change them from year to year. The company was unable to furnish the method of calculation adopted for dividends, prior to the introduction of the 1894 basis. The committee recommends the enactment of a law requiring all life insurance companies doing business in this state upon the participating plan, to annually, as of the 31st day of Decem- ber, ascertain and determine the excess of its assets over its lia- bilities, and also the amount of unapportioned surplus which it will retain as a contingent reserve, and that after setting aside such unapportioned surplus, and such sum as may be required for the payment of authorized dividends upon the capital stock, if any, and such sum as may be properly held for account of existing deferred dividend policies, it shall apportion the remain- ing surplus equitably to all other policies entitled to share there- in, and distribute the same within the year, beginning the first day of April, succeeding. That each such company shall, on the first day of March, 1908, file with the commissioner of insurance a statement showing the amounts respectively of the unapportioned surplus, unpaid divi- dends, deferred dividend surplus and other surplus, and setting out fully and in detail, the method of ascertainment and appor- tionment of the profits, savings and earnings then accumulated, Report of Joint Legislative Investigating Co:ittee. 225 together with the interest, mortality and expense factors used in apportioning the regular surplus contributing to such accumu- lation year by year from the date of the last distribution to the “31st day of December, 1907, and the rates of interest at which the accumulation has been improved from year to year during said time, and requiring a like ascertainment and apportionment and report as of the 31st day of December every year thereafter. That the company be required to furnish to.each policy holder entitled to share in such surplus, a statement of the apportion- ment of surplus, according to the last dividend ascertainment made three months or more prior to the policy anniversary, which statement shall set forth, among other things the sources of all gains, and also a statement of the unapportioned earnings for said year. We likewise recommend the enactment of a law requiring the companies transacting business in this state and having outstand- ing tontine or deferred dividend policies, to ascertain and credit as of the 3lst day of December, 1907, to each class of such policies, the amount of profits, savings, earnings or surplus then accumulated to provide for the apportionment and distribution agrecd upon in the policy contract. Also to ascertain and credit the conti:gent share of every individual policy in each class, in such profits, savings or surplus then accumulated; and requir- ing all such companies on or before the first day of March, 1908, to file with the commissioner of insurance a statement showing fully and in detail the method of ascertainment of the profits or surplus then accumulated to each class of policies, together with the expense, mortality and interest factors used in apportioning the regular surplus contributing to such accumulation year by year, from the date of issue to the 31st day of December, 1907, the rate of interest at which the accumulation has been improved from year to year, and the net rate of interest earned by the company each year during the same time. Also a list of the classes of deferred dividend policies in force, and as to each class the following: 1. Year of issue. 2. Date of distribution. 3. Original number of policy holders. 4. Present number of policy holders. 5. Aggregate of the amount so contingently accumulated to such class of policy holders. 15—I.. 226 Life Insurance Corporations of Wisconsin. And requiring a like ascertainment and credits to be made as of the 31st day of December every year thereafter, and a like statement filed with the commissioner of insurance, on the first day of March every year thereafter. Such company should also be required, not less than thirty nor more than sixty days prior to each policy anniversary occurring after the 31st day of March, 1908, while having deferred divi- dend policies in force, to mail to the insured named in each such policy, at his last known post-office address, a statement of the contingent apportionment of surplus to such insured, according ‘to the last dividend ascertainment made three months prior to such policy anniversary, this statement to exhibit the regular surplus and the sources from which derived, the additional sur- plus showing the interest improvement on the contingent accu- mulation, gain from death, gain from lapses and surrenders. We also recommend the enactment of a law requiring each company transacting business in this state to file with the com- missioner annually a gain and loss exhibit as of December 31st each year; also a statement showing the rates of annual divi- dends declared during the year for all plans of insurance and for all durations and for ages at entry 25, 35, 45 and 55, and the precise method by which such dividends have been calculated. Also a statement of any and all reserve or surplus held by the company and for what purposes they are claimed respectively to be held. The committee requested but two foreign companies to appear before it in Milwaukee for examination—the Union Central of Cincinnati, Ohio, and the Michigan Mutual of Detroit, Michigan. Both companies were licensed to do business in this state. The Union Central promptly responded to our request, while the Michigan Mutual refused. It submitted no grounds for re- fusal which appealed to the committee as reasonable. The com- mittee had no authority either to compel the attendance of this company or to examine it at its home office in Michigan. After the investigation closed and before this report was pre- pared, the Union Central informed the committee that it had adopted a resolution, making the interest rate on policy loans uniform in all states. The Northwestern has adopted a very fair and liberal loan agreement, which corresponds substantially with the loan agree- Report of Joint Legislative Investigating Committee. 227 ment recommended by the committee. It has also submitted to the counsel for the committee, the following changes and pro- . posed changes in the practice of the company: 1. The 5% rate of interest fixed in July last for all new pol- icy loans is to be applied to all old policy loans, also to all pre- mitm loan notes, regular and special; also to all interest charges on account of premiums in arrears, on all restorations of lapsed policies, correction of errors in age, policy changes and other policy adjustments. 2. The privilege of thirty days grace for payment of pre- miums, as incorporated in the policy contracts of this company, issued on and after August 1, 1900, is to be extended to all exist- ing policies of this company, except those issued on the semi- tontine plan. 3. From and after January 1, 1907, the company will annu- ally mail to each semi-tontine policy holder, at his last known address and for the date of his policy anniversary, a statement showing: 1. The tontine surplus accumulation credited to the policy at the beginning of the preceding year. 2. The rate of interest allowed on such accumulation. 3. The amount of regular surplus and additional or tontine savings apportioned for the year. 4. Total amount of tontine surplus credited at date of pay- ment of the current annual premium. 4, On and after January 1, 1907, the premium rates for pol- icies issued by this company are to be the net premium rates, ac- cording to the American Table of Mortality and 3% interest, the net premium for each plan to be loaded by a suitable percentage thereon uniform for all ages, but varying as desirable for differ- ent plans of insurance, such percentage of loading for each plan to be determined by the company. 5. On and after January 1, 1907, the policies of this com- pany shall provide that any premium less dividend shall on de- fault be charged with any other indebtedness, if any, against the surrender value of the policy, and that interest on such loan shall be charged annually at the same rate of interest as for policy loans, and if not paid when due shall in like manner be made a lien against the policy, with interest at the same rate, and that the policy shall be continued in force for the full amount thereof, 228 Life Insurance Corporation of Wisconsin. less the aggregate of such liens, until the surrender value of the policy shall thereby be exhausted, when the policy shall cease and determine. 6. On and after January 1, 1907, the participating policy holders of this company shall receive dividends annually as ap- portioned by the company, beginning in one year from the date of the policy contract, the dividend at the end of the first year to be in lieu of the extra dividend heretofore paid at the end of the fifth year. 7. On and after January 1, 1907, the dividends on all parti- cipating policies are to be allowed and paid upon the sole con- dition that the premium payment for the policy year current shall have been completed, and no such dividend shall be for- feited or withheld by reason of non-payment of premium for the year succeeding such current year. RETALIATORY LEGISLATION. The committee has given the subject of retaliatory legislation considerable attention, and considered its effect upon life insur- ance companies and policy holders. Retaliatory laws avpear to be enacted for the purpose, First. As a standing intimidation of the legislative bodies of other states in which life insurance companies are domiciled. Second. To inflict penalties upon foreign corporations, be- cause of laws enacted by the state of their domicile. Unlike all other laws thy find no justification ir the neces- sities, conditions or demands of the people of the state. It is our opinion that these laws, while placing enormous burdens upon policy holders of this country, are of no benefit to the insurance companies. It is estimated that since their first enactment they have cost the policy holders in life insurance companies millions of dollars, without affording them one iota of benefit or pro- tection. Under the operation of these laws, a deserving company from one foreign state may be burdened with restrictions and obliga- tions as a condition of transacting a legitimate business bene- ficial to the citizens of this state; while a company from another state and of doubtful methods is admitted free from these exactions and burdens, Report of Joint Legislative Investigating Commuttee. 229 The state has a vital interest in the character, solvency and methods of all foreign insurance companies, transacting or pro- posing to transact business with the citizens of this state; but neither the state nor the public can have any concern whatever as to the policy of any other state, upon the subject of the admis- sion of foreign corporations. It is the province of each state to sletermine its own policy upon this subject, without intimidation or teference to the policy of any other state. Retaliatory laws are founded upon a contrary conception. They are unique and indefensible, and it is said they find no justification, except in the barbaric doctrine of “an eye for an eye and a tooth for a tooth.” Mr. Marshall of the Union Central, in testifying before this committee upon the subject of retaliatory laws said: “The ef- fect of these laws is vicious and imposes an additional burden on the policy holders. It makes insurance cost more.” In a recent argument made before the Wisconsin Tax Com- mission, the general counsel of the Northwestern Mutual, in speaking of these laws, said: ' “Retaliatory laws are condemned by all and defended by none.” And again, “The Northwestern Mutual asks a recommenda- tion by your honorable commission————— that such meas- ures be taken as will remove from the statute books the re- taliatory laws of this and other states.” We fully concur in the sentiments expressed in the foregoing quotations, and have no doubt, if the representatives of the in- surance companies who so uniformly and vigorously condemn these laws upon all occasions when matters relating to their taxes are pending, would unite in an effort to have them repealed, there would not be a remnant of this “relic of barbarism” upon the statute books of any state of the Union within a period of two years. The fact that other states may wait and falter 1s in our judg- ment no reason why this state should hesitate to take conspicuous leadership in the repeal of these laws. In view of the foregoing considerations, we recommend the repeal of the retaliatory laws now in force in this state. 230 Life Insurance Corporations of Wisconsin. FRATERNAL INSURANCE. The committee, early in its deliberations, found that the prob- lems relating to legal reserve companies were such as to tax all the time at its disposal, and, that there would be no time to give an adequate study to the question of fraternal insurance. It was, however, deemed advisable, to gather some statistics and in- formation as to this subject. To this end, schedules were pre- pared and sent to all fraternal organizations transacting business in this state, calling for detailed information as to their assets, liabilities, receipts, disbursements, premium or assessment rates, number of members, respectively, over and under fifty years of age, and the number of deaths in each class; the amount of in- surance in force and amount of assessments collected from each class, and the maximum and minimum policies issued on a single risk, together with other information bearing on their business and methods. The committee held one open session to which the commis- sioner of insurance of this state, and representatives of all the fraternal orders doing business in the state, were invited. This meeting was very largely attended, and the committee recom- mends that the legislature order the proceedings of this meeting printed. The law does not require the fraternal societies to carry any reserve, and they are charged with no reserve liability in deter- mining their solvency, no matter on what assumptions their pre- miums or assessments are based. It is also generally known that they provide no reserve, the excess of their assets over their liabilities constituting merely a surplus which most nearly cor- responds to the surplus of the legal reserve companies. The result is that fraternal societies, paying their death claims from year to year, and having no provision in accumulated assets for insurance beyond the current year, are in reality writing tem- porary insurance, which is furnished at a high charge to the younger members, and an insufficient charge to the older mem- bers. Many of the difficulties which confront fraternal societies arise from the fact that the certificates or contracts issued by them, are understood: by their members to be practically, whole iife insurance contracts. Any one familiar with the principle of charging the cost of insurance upon the amount at risk, can Repori of Joint Legislative Investigating Committee. 231 readily understand that the fraternal societies, accumulating no reserve, and hence having at risk, an amount equal to the full tace of the certificate throughout the whole period of the con- tract, must in the higher ages come to a disastrous end, because the premiums or assessments collected are too small to meet the death claims. This is well illustrated by the reports submitted to the committee by two societies. One reports for the year 1904, 3170 members under fifty years of age, and 2222 over fifty years of age; that in the class under fifty years of age there were 16 death claims, amounting to $17,000, and there was collected from this class $36,647; that in the class over fifty years of age, there were 49 death claims, amounting to $49,000, and there was col- lected from the members of this class $34,684. It thus appears that while the younger class had but 35% of the losses, they paid over 52% of the assessments. Another society reports for the same year 756 members under fifty years of age, with three death claims, and that there was collected from the members of this class $10,759. This society also reported 683 members over fifty years of age, with 21 death claims, and a collection from this class in assessments of $9,971. It appears from this report that the younger class sustained but 14% of the losses, and paid almost 52% of the assessments. There are several other societies in a similar condition, though not so extreme. It is but just to say that these difficulties in the fraternal sys- tem of insurance are recognized by many of the representative officials. There are, however, many honest and influential mem- bers within their ranks, who fully believe that their methods are correct, and that they will be able to continue their business along the present lines, notwithstanding hundreds of similar or- ganizations operating under this plan have failed on account of the increased death claims in the higher ages, exceeding the ability or willingness of the members to pay the assessments. The subject of excessive expenses has received much consid- eration in the preceding pages, and in this and other connections, the fraternal societies manifest some elements of strength. A comparison between the fraternal societies and the legal reserve companies as to the expenses, and the actual benefits paid in death claims, is instructive. The actual value of the insurance furnished by any company 232 Life Insurance Corporations of Wisconsin. for any current year, exclusive of the expense element, is shown by the payment of death claims. This is true without regard to the kind of company or society, and without regard to the kind of insurance written. The following figures are taken from the report of the commissioner of insurance for Wisconsin, for the year ending December 31, 1905: In the Northwestern Mutual the actual death claims paid amounted to $4,989,073, while the total expense amounted to $5,538,177. or 111% of the death claims. Of this expense $5,156,504 was insurance expense, or 105% of the death claims. The total death claims of the thirty-five companies doing business in Wisconsin were $92,360,127, and the total expenses $122,- 399,598, or 132% of the death claims. The Modern Woodmen of America, the largest fraternal society disbursed for death claims the amount of $6,616,044, and disbursed for expenses $938,020, or 14% of the death claims. The death claims of sixty-seven fraternal societies doing business in this state amounted to $43,888,503, and the disbursements for expenses to $6,685,432, or 15% of the death claims. It should ke noted in this connection that a share of the ex- penses of the legal reserve companies, consists of investment expenses and taxes, which are practically omitted from the ex- penses of fraternal societies, but as these expenses constitute a very small proportion of their aggregate expenses, the ratio is not greatly altered. It appears from the foregoing that while the death claims of ‘the legal resorve companies doing business in this state amount to but a little over double those of the fraternal societies, the ex- penses of the legal reserve companies amount to eighteen times those of the fraternal societies. Much of this difference in ex- penses is due to the fact that in the fraternal societies the solicit- ing of new business is done practically without compensation, whereas, in the legal reserve companies, where everything must be paid for, this is often the greater part of the expense. The tendency to extravagant expenses of management has spread to the fraternal societies many of which show a great increase in expenses in recent years. The value of the foregoing comparisons would be greatly strengthened to the credit of the fraternal societies, if they repre- sented their insurance to be what it really is, merely temporary Report of Joint Legislative Investigating Committee. 233 insurance and generally written at insufficient rates for the higher ages. These societies have a representative government, which comes nearer to making them mutual in fact, than any other form of insurance organization. Their social bonds do much to prevent lapses and induce the younger members to bear the inequalities in the charges for insurance. We are convinced that an earnest effort is being made by many of these societies to devise some feasible plan of avoiding the difficuties mentioned. Several of the leading representatives of the fraternals who appeared before the committee, urged the propriety of advertising and writing their insurance for what it really is. The committee does not feel, from the study it has been able to give this subject, it is prepared to recommend any legislation which would prove beneficial to the members of these societies. INDUSTRIAL INSURANCE, No original investigation has been made by the committee on the subject of industrial insurance, but we desire to call atten- tion to its condition as developed by the New York committee and as shown in the reports made to the insurance commissioner. These serve to make clear the fact that there is excessive waste in the business as at present conducted, and consequent loss to the policy holders. An examination shows that the average of all policies in force Dec. 31, 1905, was less than $150, and that the rates charged are nearly double those of old line lezal reserve companies. The policy holders are as a rule least fa- miliar with business and least able to sustain the loss. They are entitled to every safeguard which it is within the power of the state to provide. The problems involved in this kind of in- surance are similar to those which have been considered in the report, and the evils are accentuated by the conditions above stated. The commitee has made frequent requisitions upon the in- surance companies doing business in the state and has requested tabular statements of their conditions and methods of doing business. With but one exception, the requisitions have been cheerfully honored and much valuable data has been furnished to the committee. 234 Life Insurance Corporations of Wisconsin. We are further pleased to say that the companies examined by the committee extended every courtesy during the preparation for hearings and promptly complied with all demands made upon them. in conclusion, the committee states it has endeavored through- out this investigation to make a thorough and impartial exami- nation of the life insurance business. To this end, experienced legal counsel, capable actuaries and the best procurable assist- ants have been engaged to aid in the public hearings, drafting of the report and in preparing such legislation as appears to be necessary to better protect the interests of the people of Wis- consin, With this report, we transmit the following proposed bills: 1. A bill defining the terms used in legislation relating to life insurance. 2. A bill to provide for and regulating the election of aircs- tors and trustees of domestic mutual life insurance companies. 3. on said Investments............ SiSteragcigied 281 senee 282 Life Insurance Corporations of Wisconsin. INVESTMENTS HELD. 94. Market Value December 31, 190, of Real Estate then owned and remaining unsold December 31, 190 ....... fai Cpgiainieia oamreneia 95. Market Value December 31, 190 ......... cece cece eee eens —@$——_ revere 96. _ Biamesnawanmanemiey on said Real Estate during the year... ....6. ss.eee 97. Market Value December 31, 190 , of other Investments then owned and remaining unsold December 31,190) se ewesee: ad wee 98. Mies Value of same December 31, 190 ...........eeeeee aa SDs 99, ..on said Investments during the year... ...... sees de, aeaeraiy a 100. ..on sale during the year of Real estate acquired since December 31, 190 .........seeeeeeeenee antag Leese wiersieieid IOle =" avausrivooemittinrts on sale during the year of other In- vestments acquired since December 31, 190 .........- Theeee Agate: petinte 102. Meo cea eatuonpalbls ae a from all other sources (give items and 103. 104. . OSs. Siisneeavaescnars unaccounted for .. 106. Total Gains and Losses in Surplus du SURPLUS. 107. Surplus December 31, 190 .. iS) Sigel. se eter: 108. Surplus December 31, 190 .. ee see 109. ....crease in Surplus (enter in columm to balance)...... 0 ....... —— ——— 110. Totals caps estes INTERROGATORIES REGARDING NEW BUSINESS. 111. Expected Death Losses during 190 on all policies issued during said year per Mortality tables used by the Company in Computing TUS. PLCMTUIS! esesscecs os cio ws asdonianbas areanvn.win og aos ere tegpaierecsicieserere a9 96 24 diareanerelanees antes Pisses 112. Death Losses incurred during 190 on said policies (not deducting re- SCPVES)! ccascaeaee we sania. 113. Reserves released during 19 D for not more than ONE YEAR had been_paid less $.......... being cash value, or the value of Term Extension or Paid up Insurance ANG Wed! ENELEON. soos neac seek osc acs ania wane eunn Siarede 114. Loading on First Year’s Premiums on Policies issued in 19 , (averaging...... per cent. of the Gross Premiums) ................ Bu eccia 115. Expenses chargeable to First Year’s Insurance, viz.: 116. Comuiissions on first year’s premiums ................0008 Na@ele 117. Compensation not paid by Commission, for services in obtaining new insurance, exclusive of salaries paid in good faith for Agency Supervision either at the Home Office or at Branch offices ............... cece ee eee aes 118. Medical examinations and inspections of proposed risks ..... a lly. AVGVANCES HO GNBOTUS: | crsiaesancarcnenians. BL Z090-. fis ais sceieiscied’dais||s vizcarentacss Boch |iiveteindiqusie at eeosane raat 35 $1,078,490 80,353 $13.42 $13.03 $13.03 D sautasita 3 2,167, 834 79,611 27.23 25.44 13.02 & wese as 38 3,263,246 78,862 41.42 40.21 12.98 Dieta se 39 4,373,841 78,106 56.00 64.37 | ' 12.95 40 5,488,739 77,341 70.97 68.90 12.90 5 41 6,610, 9°6 76,567 $6.34 83.83 12.86 Bi vessseet 42 7,738, T11 75,782 102.12 |. 99.14 12.80 Do rasianste 43 8,870,318 74,985 118.29 114.85 12.73 LO sese caters 44 10,003,235 74,173 134.86 130.93 12.64 ete. ete. ete. ete. ete. etc. 1=(9)—(10) 2=(11)+(12) $=(12)-+1.03 (16) (17) (18) (19) Policy year. Attaived | Amount at | Death rate Cost of Charge for age. at risk or probabil-| insurance.? |death claims during the jity of dying at beginning 1 year.i ‘| during the of year.3 year, 85 $1,900.00 008,946 $8.95. $8.69 36 986.53, -009 , 089 8.97 8.71 37 972.77 009, 234 8.98 8.72 33 958.58 -005, 408 9.02 8.76 39 944.00 -009 , 586 9.05 8.79 40 929.03 -009.794 9.10 8.84 41 913.66 -010,008 9.14 8.88 42 897.83 -010.252 9.21 8.94 43 881.71 -010,517 9.27 9.01 44 865.14 «010,829 9.37 9.10 ete. ete. etc. etc. ete. 1=$1,000—(13) 2=(16)><(17) 8=(18)+1.03 296 Appendix. AN ORDINARY LIFE POLICY WITHIN PROPOSED PLAN. The next schedule shows for the entire possible history of the policy, 61 years, the progress of a fund made up of the annual premium payments of 81,822 persons aged 35, each purchasing an ordinary whole life policy of insurance for amount $1,000. The annual premium, *$26.15, provides for a loading or expense charge, available at the beginning of the policy year, as follows: Ist year, $14.50; 2nd year, $8.50; 3d year, $6.50; 4th year, $8.50; 5, 6, 7, 8, 9, 10th years, each $6.50; every year there- after, $3.00. The present value of all the expense charges pro- vided for in the policy, calculated according to the American Ex- perience table of mortality with 3% interest, is $100.98, or $3.99 less than the allowance under the proposed limitation as to ex- penses of insurance management. The summary, which precedes the schedule, shows that the first premium is apportioned as follows: for expenses of insur- ance management, $14.50, for mortality charge or expected death claims $8.66; for deposit to mature the policy according to its terms, $2.99; total, $26.15. Up to age 71 the deposit is annually increased by additions from the premium payments, thereafter, when the combined expense and mortality charges are in excess of the annual premium, the deposit is drawn upon to provide such part of the combined expense and mortality charges as is not met by the premium. It appears from the summary and schedule that the amount at risk or insurance protection beyond age 70 is comparatively small and that the cost of such protection is very high. * The annual premium actually employed in the calculation of the schedule to eight places of decimals is $26.15276423, and is based on the American Experience table of mortality with 3 per cent interest. Schedules Illustrating Various Plans. 297 SUMMARY OF THIRD SCHEDULE. Amertean Experience Table of Mortality. Interest Rate 3 Per Cent. Ordinary Life Policy. Amount $1,000. Age 35. Annual Premium $26.15. ac ae ee Addition to |Withdrawal olicy aine Xpense ortality | 4 Year. age. charge. Chareo. Deposit. deposit at beginning of year. | 35 $14.50 $8.66 $2.99 36 8.50 8.71 12.02 37 6.50 8.75 23.28 33 8.50 8.82 382.81 39 6.50 8.88 44.56 40 6.50 8.95 56.60 41 6.50 9.02 68.93 42 6.50 9.12 81.53 43 6.50 9.22 94.41 44 6.50 9.35 107.54 45, 3.00 9.45 124.48 46 3.00 9.58 141.78 47 3.00 9.73 159.45 48 3.00 9.92 177.46 49 3.00 10.16 195.78 50 3.00 214.38 51 3.00 233.23 52 3.00 252.33 53 3.00 271.63 54 3.00 3 291.11 55 3.00 ‘ 310.69 56 3.00 f 330.48 57 3.00 : 350.30 58 3.00 : 370.18 59 3.00 4 390.09 60 3.00 : 409.97 61 3.00 7.53 429.80 62 3.00 6.83 449 52 68 3.00 6.12 469 14 64 3.00 5.37 488.58 65 3.00 4.57 507.81 66 3.00 3.74 526.79 67 3.00 2.88 545.48 68 3.00 1.98 563.82 69 3.00 1.07 581.81 70 $3.00 $0.12 $599.38 71 3.00 616.53 nR 3.00 633.30 73 3.00 649.70 74 3.00 665.79 ve} 3.00 681.62 76 3.00 697 .22 v7 3.00 712.61 id 3.00 RV.77 79 3.00 742.69 80 3.00 757 .26 81 3.00 771.52 82 3.00 785.51 83 3.00 799.37 84 3.00 813.18 85 3.60" $26.79 86 3.00 $39.98 87 3.00 852.42 88 3.00 864.14 89 3.00 875.43 90 3.00 886.50 91 3.00 896.80 92 3.00 905.20 93 3.00 913.08 94 3.00 920.12 95 3.00 298 Appendix. THIRD SCHEDULE. Exact value of annual premium, $26.15276423. (1) (2) (3) (4) (5) (6) (7) Policy | Attained | Number of |Reservefund| Premium | Expense Expense year, age. members at] of preced- receipts charge on provision beginning ing year {at beginning] each policy, for the of year, brought of year.? year.? forward. 3b 81,822 $000,000 $2,139,871 $14.50 $1,186,419 386 81,090 $250,056 2,120,728 8.50 689,265 37 80,353 994,964 2,101,453 6.50 522,294 38 79,611 1,909,346 2,082,048 8.50 676,693 39 78,862 2,665,142 2,062,459 6.50 512,603 40 78,106 3,585,448 2,042,683 6.50 507,689 41 77,341 4,509,060 2,022,681 6.50 502,717 42 76,567 5,435,895 2,002,439 6.50 497 686 43 75,782 6,363,868 1,981,909 6.50 492,583 44 74,985 7,291,790 1,961,065 6.50 487,403 45 74,173 8,216,416 1,939,829 3.00 222,519 46 73,345 9,403,737 1,918,174 3.00 220,035 47 72,497 10,585,933 1,895,997 3.00 217,491 48 71,627 11,763, 402 1,878 ,244 3.00 214,881 49 70,731 12,928,418 1,849,811 3.00 212,193 50 69, 804 14,076,018 1,825,568 3.00 209,412 51 68,842 15,200,938 1,800,409 3.00 206,526 52 67,841 16,297 , 666 1,774,230 3.00 2038 , 523 53 66,797 17,360,423 1,746, 3.00 200,391 54 65,706 18,383,167 1,718,394 3.00 197,118 55 64,563 19,358,576 1,688,501 3.00 193,689 56 63,364 20,279,990 1,657,144 3.00 190,092 57 62,104 21,139,453 1,624,191 3.00 186,312 58 60,779 21,929 , 652 1,589,539 3.00 182,337 59 59,835 22,642,960 1,558 , 082 3.00 178,155 60 57,917 23,270,423 1,514,690 3.00 173,751 61 56,371 23,803,702 1,474,251 3.00 169,113 62 54,743 24,234,112 1,431,681 3.00 164,229 63 53,030 24,553,611 1,386,881 3.00 159,090 64 51,230 24,754,844 1,339,806 3.00 153.620 Bl. awiecelaed 65 49,341 24,830,189 1,290, 3.00 148,023 BR casayaaacs 66 47,361 24,771,747 1,238,621 3.00 140,083 33 67 45,291 24,574,333 1,184,485 3.00 135,873 68 43 ,133 24,233,634 1,128 ,047 3.00 129,899 69 40,899 23,746,250 1,069,387 3.00 122,670 70 38,589 23,112,756 1,008 ,686 3.00 115,707 71 36,178 22,334,907 946,155 3.00 108 , 534 72 33,730 21,419,703 882,133 3.00 101,190 73 31,243 20,379,685 817,091 3.00 93,729 Th 28,738 19,231,118 751,578 3.00 86,214 75 26,237 17,992,377 636,170 3.00 78,711 16 23,761 16,681,831 621,416 3.00 71,283 7 21,330 15,317,422 557,838 3.00 63,990 78 18,961 13,917,124 495,883 3.00 56,883 79 16,670 12,495,807 435,967 3.00 50,010 80 14,474 11,072,217 378 535 3.00 43 , 422 81 12,383 9,658,550 323,850 3.00 37,149 82 10,419 8,279,680 272,486 3.00 31,257 83 8,603 6,960, 462 224,992 3.00 25,809 St 6,955 5,726,434 181,892 3.00 20,865 85 5,485 4,594,086 143,448 3.00 16,455 8 4,193 3,570,711 109,659 3.00 12,579 87 3,079 2,663,824 80,524 3.00 9,287 88 2,146 1,884,165 56,124 3.00 6,438 89 1,402 1,247,866 36,666 3.00 4,206 £0 847 763,736 22,151 3.00 2,541 OL 462 421,847 12,803 3.00 1,38 92. 216 199,520 5,649 3.00 645 93 79 73,656 2,068 3.00 237 o4 a1 19,750 649 3.00 63 95 3 2,843 78 3.00 9 1 =(3)826 15 x 276423 2 =(3) x (6) 1=(3) x $26,15276423 #=(8)x(6) Schedules Illustrating Various Plans. 299 THIRD SCHEDULE (continued). (8) (9) (10) (11) Policy year. Attained | Fund at be- Fund in (8) | Expected | Fundatend age. ginuing of | improved death of year year less jat3 percent) claims dur- | efter pay- expenses.! interest.? ing year. ment of death claims. 35 $953 , 452 $982,056 $732,000 $250,056 36 1,681,519 1,731,964 737 ,000 994, 964 37 2,574,123 2,651,346 742,000 1,909,346 38 3,314,701 8,414,142 749,000 2,665,142 39 4,214,998 4,341,448 756,000 3,585,448 40 5,120,447 5,274,060 765,000 4,509,060. 41 6,029,025 6,209,895 774,000 5,435,895 42 6,940,649 7,148,868 785,000 6,363,838 43 7,853,194 8,088,790 797,000 7,291,790 44 8,765,452 9,028,416 812,000 8,216,416 45 9,933,726 10,231,737 828,000 9,403,737 46 11,101,877 11,434,933 848,000 10,586,933 - 47 12,265,439 12,633,402 870,000 11,763,402 4S 13,421,765 13,824,418 896,000 12,928, 118 49 14,566,037 15,003,018 927,000 14,076,018 50 15,692,173 16,162,938 962,000 15,200,938 51 16,794,821 17,298 , 666 1,001,000 16,297 ,656 52 17,868,372 18, 404 423 1,044,000 17,360,423 53 18,906,959 19,474,167 1,091,900 18,383,167 54 19,904,443 20,591,576 1,142,000 19,358,576 55 20,853,388 21,478,990 1,199,000 20,279,990 56 21,747,042 22,399,453 1,260,000 21,139,453 57 22,577 , 332 23,254,652 1,325,000 21,929,652 58 23, 336,854 24,036,960 1,394,000 22,642,969 59 24,017,886 14,739,423 1,468,000 23,270,423 60 24,611,362 25,349,702 1,546,000 23,803,702 61 25,108,847 25,862,112 1,628,000 24,234,112 62 25,501 , 564 26,266,611 1,713,000 24,553,611 63 25,781,402 26,554,844 1,800,000 24,754,844 GL 25,940,960 26,719,189 1,889,000 24,830,189 65 25,972,570 26,751,747 1,980,000 24,771,747 66 25,870,235 26, 646,393 2,070,000 24,574,333 - 67 25,622,745 | 26,391,428 2,158,000 24,233 634 68 25,232,282 i 25,989,250 2,243,000 23,746,250 69 24,692,967 | 25,433,756 2,821,000 23,112,756 70 24,095,735 : 24,725,907 2,391,000 22,334,907 71 23,172,527 | 23,867,703 2,448 ,000 21,419,703 72 22,200,646 22,866,665 2,487,000 20,379,665 3 21,103,027 | 21,736,118 2,505,600 | 19,231,118 74 19,896,482 | 26,493,377 2,501,000 17,992,377 75 | $18,599,836 | $19,157,831 $2,476,000 | $16,681,831 16 17,231,964 17,748 ,922 2,431,000 15,317,422 77 15,811,771 16,286,124 2,369 ,000 18,917,124 73 14,356,124 14,786,807 2,291,000 12,495,807 19 12,881,764 13,268,217 2,196,000 11,072,217 80 11,407,330 11,749,550 ~ 2,091,000 9,658,550 81 9,945,251 10,243,608 1,964,000 8,279, 698 82 8,520,837 8,776,462 1,816,000 6,950,462 83 7,159,645 7,374,434 1,648,000 5,726,434 84 5,887,462 6,064,085 1,470,000 4,594,806 85 4,721,079 4,832,711 1,292,000 3,570,711 86 8,667,791 3,777,824 1,114,090 2,653,824 is 2,735,112 2,817,165 933,000 1,884,165 88 1,933,851 1,991,865 744,000 1,247,835 - 89 1,280,327 1,318,736 555,000 763,733 90 783,347 806,847 385,000 421,847 “91 432, °44 445,520 246,000 199,520 ‘92 204,521 210,657 137,000 73,656 93 75,486 77,750 58,000 19,750 94 20,236 20,844 18,000 2,843 95 2,913 3,000 3,000 0.000 1=(4)4(5) (7) 2 =(8) x 1.03 * =(9)—(10) 1=(4)-+()—(7) *—=(8) x 1.03 ?=(9)—(10) 300 Appendix. THIRD SCHEDULE (continued). 12) (13) (14) Policy year. Attained Terminal | Deposit or age. Number of reserve discounted survivors on policy terminal atend of of each reserve.? year. survivor. 1 35 81,090 $3.08 $2.99 2 36 80,353 12.38 12.02 3 37 79,611 23.98 23.28 4 38 78, 862 33.80 32.81 5 39 78,106 45.90 44.56 6 40 77,341 58.30 56.60 7 41 76, 507 71 00 68.93 8 42 75,782 83.98 81.53 9 43 74,985 97.24 94.41 10 44 74,173 110.77 107.54 11 45 73,345 128.21 124.48 12 46 72,497 146.03 141.78 13 47 71,627 164.23 159.45 14 48 70,731 182.78 177.46 15 49 69,804 201.65 195.78 50 68,842 220.81 214.38 51 67,841 240.23 233.23. 52 66,797 259.90 252.33 53 65,706 279.78 271.63 5+ 64,553 299. 84. 291.11 55 63,364 320.06 310.69 56 62,104 340.39 330.48 57 60,779 360.81 350.30 58 59,385 381.29 370.18 59 57,917 401.79 390.09 60 56,371 422.27 409.97 61 54,743 442.69 429.80 62 53,030: 463.01 449.52 63 51,230 483.21 469.14 64 49,341 503.24 488.58 65 47,361 523.04 : 66 45,291 542.59: 526.79 67 43,133 561.84 545.48 68 40,890 580.73 563 82 69 38,569 599.26 581.81 70 86,178 617.36 599.38 71 33,730 635.03 616.53 72 31,243 652.30 633.30 3 28,738 669.19 649.70 74 26,237 685.76 665.79 15 23,761 702.07 681.62 76 21,330 718.14 697.22 77 18,961 723.99 712.61 73 16,670 749.60 727.77 79 14,474 764.97 742.69 80 12,383 779.98 ‘157 26 81 10,419 T9466 771.52 82 8,603 809.07 785.51 83 6,955 823.35 199.37 84 5,485 837.57 813.18 85 4,193 851.59 826.79 &3 3,079 865.16 839.96 S7 2,146 877.99 852.42 ss 1,402 890.06 864.14 89 S47 901.70 875.43 90 462 913.09 886.50 91 216 923.70 896.80 92 19 932.36 905.20 93 al 940.47 913.08 94 3 947.72 920.12 95 0 1,000 00 970.87 1 =(i1+113) 2 (12)+1.08 1 =(11)-+(12) 2 (12)+1.03 Schedules Illustrating Various Plans. 301 (15) (16) (17) (18) (19) Policy| Attained | Addition ;Withdraw-|Amount at|Death rate} Cost of |Charge for year. age. to al from risk dur- | or proba- |insurance.?{ death ing year.!| bility of claims at ae dying dur- beginning Deposit at beginning ing year, of year.9 of year. 1 35 $2.99 $996 92 -008 946 $8 92 $8 66 2 35 8 987 62 -009.089 8 98 8 71 3 37 10 90 976 02 009 , 234 9 O1 8 75 4 8 83 966 20 009,408 9 09 8 82 5 39 10 77 954 10 009,486 9 15 8 88 6 40 10 10 941 70 009,794 9 22 8 95 7 41 10 63 927 00 -010, 008 9:0 9 02 8 42 10 53 916 02 010,252 9 39 9 12 9 43 10 43 902 76 010,517 ~ 49 9 22 10 44 10 30 889 23 -010,829 S 63 9 35 11 45 13 70 871 79 -011, 163 9 73 § 45 12 46 13 57 853 97 011,562 2 87 9 58 13 47 13 42 -835 17 -012, 000 iu 03 9 73 14 48 13 23 817 22 O12 ,5U9- 10 22 9 92 15 49 12 99 798 35 013,106 10 46 10 16 16 50 12 73 779 19 -013,781 10 74 10 42 17 oL 12 42 159 17 014,541 11 05 10 73 18 52 12 09 740 10 -015, 389 11 39 11 06 19 53 41 73 720 22 016 333 11 76 11 42 20 54 11 33 700 16 017, 395 12 18 11 82 21 55 10 89 679 94 018,571 12 63 12 26 22, 56 10 42 659 61 01,885 13 12 12 73 23 57 9 OL 639 10 021,335 13 64 13 2t 24 58 9 37 618 71 022, 936 1d 19 13 78 25 59 8 79 538 21 024,720 14 79 14 36 26 60 8 18 577 73 026,693 15 42 14 97 27 61 753 5357 31 028 ,880 16 10 15 62 62 6 83 536 99 031,292 16 80 16 32 29 63 6 12 516 79 033, 943 17 54 17 03 30 64 5 37 496 76 -036, 873 18 32 17 78 31 65 4 57 476 96 -040,129 19 14 18 58 32, 66 3 74 457 41 043,707 19 99 19 41 33 67 2 88 438 16 .047 647 20 88 20 27 34 68 1 98 419 27 052,002 2L 80 2017 35 69 1 07 400 74 056 , 762 22 75 22 08 36 70 0 12 382 64 .061,993 23 72 23 03 37 71 3 0 83 36L 97 067 , 665 24 70 23 98 33 72 1 74 347 70 073,733 25 64 24 89 39 B 2 60 330 81 080,178 26 52 25 75 40 74 3 40 314 24 -087, 028 27 35 26 55 41 ve) 414 297 93 094,371 28 12 27 29 42 76 4 85 281 86 -102, 311 28 84 28 00 s3 7 5 53 266 OL 111,064 29 54 28 68 44 78 6 22 250 40 120,827 30 26 29 37 45 19 6 91 235 03 131,734 30 96 3U 06 46 80 771 220 02 144, 466 31 79 °0 86 AT 81 8 47 205 34 158, £05 32 57 31 62 48 82 916 190 93 «174,297 33 28 32 3L 49 83 9 70 176 65 -191,56L 33 84 32 85 50 84 10 18 162 43 211,359 34 33 33. 33 51 85, 10 79 148 41 235, 550 34 46 33 94 52 86 11 63 134 84 - 265,681 35 82 34 78 53 87 12 74 122 01 - 803,020 36 97 35 89 54 88 13 85 109 94 346 692 38 12 37 00 55 89 14 63 99 30 395 , 863 38 92 37 78 56 90 15 20 89 91 454,545 39 51 38 35 57 91 16 29 76 30 532,468 40 63 39 44 58 93 tid Scie 18 50 67 64 634,259 42 90 41 65 59 OS ntsreraectestiiees 19 28 59 53 - 734, 177 43 71 42 43 60 DES Naistesrerasrecrsa 20 3% 52 28 -857, 143 44 81 43 50 61 95 23 15 00 00 00 00 | 1.000, 00 00 1=$1000—(13) 2=(16) x (17) 8=(18)+1.03 302 Appendix. FIRST PREMIUM $10 HIGHER THAN SUBSEQUENT PREMIUMS. The following schedtile shows for ten years the progress of a fund made up of the annual premium payments of 81,822 persons aged 35, each purchasing an ordinary whole life policy of insur- ance for amount, $1,000. The first annual premium is *$35.65, the subsequent annual premiums are *$25.65. They provide for an expense charge, available at the beginning of the policy year, as follows: first year, $14.57; every year thereafter, $4.57. The present value of all the expense charges provided for in the policy, calculated according to the American Experience table of mor- tality with 3% interest, is $101.02, or $3.95 less than the allow- ance under the proposed limitation as to expense of insurance management. The summary, which precedes the schedule, shows that this plan differs from the net level premium with uniform loading plan merely in an additional collection of ten dollars in the first premium to meet the initial expenses of insurance management. The mortality charge and deposit columns are the same in the two plans. *The actual premiums employed In the calculation of the schedule to six places of decimals are; first premium $35.651236, subsequent premiums $25.651236. eee, ute based on the American Experience table of mortality with 3 per cent nterest. Schedules Illustrating Various Plans. 803 SUMMARY OF FOURTH SCHEDULE. First Premium Higher than Subsequent Premiums. American Experience Table of Mortality. Interest Rate 3 Per Cent. Ordinary Whole Life Policy. Amount, $1,000. Age, 35. Annual Premiums, first $35.65, Subsequent, $25.65. Addition to Policy | Attained Annual Expense Mortality | deposit at F year. age. premium. charge. charge. beginning Deposit. of year. 35 $35.65 $14.57 $8.57 $12.51 $12.51 35 25.65 4.57 8.59 12.49 25.37 37 25.65 4.57 8.61 12.47 38.60 38 25.65 4.57 8.64 12.44 52.20 39 25.65 4.57 8.67 12.41 66.17 40 25.65 4.57 8.72 12.36 80.52 41 25.65 4.57 8.76 12.32 95.26 42 25.65 4.57 8.82 12.26 110.37 43 25.65 4.57 8.89 12.19 125.87 44 25.65 4.57 8.98 12.10 141.75 ete. ete. ete. ete. ete. etc. 304 Appendix. FOURTH SCHEDULE. Tirst Premium Higher than Subsequent Premiums. (1) (2) (3) (4) (4a) (5) (6) Policy Attained | Numb r of Reserve *Annual Premium Expense year age m:mbersa fund of premium. receipts at | charge on beginning | preceding beginniug | each policy. of year. {vear brought of year,! forward. | 35 81,822 $0,000,000 $35.65 2,917,055 $14.57 36 81,090 $1,044,656 25.65 2,080, 4.57 37 80,353 2,099,758 25.65 2,061,154 4.57 38 79,611 3,165,509 25.65 2,042,1 4.57 39 78,862 4,240,122 25.65 2,022,908 4.57 40 78,106 5,323,709 25.65 2,003,515 4.57 41 77,341 6,414,388 25.65 1,983,892 4.57 42 76, 567 7,512,177 25.65, 1,964, 4.57 43 75,782 8,615,093 25.65 1,943,902 4.57 44 74,985 9,722,052 25.65 1,923,458 4.57 ete. ete. ete ete. ete. ete. 1=(3)x(4a) *Tirst premium, $35.651236, subsequent premiums, $25.651236. (7) (8) (9) (10) Policy year. Attained Expense Fund at | Fund in (8) | Expected age. provision | beginning | improved at death claims for the )ear.?; of year less] 3 percent |during year. expenses.8 interest.4 35 $1,192,147 $1,724,908 $1,776,656 732,000 36 iy 2,754,134 2,836,758 737,000 37 367 ,213 3,793,699 3,907,509 742,000 88 363 , 822 843, 4,989,122 749,000 39 369,399 5,902,631 6,079,709 756,000 40 356,944 6,970,280 7,179,338 765 ,000 41 353,448 8,044,832 8,286,177 774,000 42 349,911 9,126,304 9,400,093 735,000 43 346 , 324 10,212,671 10,519,052 797,000 44 342,681 11,302,829 11,641,913 812,000 ete. ete. ete. ete. etc. 3=(3)x(6) *=(4)x(5)—(7) “.=(8)+1.03 Schedules Illustrating Various Plans. 305 FOURTH SCHEDULE (continued). First Premium Higher than Subsequent Premiums. (11) (12) (13) (14) (15) Policy | Attained Fund at | Number of | Terminal | Deposit, or| Addition to year. age. end of year | survivorsat| reserve on | discounted | deposit at after pay- | end of year.| policy of terminal beginuipg ment of each sur- reserve.” of year. death vivor. ® claims.§ 35 $1,044,656 81,090 $12,883 $12.51 $12.51 86 2,099,758 80,353 26.13 25.37 12.49 37 3,165,509 79,611 39.76 38.60 12.47 38 4,240,122 78,862 53.77 52.20 12.44 39 5,323,709 78,106 68.16 C3.17 12.41 40 6,414,388 77,841 &2.94 80.52 12.36 41 7,512,177 76,567 98.11 95.26 12.32 42 8,615,093 75,782 113.68 110.87 © 12.26 43 9,722,052 74,985 129.65 125.87 12.19 44 10,829,913 74,173 146.01 141.75 12.107 ete. ete. ete. ete. ete. etc. °=(9)—(10) 6=(11)+(12) 7=(12)+1.03 (16) (17) (18) (19) Policy year. Attained Amount | Death rate, Cost of Charee for age. at risk dur-| or probabil-| insurance.® |death claims ing year.® | ity of dying at beginning during years of year!9, As - praretustewiy soiarecneratoneriia’ 35 $987.12 -008 ,946 $8.83 $8.57 @ acneardenaraonmens ! 36 973.87 009,089 8.85 8.59 8: sygidhnaanhersigateeyats ! 37 960.24 009,234 8.87 8.61 Ab raisciecticudtentaivaicwisiatons 38 946.23 -009, 408 8.90 8.64 DS Feslna. Maes ctaneavinacsessoverspsrens | 39 931.84 009.586, 8.93 8.67 Oi aise satiinntaaiatea stain | 40 917.06 009,794 8.98 8.72 EEE Sas ale sisiana Gethaavadavanctatees ' 41 901.89 -010,008 9.03 8.76 Bis ieea sap adteaaenas i 42 886.32 -010, 252 9.09 8.82 es eeed we ae aeaeciedt: 43 870.35 -010,517 9.15 8.89 MOS nacofeetie-Gessteantapacineraestias | 44 853.99 -010,829 9.25 8.98 ete. | ete. ete. ete. ete. ete. ®—$1000---(13) §=(16 x(17) 10=(18)+1.03 306 Appendix. SELECT AND ULTIMATE PLAN, The following schedule shows for ten years the progress of a fund made up of the annual premium payments of 81,822 persons aged 35, each purchasing an ordinary whole life policy of insurance for amount $1,000. The first annual premium is *$26.15 and provides for a loading or expense charge, available at the beginning of the policy year, as follows; first year *$15.81; every year thereafter $5.07. The present value of all the ex- pense charges provided for in the policy, calculated according to the American Experience select and ultimate table of mortal- ity with 3% interest, is $112.80, or $7.83 more than the allow- ance under the proposed limitation as to expenses of insurance management. A comparison with the preceding schedules shows that in each case except the last, where the first premium is higher than subsequent premiums, the annual premium is the same, $26.15, as in the present plan; and also that in each of the preceding plans the present value of the expense charges is about $101. It thus appears that when the same uniform annual premium is employed, the select and ultimate plan provides for an expense allowance whose present value is in excess of that granted under the preceding plans by about $12. This consid- eration makes clear the general truth that companies heretofore operating on the net level premium plan with uniform loading or the full or modified preliminary term plans on the American Experience table of mortality, by passing to the American Ex- perience select and ultimate table of mortality with the same rate of interest and same annual premium, will not diminish but actually increase the present value of their loadings for expenses of insurance management. This schedule is merely a straightforward book-keeping ac- count following the assumptions made; it differs from the pre- ceding schedules chiefly owing to the assumptions made in col- umn (17), “death rate or probability of dying during year,” for the first five years. The expected death rates employed are assumed to be the following percentages of those assumed in the preceding schedules; first year, 50%; second year, 65%; * The annual premium actually employed in the calculation of the schedule to six places of decimals 1s $26.151236, and is based on the American Experience select and ultimate table of mortality with 8 per cent interest. The expense charge for the first year to four places of decimals is $15.8187; it is made up of the uniform loading $5.07 and the so-called savings from mortality for the first five years, $10.7437. Schedules Illustrating Various Plans. B07 third year, 75%; fourth year, 85%; fifth year, 95%; thereafter, 100%. For example, 81,822 persons aged 35 pay an annual premium of $26.15, amounting to $2,139,746. On account of each policy $15.81 is apportioned for expenses of insurance management, making a total expense provision for the year of $1,293,908. This leaves a fund of $845,838 which invested at 3% amounts at the end of one year to $871,213. Instead of 732 deaths as shown by the American Experience table of mortality, 50% of this, or 866 deaths are assumed to occur during the year, mak- ing total death claims of $366,000. After the payment of these claims there remains a fund of $505,213 belonging to the 81,456 survivors and hence the reserve on each policy at the end of the policy year is $6.20. The reserve of each survivor who continues his insurance by paying the second premium is carried forward and added to the total premium receipts less total expenses of the second year, and so the process continues from year to year. The accumulated reserve on each policy after five years is $68.16, the same as that shown in the first schedule, and the reserves con- tinue to agree thereafter since the premiums and expense charges are alike and the assumed death rate by the American Experience select and ultimate table of mortality coincides with that by the -\merican Experience table of mortality after the fifth year. It is evident that during the first five years the former table of mortality does not provide the same margin of safety, so far as mortality is concerned, as the latter; its employment is not justified unless the applicants for insurance are subjected to and pass a most careful medical examination. SUMMARY OF FIFTH SCHEDULE. Select and Ultimate Plan. American Experience, Select and Eira, Sable of Mortality. Interest Rate e ¢ er Cent. Ordinary Whole Life Policy. Amount, $1,000. Age, 35. Annual Premium, $26.15. | Addition to wae! | : af Attained Expense Mortality | deposit at A Policy year. age. charze. charge. eecoe of Deposit. | year. | 35 $15.81 $4.32 $6.02 $6.02 36 5.07 5.61 15.47 21.67 37 5.07 6.47 14.61 36.93 38 5.07 7.385 13.73 51.77 39 5.07 8.24 12.84 66.17 40 5.07 8.72 12.36 80.52 41 5.07 8.76 12.32 95.26 42 5.07 8.82 12.26 110.37 43 5.07 8.89 12.19 125.87 44 5.07 8.98 12.10 141.75 etc. ete. ete etc ete. 308 Appendix. FIFTH SCHEDULE. Select and Ultimate Plan. (1) (2) (3) (4) (5) (6) : Attained | Number of /Reserve fund| Premium Expense Policy year. age. members at| of preced- | receipts at | charge on beginning of| ing year beginning ofjeach policy. year. brought year. forward. 35 81,822. $0,000,000 $2,139,746 $15 36 81,456. 505,213 2,130,175 37 80,974.788 1,807,866 2,117,591 38 80,413. 982 3,059,556 2,102,925 39 79,770.910 4,254,354 2,086,108 40 79,044. 432 5,387 , 627 2,067,110 41 78,270.271 6,491,439 2,046,864 42 T7 486.942 7,602 , 388 2,026,379 43 76, 692.546 8,718,590 2,005,605 44 75, 585.971 9,838,849 1,984,512 oR OMe OAAAAA Mane SS3sg Sssse etc. ete. ete. ete. et °=(8) x $26,151236 4 (7) (8) (9) (10) da E Fund Fund in (8)/d are . Attaine xpense und at und in eath claims Policy year. age. provision for} beginning |improved at| during year the year.” | of year less | 3 per cent. | by Am. Ex. expenses.®| interest.® |select and ul- timate table. 1 35 $1,293,908 $845,838 $871,213 $366,000 2 36 412,982 2,222,406 2,289,078 481,212 3 37 410,542 3,514,915 3,620,362 560,806 4 38 407,699 4,754,782 4,897,425 643, 072 5 39 404,439 5,936,023 6,114,104 726,478 6 40 400,755 7,053 , 982 7,265,600 774,161 7 41 396,830 8,141,473 8,385,717 183 ,329 8 42. 392,859 9,235,908 9,512,986 794 ,396 9 43 388 , 831 10,335,364 10,645, 425 806,575 10 44 384,742 11,488,619 11,781,778 821,769 ete. ete. ete. ete. ete. *=(3) x (6) ®=(4)+(5)—(7) *=(8) x 1.03 Schedules Illustrating Various Plans. 309 FIFTH SCHEDULB (continued). Select and Ultimate Plan. (11) (12) (18) (14) (15) Pol- Attainea |fuod at end) Number of| Terminal | Deposit or | Addition to icy ag of year after] survivors at| reserve on | discounted deposit at year. payment of | end of year.| pvlicy of terminal |begiuniug of death each reserve,14 year. claims! survivor.13 35 $505,213 81,456. $6.20 $6.02 $6.02 36 1,807,865 80,974.788 22.32 21.67 15.47 37 3,059,556 80, 413.982 38.04 36.93 14.61 38 4,254,353 79,770.910 53.33 51.77 13.73 39 5,337,626 79, 044.432 68.16 66.17 12.84 40 6,491,439 78,270,271 82.94 80.52 12.36 41 7,633,038 T1480. YA 98.11 95.26 12.0% 42 8,718,599 76 ,692.546 113.68 110.37 12.25 43 9,833,850 75,835,971 129.65 125.87 12.19 44 10,9.0,039 75, 064.202 146.01 141.75 12.10 ete. etc. ete. ete. ete. 41=(9) —(10) 18=(11)-+ (12) M4=(12)+1.03 (16) (17) (18) (19) . Attained { Amount at | Death rate Cost of Charge for Policy year. age. risk during |or probabil-| insurance.1*/death claims year.!® | ity of dying at beginning during yea”. of year.}® 35 $993.80 004,473 $4.45 $4.32 36 977.68 005,903 5.78 5.61 37 961.96 -006 , 926 6.66 6.47 38 946.67 007,997 7.57 7.35 39 931.84 -009 107 8.49 8.24 40 917.06 -009, 794 8.98 8.72 41 901.89 -010,008 9.03 8.76 42 886.32 010, 252 9.09 8.82 43 870.35 -010,517 9.15 8.89 44 853.99 010,829 9.25, 8.98 etc. ete. etc. ete. etc. 16—81,000—(13) 18=(16) x (17) 19=(18)-+-1.03 310 Appendix. MODIFIED PRELIMINARY TERM. The sixth schedule shows for its entire possible history the progress of a fund made up of the annual premium payments of 81,822 persons aged 35, each purchasing a ten year endowment policy for amount $1,000. The annual premium is *$101.73 and provides for a loading or expense charge, available at the begin- ning of the policy year, as follows: first year, $32.51; every year thereafter, $9.73. The present value of all the expense charges provided for in the policy, calculated according to the American Experience table of mortality with 3% interest, is $104.94, or $0.03 less than the allowance under the proposed limitation as to expenses of insurance management. The details of this plan, which provides for an expense provision or loading equal to the allowance under a full preliminary turn twenty payment life policy, have been fully explained in the body of the report (see page 149). The summary precedes the schedule. SUMMARY OF SIXTH SCHEDULE. PRELIMINARY TERM MODIFIED ON 20 PAYMENT LIFE BASIS. American Experience Table of Mortality. Interest Rate 3 Per Cent. Ten Year Endowment Policy. Amount, $1,000. Age, 35. Annual Premium, $101.73. | einecus a ‘i ‘3 poo to . aine xpense ortality eposit at . Policy Year. age. charge. charge. {beginning of| Deposit. year. 35 $32.51 $8.14 $61.08 $61.08 36 9.73 7.48 84.52 147.43 37 9.73 6.78 85.22 237.07 38 9.73 6.08 85.97 330.15 39 9.73 5.22 86.78 426.84 40 9.73 4.35 87.65 527 30 41 9.73 3.39 88.61 631.72 42 9.73 2.36 89.64 740.31 43 9.73 1.24 90.76 853.28 44] 9.73 0.00 92.00 970.87 ; ate insula ee ee in the calculation of the schedule to four places of decimals is ‘ » and is based on the American Experi table of mortality with 3 per cent interest. aeeaete Schedules Illustrating Various Plans. 311 SIXTH SCHEDULE. (1) (2) (3) (4) (5) (6) Policy Yoar. Attained | Numbers of/Reserve fund; Premium Expense Age. members at| of preced- | receipts at | charged cn beginning of| ing year |beginning of | each policy. year. brought year. | forward. 35 81,822 $0,000,000 $8,323,597 $32.51 36 81,090 $5,101,470 8,249,132 9.73 37 80,353 12,201,444 8,174,158 9.73 38° 79,611 19,439,580 8,098 ,676 9.73 39 78 , 862 26,817,550 8,022,481 9.73 40 78,106 34,338,886 7,945,575 9.73 41 77,841 42,005,224 7,867, 753 9.73 42 76,567 49,820,063 7,789,015 9.73 43 75,782 57,785,003 7,709,159 9.73 44 74,985 65,902 , 508 7,628,082 9.73 5==(3) x $101 7281 | (7) 8) (9) (10) Policy Year. | Attained Expense Fund at | Fund in (8) age. provision |beginning of | improved at ge jor the year less 3 per cent. during vei L year.7 expense.® interest .® & year. | 1 $2,600,033 | $5,663,564 | $5,833,470 $732,000 2 789,006 12,561,596 12,938,444 737 ,000 3 781,835 19,598 ,767 20,181,530 742,000 4 774,615 26,763,641 27,563,550 749,000 5 767 ,327 34,072,704 35,094,886 756,000 6 759,971 41,524,490 42,770,224 765,000 7 752,528 49,120,449 50,594,063 774,000 8 744,997 56,864,081 58,570,003 785,000 9 137,359 64,756 ,803 66, 699 , 508 797,000 10 729 ,604 72,800,986 74,985,015 812,000 =(3) x(6) (4) +(5)—(7)®=(8) x1.03 312 Appendix. SIXTH SCHEDULDP (continued). (11) (12) (13) (14) (15) Pol- Attained | Fund atend| Number of |Terminal re-| Deposit or | Addition to icy age. of year after survivors at) serveon | discounted | deposit at Year, payment of| end of policy of terminal beginning death year. each sur- reserye.!4 of year. claims.1! vior.?3 . 35 $5,101,470 81,090 $62.91 $61.08 $61.08 36 12,201,444 80,353 161.85 147.43 84.52 37 19,439,580 79,611 244.18 237.07 85.22 38 26,817,550 78,362 340.06 330.15 85.97 39 34,338,886 78,106 439.65 426.84 86.78 6 wessee 40 42,005 ,224 77,341 543.11 527.30 87.65 D damsions 41 49,820,063 76,567 650.67 631.72 88.61 Bru sieisiass 42 57,785,003 75,782 762.52 740.31 89.64 D dcasceiete 43 65,902,508 74,985 878.87 853.28 90.76 10 seni 44 74,173,015 74,173 1,000.00 970.87 92.00 41=(9)—(10) 18—(11) +(12) 14=(12)+1.03 (16) (17) (18) | (19) Policy year. Attainel | Amount.at| Death rate} Cost of | Charge for age. risk during | or probabil- | insurance,!§ |death claims year.16 ity of dying at beginning during of year,}® year. 35 $937.09 -008946 $8.38 $8.14 36 848.15 009089 7.71 7.48 37 755.82 009234 6.98 6.78 38 659.94 -009408 6.21 6.03 389 560.35 -009586 5.37 5.22 40 456.89 - 009794 4.48 4.35 41 349.83 010003 3.50 3.39 42 237.48 -010252 2.44 2.36 43 121.13 -010517 1.27 1.24 44 000.00 -610829 0.00 0.00 181,000 —(13) = (16)<(17) Ww (18) = 1.03 Schedules Illustrating Various Plans. 313 TEN YEAR ENDOWMENT POLICY WITHIN PROPOSED PLAN. The following schedule shows for its entire possible history the progress of a fund made up of the annual premium payments of 81,822 persons aged 35, each purchasing a ten year endow- ment policy for amount $1,000. The annual premium is *$98.11 and provides for a loading or expense charge as indicated in the third column of the summary. The present value of all the ex- pense charges provided for in the policy, calculated according to the American Experience table of mortality with 314% interest, is $91.78, or $13.19 less than the allowance under the proposed limitation as to expenses of insurance management. The de- tails of this plan have been fully explained in the body of the report. The summary precedes: the schedule. SUMMARY OF SEVENTH SCHEDULB. American Experience Table of Mortality. Interest Rate 314 Per Cent. Ten Year Endowment Policy. Amount $1,000. Age 35. Annual Premium, $98.11. | Z a | # ‘i i Addition 2 ttaine xpense ortality to Japosit : Policy year. age. charge. charge at beginnine| Deposit. of year. — J 1 35 | $28.00 | $8.09 $62.02 $62.02 2 36 | 14.00 | 7.50 76.61 140.80 3 37 7.00 6.80 84.32 230.04 4 38 14.00 6.12 17.99 316.08 5 39 | 7.00 5.30 85.81 412.95 6 40 7.00 4.43 | 86.68 514.08 7 41 7.00 3.47 | 87.64 619.71 8 42 7.00 2.42 | 88.69 730.09 9 43 7.00 | 1.27 | 89.84 845.48 10 44 7.00 i 0.00 \ 91.11 966.18 * The annual premium actually employed in the calculation of the schedule to five places of decimals is $98.10837, and is based on the American Experieuce table of mortality with 3% per cent interest. 31+ Appendix. SEVENTH SCHEDULE. Showing the progress of a fund made up of the contributions of 81,822 2 aged 35, each purchasing a ten year endowment insurance for amount $1,000. The annual premium,* $98.11, provides for an expense charge available at the beginning of the policy year, as follows: Ist year, $28; 2d year, $14; 8d year, $7; 4th year, $14; 5, 6, 7, 8, 9, 10th years, each $7. American experience mor- tality table with 3% per cent interest. 16) | (2) (2) | (4) (5) A ‘i ee of lReserve tae Brest ge ; ttaine members at !of preceding|ceipts at be- Policy year. age. beginning ofjyear brought) ginning of year, | forward. year.! D5 35 81,822 $0,000,000 $8,027 , 423 Dai 36 81,090 5,205,181 7,955 608 2. 37 80,353 11,709,423 7,883, 302 4. 38 79,611 18,954,313 7,810,505 5. 3 78,862 25,799,023 7,737,022 6. 40 78,106 33,382,451 7,662,852 Ue 41 97,341 41,151,011 7,587,799 &. 42 76,567 49,110,333 7,511,864 Do 43 75,782 57,264,246 7,434,348 10 44 74,985 65,617,522 7,356, 656 += (8) x $98,10837 (6) (7) (8) see? charge on provision for year less each any the year.? expenses.? 1 35 $28.00 | $2,291,016 | $5,736,407 2% 36 14.00 | 1,135,260 12,446,423 3. 37 7.00 i 562,471 19,030,254 4c 38 v4.00 | 4,114;554 | 25,650,264 De 39 7.00 ! 552,034 32,984,011 6. 40 7.00 | 546,742 | 40,498,561 Gare? 41 7.00 ! 541,387 48,197,423 Biss 42 7.00 } 535 , 969 56,086,228 v. 43 7.00 530,474 64,168,620 10 44 7.00 524,895 72, 449 , 283 * = (8) x 6) 2 = (4) + (5) —() | @) (10) (11) : Fund in (8)| Expected |Fund at end Policy year. Attained |jimproved atideath claims of year after Age. 3% Percent, during payment of interest. year. death claims 35 | $5,937,181 $732,000 $5,205,181 36 12,446,423 737,000 11,709,423 37 | 19,696,313 742,000 18,954,313 38 | 26,548,023 749,000 ' 25,799,023 39 | 34,138 ,451 756,000 | 33,382,451 40 41,916,011 765,000 41,151,011 41 | 49, 884,333 774,000 49,110,333 42 | 58,049,246 785 000 57,264,246 43 66,414,522 797,000 65,617 ,522 44 | 74,985,008 812,099 74,173,008 4— (8) x 1.035, *(9) — (10) Schedules Illustrating Various Plans. 315 SEVENTH SCHEDULE (continued). (12) j (13) (14) Policy y Attained. Terminal re-| Deposit or Ped SORES ea Number of |scrve on pol-| discounted: SEP ad ota at icy of each ; terminal re | end oF year. | “survivor! ' — serve.2 1. “35 | 81,090 | 364.19 $62.02 ae 36 80,353 | 145.72 140.80 3. 37 79,611 4 238.09 230.04 4. 38 78,862: 327.14 | 316.08 o. 39 | 78,106 { 427.40 | f'n 6 40 7,341 532.07 14.08 fe 41 | 76.567 | 641.40 | 619.71 Shs 42 1 75,782 | 755.64 | 730.09 9. 43. | 74,985 875.07 815.48 10 44] 74,173 | 1,000.00 | 966.18 1= (11) + (12) 2— (12) + 1.035, (15) (16) | (17) i; iti ti Policy year. Attained ee Amount at iG AEC» seginning of tisk Suing ity of dying year, year. during year. - 33 | “rece. | “asues | — “ong0eD : 37 8432 71.91 | 009234 4 : 38 77 99 672.86 -009408 5. 39 85.81 57.60 .009586 6 40 86 68 467.93 -009794 7 7 41 87.64 358.60 010008 8 7 42 | 88.69 244.36 010252 9 . 43 89.84 124.92 010517 10: 44 | 91.11 000.00 010829 ®— $1000 — (13) (18) (19) ‘ Charge for Policy year. Attained Cost of |d-ath claims Be. insurance ‘ |begioning of year 5 35 $8.37 $8.09 36 7.76 > 7.50 37 7.04 6.80 88 6.33 6.12 39 5.49 5.30 40 4.58 4.43 41 8.59 3.47 42 2.51 2.42 43 1.31 1.27 44 0.00 0.00 4— (16) x (17) 8= (18) + 1.035. Schedules Illustrating |arious Plans. 317 DIVIDEND AND NET ANNUAL COLLECTION SCHEDULES. The following tables show for twelve companies doing busi- ness in this state and for various plans and ages the difference between the annual premium paid at the beginning of the policy year and the dividend returned to the insured at the end of the policy year in 1905. This difference may be taken as a measure of the net payment made by the insured on account of the policy for the year in question. The annual dividends are those paid in 1905 on policies which have been in force 5, 10, 15, 20, 25, and 30 years, respectively, and which accordingly were issued in 1900, 1895, 1890, 1885, 1880, and 1875, respectively. The fig- ures given in the tables were furnished by the companies on forms prepared by the committee; they show results on the ordinary whole life, 20 payment life, and 20 year endowment plans, and at ages of issue 25, 35, 45, and 55. A study of these tables reveals a wide range in the net annual collection of different companies for practically the same policy ; the difference is especially noticeable on the older policies issued in 1875 and 1880. The excess interest earnings of the several companies on the large reserves of these old policies is reflected in the dividend returns and net annual collection thereon. The tables show the annual dividend on paid up policies in the case of the 20 payment life policies issued in 1875 and 1880. 318 Appendix. ANNUAL DIVIDENDS FOR 1905. Table showing the excess of annual premium paid at the be- ginning of policy year over dividend paid at the end of same policy yea: for the year 1905 on policies issued in 1900, 1895, 1890, 1885, 1880, and 1875. Amount of policy $1,000. ORDINARY WHOLE LIFP POLICY. Premium less dividend on policy issued at age of 25 in Name of Company. 1800 | 1895 1890 | 1885 1880 1875 Union Central ............. $16.49 $14.92 $14.27 $13.48 $12.27 $10.76 Northwestern Mutual ...... 16.17 14.82 14.47 14.03 13.33 12.48 Mutual Benefit .............- 17.39 15.66 15.23 14.70 13.84 12.84 Connecticut Mutual ........ 16.73 16.13 15.39 14.51 13.96 13.56 Massachusetts Mutual ..... 16.40 15.93 15.47 14.89 14.09 13.14 New York Life............... 18.98 16.73 15.33 14.43 13.53 12.63 Peni: MUtWAL siccnasjenesnasn' 16.27 15.97 15.64 15.23 14.56 13.90 AGU, s2ccedssecweasecacaeacans 17.09 16.63 16.09 15.45 14.73 13.95 Equitable of N. Y........... 19.41 17.21 16.48 15.66 14.69 14.29 Mautual Life cc cence ccenaicnen 19.14 17.81 17.04 16.25 15.46 14.65 Home Life ...............00. 17.20 16.97 16.70 16.38 16.01 15.62 Germania Life .............. 19.02 18.65 18.21 17.69 17.10 16.47 Issued at Age 85. 1 t Union Central ...........6.. $21.87 $19.71 $18.37 $16.73 $14.82 | $12.56 Northwestern Mutnal ...... 21.38 20.16 19.40 18.46 17.87 : 16.07 Mutual Benefit .............. 22.79 20.75 20.04 19.15 17.86 | 16.44 Connecticut Mutual ........ 22.00 20.99 19.88 18.63 18.54 , 17.92 { Massachusetts Mutual .....} 22.81 21.56 20.69 19.65 18.48 + 17.18 New York Life .............. 24.83 22.12 20.35 19.16 17.96 | 16.77 Penn Mutual .............0.- 22.11 21.63 20 97 20.17 19.18 |} 18.20 AGE DA, rsjeosszicis ave ieiviecoayd cnataraudie aie 22.62 21.93 21.13 20.17 19.36 | 18.44 liquitable of N. Y........ weve 25.34 22.77 21.76 20.61 19 31 18.33 Mutual Life ............055--] 25.02 23.55 22.62 21.49 20.44 | 19.39 Home Life ............066 seis 23.16 22.81 22.41 21.98 21.53 | 21.07 Germania Life .......-.eeee{ 25.18 24.56 23.98 23.29 22.65 } 21.80 1 t Schedules Illustrating Various Plans, ORDINARY WHOLD LIFE POLICY. Issued at Age 45. 319 Premium less dividend: n policy i sued at age of 45 in Name of Company. 1900 1895 1890 1885 | 1880 1875 Union Central .............. 330.96 $27.15 $24.94 $22.34 $19.44 $16.44 Northwestern Mutual ..... 30.18 28.91 27.65, 26.15 24.49 22.89 Mutual Benefit ............. 32.05 29.74 28.55 27.23 25.42 23.65 Connecticut Mutual ....... 30.97 29.40 27.83 26.19 26.58 25.78 ATassachnsetts Mutual .... 32.40 31.00 29.65 28.10 26.45 24.79 New York Life 34.94 31.92 29.32 27.60 25.88 24.16 Penn Mutual ... 32.13 31.17 30.12 28.83 27.44 26.17 ANC EDDY. Avgsecambroy saccades 32.28 31.29 | 30.24 29.18 28.15 27.18 Equitable of N. Y. ........ 35.63 32.74 31.29 29.70 27.97 27.46 Mutual Life ......... 35.35 33.94 | 32.46 30.97 29.48 28.00 Home Life ....... 33.49 32.99 | 32.47 31.93 31.42 30.94 Germania Life 35.97 35.17 | 34.03 33.17 | 32.34 31.56 Issued at Age 55. Union Ceneral ...........-++- $46.28 $40.07 $36.44 | $32.74 $29.14 | $26.00 Northwestern Mutual «| 45.79 44.31 42.25 | 40.16 38.13 | 36.47 Mutual Benefit ........ | 49.06 46.67 44.90 ; 43.16 41.05 39.03 Connecticut Mutual ........ | 47.37 45.25 43.20 | 41.29 41.49 | 40.70 Massachusetts Mutual . | 50.09 47.91 | 45.85 | 43.79 | 41.84 | 40.21 New York Life ....... T) 53.64 | 50.28 | 46.98 | 43.57 | 40.86 | 38.14 Penn Mutual .... it 49.81 48.08 ; 46.42 | 44.75 42.98 : 41.79 Aetna " 49.82 48.50 i 47.22 | 46.02 44.95 1} 44.00 a Equitable of N. Y........+5+ 54.75 51.74 | 49.60 | 47.34 44,96 44.42 Mutual Life | 54.76 | 33153 : 51.23 | 48.04 | 46.66 | 44.39 Home Life ....... {52.32 51.66 — 51.02 | 50.43 49.89 |......... Germania Life ............-- {| 55.89 54.82 © 53.11 52.14 51.27 50.51 | pas 320 Appendix, ANNUAL DIVIDENDS FoR 1905. Table showing the excess of annual premium paid at the be- ginning of policy year over dividend paid at the end of same policy year for the year 1905 on policies issued in 1900, 1895, 18959, 1885, and the annual dividend on paid up policies issued in 14% and 1875. Amount of policy $1,000. TWENTY PAYMENT LIFE POLICY. Issued at Age 25. Name of Company. Premium Less Dividend on Policy issued at Age 25 in Dividend on Pol- icy Issued in | 32.60 | 1900, | 1895, 1890. 1885. 1880. | 1875. l Union Central ............44. | $23.15 $21.50 $ 20.52 $19.41 + $6.40 | $7.38 Northwestern Mutual ...... | 25.66 21.77 21.28 20.72 3.33 3.81 Mutual Benefit .............. | 26.65 22.28 21.46 20.47 3.89 4.42 Connecticut Mutual ........ | 26.12 24.61 23.02 21.12 1.96 2.26 Massachusetts Mutual ..... 23.81 23.02 22.24 21.31 2.35 2.64 New York Life ............ 29.32 | 24.33, 22.83 21.93 Penn Mutual ................ 23.53, 23.11 22.61 22.01 ACINA stoners esemanwawre wegen 23.64 | 22.74 21.64 20.27 Equitable of N. Y........... 29.16 24,14 23.11 21.79 Mutual Life ................. 27.35 24.77 23.79 22.77 eis Boome Gite cow snccdseenccces 24.28 23.83 23.28 22.76 2.41 2.69 Germania Life .............. 26.27 25.54 24.62 23.85 3.34 3.85 Issued at Age 35. Union Central ............006 | $28.62 $26.51 | $25.03 $23.39 $8.52 | $9.89 Northwestern Mutual 30.78 27.35 26.56 25.76 4.35 | 4.97 Mutual Benefit ........ 31.93 27.58 i 26.49 25.19 5.05 | 5.77 Connecticut Mutual ........ 31.23 29.36 | 27.41 25.14 2.60 | 3.01 | Massachusetts Mutual ..... | 29.92 23.87 27.75 26.52 2.94 | 3.24 New York Life ; 385.06 30.02 | 28.05 26.80. fiers ds ce-sa iteeedpercics Penn Mutual .. 29.56 28.97 28.21 27.40 4.69 | 5.39 ACC D: es amaasawes sisseesreedainaisain 29.36 28.20 | 26.80 25.12 3.40 | 3.86 Equitable of N. Y..cccecc.04 84.99 29.88 | 28.53 26.88 Joe | Gaocs Mutual Life ... 33.30 80.75 29.50 BBL |: sisecaradcus 1 caasw 50.5 ‘ Home Life nee c 30.43 29.85 29.15 28.48 3.00 3.30 Germania Life .............. 31.66 80.59 20.22 4.38 4.93 Schedules Illustrating Various Plans. 321 TWENTY PAYMENT LIFE POLICY. Issued at Age 45. Premium Less Dividend on Policy | Dividend on Pol- Issued at Age 45in © | icy Lssued in’ Name of Company. 1900. 1895. | 1890 | 18:5 1380. 1875 Union Central ............... * $36.91 $33.58 $31.58 $29.97 $11.28 $12.82 Northwestern Mutual ......| 38.44 35.67 34.64 34.00 5.65 6.33 Mutual Benefit .......... ee 40.09 36.03 34.58 33.08 6.55 7.30 Connecticut Mutual ........ 39.02 36.71 34.40 -|- 31.83 - 3.46 - 3.92 Massachusetts Mutual ..... 39.40 37.80 36.40 35.17 3.54. 3.81 New York Life ......... 43.91 39.02 36.38 BOG vias se ate eBicisionaneetes Penn Mutual ...... 38.95 37.96 36.99. 36.25 |° 6.16 6.93 NOCD A. «65 5 sinccerpcrenuwave 38.47 37.04 35.37 33.35 4.30 4.71 Equitable of N. Y... 44.08 39.26 37.48 35.34 Mutual Life ......... 42.73 40.46 38.78 37.06 Home Life ....... * 40.21 39.49 38.67 37.76 j Germania Life ............... 42.80 41.64 40.00 38.36 . Issued at Age 55. Union Central 22.2.1: es s0cnes $49.93 $45.04 $42.41 $42.18 GIB AL |p ase sae Northwestern Mutual ‘3 51.36 49.40 48.17 48.88 6.97 $7.51 Mutual Benefit .... 54.42 51.12 49.38 48 .26 7.97 8.59 Connecticut Mutua 52.67 50.07 47.52 44.97 4.36 4.73 Massachusetts Mutual ..... 55.13 52.83 51.20 50.89 4.06 4.28 New York Life | 69.61 55.28 51.19 48 5d8. | cenvscutenstalis Gb oe eo Penn Mutual .... 54.60 52.98 51.82 52.01 7.67 §.29 Aetna 54.21 52.54 50.67 48.32 5.08 5.41 Mutual Life. .20ccccveasisan 59.81 58.09 55.64 Equitable of N. Y. . 60.37 56.26 53.84 Home Life ......... 57.09 56.26 55.32 Germania Life .............. 60.74 DOT llaxinepeag v6! Se acsentartall eibtdhadeiaccne’s|ticdietoaaucaye ji 21—I, 322 , Appendix. ANNUAL DIVIDENDS FOR 1905. Table showing the excess of annual premium paid at the be- ginning of policy year over dividend paid at the end of same pol- icy year for the year 1905 on policies issued in 1900, 1895, 189%, and 1885.. Amount of policy $1,000. TWENTY YEAR ENDOWMENT POLICY. Premium Less Dividend on Policy issued at Age of 25 1n Name of Company. 1900. | 1895. | 18¢0. | 1885. UMN, (Central «sec. enencecccednenes eneeaes $40.73 $38.72 $36.94 $34.97 Northwestern Mutual i 42.82 39.93 39.09 38 .20 Mutual Benefit ................4. * 43.35 40.10 38.24 35.95 Connecticut Mutual ................... eee 41.31 38.47 35.34 31.60 Massachusetts Mutual ................008 43.10 41.53 39.94 38.07 New York Life A 44.63 39.75 36.83 34.67 Penn Mutual ..................005 a 42.40 41.68 40.72 39.62 IMOENNA sisacstiive a aa sar secvarauasirs azenecneibnatarn st oe Be a 41.04 39.00 36.42 33.14 Lequituble Of Ny. Yo wsnesnce conan ea oa oa ene 46.80, 42.88 40.96 38.40 Mutual Life ...............45. 45.72 43.63 42.07 40.44 Home Life ................0005 43.04 42.02 40.73 39.30 Germania Life ............... 44.23 42.56 39.49 36.84 Issued at Age 35. Union Central $41.83 $39.77 $37.93 $36.36 Northwestern Mutual 4 43.76 41.27 40.42 39.90 Mutual Benefit ............. 4 44.58 41.43 39.59 37.42 Connecticut Mutual .............. cece eee 42.23 39.42 36.32 32.62 Massachusetts Mutual ...............0005 44.63 43.06 41.47 39.88 New York Life a c 46.35 41.55 38.46 36.20 Penn Mutual ..........ccc eee eee ¥ 44.46 43.18 42.20 41.37 AGUNG! “csuschiar ss eiaicaeiaeinancwectedeas 5 42.61 40.56 38.00 34.72 Iquitable of N. Y. ........... 3 48.32 44.39 42.35 39.68 Mutual Life és ‘ 47.36 45.33 43.63 41.86 Home Lites sue. seis crnnsianne eos i 44.70 43.67 42.39 41.02 Germania Lite: 63 us sae osctaiwonenianan ces 46.00 44.35 41.31 38.65 Schedules Illustrating Various Plans. 323 TWENTY YEAR ENDOWMENT POLICY. Issued at Age 45. Premium Less Dividend on Policy Issned at Age of 45 in Name of Comp.-ny. 1900. | 1895. | 1890. | 1885. Union Central sas:epegaaueranes caxcaaa evens $44.86 $42.26 $40.51 $40.20 Northwestern Mutual ................... 46.56 44.68 43.97 44.47 Mutual Benefit ............... cece ee eee eee 47.98 44.94 43.14 41.38 Connecticut Mutual ...................08 45.07 42.30 39.25 35.75 Massachusetts Mutual ................45 48.76 46.97 45.52 44.71 NG@W YOrK EAPC. ssaagissas ne tu vaste waenetre-sies 50.63 46.04 42.52 40.03 Penn, Mutual oceasess ccc cosansieteesecncids © 49.53 47.07 46.21 46.11 ANG ENGL «sadicjarsisiisicnidind saiionuisispiasemianeisasigngies 46.85 44.83 42.34 39.04 Equitable of N. Y. 52.37 48.50 46.24 43.34, Mutual Life ... 51.63 49.79 47.80 45.74 Home ite: «icy oes: saissnigentssneius 49.27 48.26 47.01 45.56 Germania. Life: sssrsesiscecnerienre vs v3 oaesner 50.69 49.05 45.65, 42.99 Issued at Age 55. Union Central, sncanzesccie ts ocas sonneands $52.73 $49.25 $47.50 $50.25 Northwestern Mutual . 54.92 53.75 53.22 56.33 Mutual Benefit ....... 57.86 55.16 53.46 52.89 Connecticut Mutual ...................65- 53.79 51.20 48.33 45.37 Massachusetts Mutual ..............-.5 59.44 57.31 56.04 57.24 New York Life: sii eccssscsicscasnsasea vy coe 62.28 58.04 53.49 50.37 PONT MAC a oie iese cecsrsisisicionsctie gee nee od 6S 61.76 57.84 56.63 58.40 AMOTDAL -isresiejaginis snare cinieietecisuajeeaene dua sag serie 58.02 56.05 53.68 50.34 Equitable of N. Y. wo... eee ce eee e eee 63.97 60.33 57.66 54.29 Mutiall Lite: siscswiceawewdicwinn cg se somone 63.68 62.20 59.60 56.91 Home Life 2 GOT MATIA LiLE: sisieicicieisreiaisyaieiesseis 37 ees aesialors [era ate ina oe Of ayaa aa MOINS | Mea oibiew oe ob. dl[igaherniseseyes INDEX. Page Account with policy holder, U. C. ...............005 eaves a acaiviine 76 ACTWal THOPCAIGY secJsioc atnalerd a tied wid ausaaiars Goatauad, at venauen eek lever actre 9 anaes 200 Actuary, explanation, N. W. ............. Sais Mid A ate Re Smack we: 216 Additions] surnliv, We Wa occes seseee ies cee bib aes bea eae be anes 202 AGGiions Dam Wh Us Cy ws55 ede bees bares Che ees eke ee se cade 89 Adjustment of surrender values, U. C. ..... cece cece eee eee 83 ACTMIDISTFAH OM CICKCE: 5 a. cissse ds a esiie ce eons ae cpeceiagey Ws Momeceeed OMe A eo 16 Advantages Of proposed PADS 1.4 .cccnasvceneyrsereneenwenvase iy4 APENCY: SYVSUCMIy IN. OW, 5.56 ks coils acess sisete Waane eee eee daeverie oshenanar h See Sueueree BS ‘45 Agents’ Club: DANQUCtS «...cecaiees sua wees tes geet G2 be ORAS 159 Agents’ COMMISSIONS 2.2... eee eee cece eee cece eee enes 46 Agents” convention; Ne “Wa se ssisei vee ead saanecied nae sees ore dings toe 53 Agents’ expenses): Ni Woe vi sic siccnsine eels mule see emwsansvedb iene be SosleGere aos 49 ABENtS* INCOME): IN. Wha os select cs icidiee de a sanae Mi oss. «aupevaue atte, Pep auareace 47 American experience table of mortality ........... delhi wie ewes Ses 125 AMOUNT AC TIER soc aaevey deg esd eee had eee ee sca bes KEG ORS Dees AG 90,130 Amount at risk, TraterMal yc. eoswew ds a wales ew seed esa me Ay oe ee wes 230 Anderson, R. B., President Wis. Life ................ 00 eee eee 106 Anderson, R. B., President, ignorant of company’s affairs, Wis. TEA eee Sie eink GO ERS Ea teaser oe esisvtase ge olan etna eutdiva rae? crinse ta tar teheniese 106 ANNU] sGiVIdENdS:. 2 t-cecga-d sew ia etalon. Maia Wane Gedareaneda tae, e 199 Azinual’ ‘dividends,. Wiz Cis ss auedd ag egress ea aren te Me launieevegcidie dee aus 224 Annual dividends, 1905, Ord. Life ap. ................-..20005 518 Annual dividends taken from tontine earnings, N. W. ......... 212 Annual dividends vs. interest on tontine funds ............... 214 ADDON GIR = crcrese ae a a's mad sacle earhanlelee Pale ey auleile Sega anes saa ees 285 Apportionment of tontine dividends, N. W. ................40- 208 Assessment clause, Wis. Lifé sea. .e casa eeu be cee ew weed we were 109 Assessments not ‘evied, Wis. Life ............. 0c cee cece eee 112 Assets, depreciation, U. C...... cece cece een ee eee ne | 74 Assumed rate of interest 1.0... cece cece ce eee eee eens 126 326 Index. Page Attitude of officers re surplus, U. C. .... cece eee renee 80 AUTOMATE Loa. UW Css oe scsi saiswiig tee See ig guile Soa ees We ls ens Seesaw Slava orgs 84 Automatic loan practice, U. C. we. cece ccc cee ee eens 86 AVCTAGS DOMCW we shane asia. dove gvaseuduse side Redue d-leua-gua dna beanies eae quismise: s:$ HA -SH 137 Banquets—Agents’ Club sc.adeues whic a avare Sea hoes Foe ae ee es 159 Bashtord’s) Priel: wien ev au esses #a Me ke awe ak aoe sees Me Ree oe 60 Bievthree:Of No Ws. .< caaine a. aioe. ve ana sae Gare avirmuege. Hee ern Saher arers 158 Bills: TECOMMENMED Ke edecsis ergs stew Baie we Mad emcees are Ce Orne 234 Bla@GleHst: aiid denne ase Daa tea ods ele CA Aes Ga Dea Danae ae 38 Bonds “VS; MOTtEABZES, side suse siie g. 2.7.sihe ad 5 oernleia Ss ehdapuase:dvelters Guanaier dee abe! 64 Brazéau, Aw Ri; WS. Liles icra oak iale ahs a eisscineceasteeier tena e eeoandt Ae iy Bribe, direct Solicitation <.:os¢ widsdvua Ge cea eneies weak wa wed oo a 39 Brieis' by RB. M. Bashtord xc .2¢ sex ccawe dca weada sins den aeeys eee 60 ‘British’ offices Select -O ox. sawacuaie ance san Aw bieis ine g ga etal ask Rare dyets 182 Campaign contributionS ........... ccc cece eet eee eens 4, 61 Campaign contributions, annual report ............ cece eee eee 62 Capital “stock: Us (Cy .icgacee te. veep ti del es cond ea eae eakedee sees 71 Case of John M. Barron ........ ccc eee cece cece te een eeee 3 Case of Sigmund Guthman .......... ccc ccc eee eet e teen eee 40 Gasée of Franke artis: .cc eas ciseduws vam Waccdiong sau $s Uae eee 35 Case of Thos. J. King Case of Wm. C. Lorrigan, Judge Case-of ‘Chass Ts, MOSeS? xsi Scene ataadieaine etoen das ah ee ada 35 Case of Dr. Pleuther Case of Edward C. Reed : Case of. Ay D. “RUSSel sic nese senna cee awe s Sane ead ne owe te caw Gee 34 Case or Bsny: SD. Smith. ccucsacdne uQeyenddeew Ven oeoworaamees 34 Cash Surrender Valle: “08 Safety va. surplus, Us Giiscssecicssteteecseboddsdeadeenevenes 719 Salaries and increase, N. W..........5. : Salaries and increase, U. C Salaries determined by officers, N. W Sale of securities, profits Saloon keepers, U. C Saving from loading Saving from mortality Schedules: re HX PAB ATION: eniny 2% wee he 6 a A He KE OH RE AER EEDS OWA WE EOE WT AtOT Mal ss sy. sak cecwiawes yc wumgphac gig wee eas ard seeualaea a Stel wibraar ene 230, Full preliminary term policy ........... 06.0.0 .0 eee eee 293, 294, Fifth (seect and ultimate)........... 0.00.00 cece ee eee 308, HOUTUN. ge ca vind ees da eG alan Byes eee cee a ee AR ea tes 304, Prelimiuary teri, model. ws c occ ces eaegoa shee sys exes cate POMS cava a cum: pnieh Sane Rats Bay gan ee gredly anode wie Sea PREWIIINE SUGWEI. oc crew ces eee Rho eee 4 me Dee oD 189, 191, Select and ultimate.................. we, vies bia ane coated SeVeENLUN. .x4aaeeyeg ee See eae ndh ey cay Se Sy tee eN BH eed 314, Summary Of f0Urtho. sersisrateparsssiensteneiers 1,898 240,607 169 19,584 720 186,036 1896 .oeccececceees 2,208 295 ,680 202 20,263 1,223 318,072 1807 .cecccceeesens 2,051 270,149 207 19,443 849 232,851 TB9B serveseareremyais'cisveions 2,065 269,412 164 17,586 731 206 ,386 2,081 262,113 147 19,812 827 212,056 2,258 241,981 137 13,191 677 172,233 1,764 214,999 142 17,370 920 214,825 1,679 207,536 139 14,419 722 167,033 1,763 213,270 157 16,606 592 152,353 1,768 198,850 128 12,085 517 139,100 a? s WORKMEN’S INSURANCE AND INSURANCE FOR PUBLIC OFFICIALS IN GREECE, The Greek government conducts an accident insurance bureau for miners. Miners are required to pay ten per cent of their wages to this bureau. The Greek government also maintains a fund for pensioning public officials after a certain term of service. This fund is composed of compulsory contributions from the officials, deter- mined according to the principles of insurance. INSURANCE FOR PUBLIC OFFICIALS IN CANADA. Insurance against old age is furnished by the government of Canada to its officials in the form of old age pensions. Contri- bution to the pension fund is based on the principle of insurance and is compulsory. The Canadian government also furnishes life insurance to its officials, but this is optional. INSURANCE FOR PUBLIC OFFICIALS IN THE BRITISH WEST INDIES. In the British West Indies the same forms of compulsory old age insurance for civil servants exists as in Canada. INSURANCE FOR PUBLIC OFFICIALS IN CEYLON. The government of the British colony of Ceylon furnishes pen- sions to the widows and orphans of civil servants. The pen- sion fund is supported by compulsory contributions determined according to the principle of insurance. GOVERNMENT LIFE INSURANCE IN MADEIRA, The government of the Portuguese island of Madeira fur- nishes voluntary life insurance through the institution called the Monte Pio Geral. By: payments determined according to the principle of insurance, the persons insured secure pensions for their wives and children who survive them. 28 CHAPTER II. STATE INSURANCE IN NEW ZEALAND. JI. Lire INSURANCE. The life insurance department of the New Zealand govern- ment conducts a general life insurance business, issuing policies of all the principal classes known to private individual companies and resembling such companies closely in its methods both of doing and of securing business. This department of government was established in 1869 and has been in continuous operation ever since. Organization—The manager of the department is the govern- ment insurance commissioner, appointed by the colonial governor on the recommendation of the ministry of the day. He is a regular member of the civil service of the colony. He has power to determine what kinds of insurance the department shall write, to fix rates, to make all necessary regulations, to vary premiums in proportion to the ineligibility of lives, and to decline risks altogether. He is legally responsible for all the acts of the department and may himself sue on behalf of the department. In short, he has large power, discretion, and re- sponsibility. Besides the commissioner, the staff of the head office includes the assistant commissioner, the actuary, the assist- ant actuary, the secretary, the supervisor of new business, the accountant, the chief medical officer, the chief clerk and thirty- eight subordinate clerks, the office examiner, and the chief mes- senger. The colony is divided for the purposes of the department into 29 four districts, in each of which resides a district manager in charge of the local business of the department. These four of- ficers receive a salary and in addition a commission proportioned to the increase of business secured in their respective districts. Each is responsible for the canvassing of his district. Jor this purpose, just as in the case of private insurance companies, t:av- eling agents are employed, who are paid by commission. Tach of the four district managers is assisted by a chief clerk end from one to three subordinate clerks. Besides the four offices presided over by the district managers, there are seven local offices independent of the district managers, respectively in charge of the local business in seven towns of the colony. In five of these the official force consists of a single resident agent; in two, of a resident agent and-one clerk . Finances.—All moneys paid to the department are kept by the public treasury in a separate fund,—the government insurance account. If this fund is at any time inadequate to the charges on the department, the deficit must be made good from the general funds of the government. This state guarantee of sc- curity in the only peculiarity, except the government supervision of expenditure and investment mentioned just below, that dis- tinguishes the business of the department from that of private insurance companies. All expenses of management of the de- partment including salaries, taxes, and postage (for the de- partment must pay its own postage arid is subject to taxes equally with private companies), are paid out of the govern- ment insurance account; but all such expenses must be voted by the colonial parliament. Payments to persons transacting in- surance with the department are made on the order of the com- missioner countersigned by the colonial controller and auditor- general without parliamentary appropriation. The receipts on account of accident insurance (see section II of this chapter) are kept in a separate fund and the liabilities on that account are in no case a charge on the life insurance fund. The investments of the department are like those of an or- dinary insurance house. No more than $618,500 may be lent on a single real estate security or to a single person or company. All loans on mortgage and loans to “local bodies” (i. e., muni- cipal and county governments, etc.) must be sanctioned by a 30 board consisting of the treasurer, the solicitor-general, the sur- veyor-general, the commissioner of taxes, and the public trustee of the colony, together with the government insurance commis- sioner. Three members of this board form a quorum. The sanction of mortgage loans must be unanimous, and in the sanc- tion of loans to local bodies the colonial governor must concur, The kinds and proportions of the department’s investments may be judged from a list of the department’s assets at two dates five years apart, as follows: ASSETS OF THE LIFE INSURANCE DEPARTMENT ON DECEMBER 31, 1898, AND DECEMBER 31, 1908. Kinds of Assets. Ce et Dosen ot Mortgages $5,483,448 $9,149,878 Government SeCUTITICS ........ceeeeeseeeeeees apace, peeenigeeee 4,015,091 3,240,489 Loans on policies........... re et dane re Rekeeiniey 2,626,158 2,998,221 Local bodies’ debenturesS.........eseceeseeeee teeeeseeee oe ecees 631,525 680,576 Landed and house property..... a“ataanaiolavatusataretleigioie Sinienian iibiateye 586,549 599 ,363 Property acquired by foreclosure....... ace acaig(e aie fotsore:avatiniereuates 95,884 5,010 Cash on current account.. 231,514 855,421 Miscellaneous assets ..........0.00+ 4asivisle neers weaeiese eeseeeces 412,982 480,974 Total 5 sis stewesaneees deeceeteresecccccesens sesees pier calee $14,083,151 $17,509,932 The amounts and proportions of the various receipts and ex- penditures of the department may be judged by the following tables, one exhibiting the account for a typical year and the other the account for a long period of years, 31 REIC EIPTS AND EXPENSES OF THE LIFE INSURANCE DEPARTMENT IN THE YEAR 1902, 4 | Receipts. Expenses, Premiums. Claims by death.............. $591,210 Renewal esinus sie adeesscncniey $1,315,193 Claims by TGBHORUD ss ie 433,061 OW... bisia es W66ie WiNis Wiwareaigiase Annuities... ae Natseors 57,317 4 Sas Surrenders..... 223,677 Consideration for annuities . 46,87) Bonuses surrendered forcash 10,388 ADCOMOSt aiescesca acces tawic ayaacen 715,307 Miscellaneous,.........eeeseees 17 Expeuses of management. New commissions.......... 61,912 Renewal commissions. d 40,330 Salaries bead office........ < 54,647 Branch offices and agents.. 29,012 Extra clerical assistance . 9,331 Medical fees and expenses. 24,444 Traveling expenses, . a 3,220 Advertising................. 5,769 Printing and eeiionery 5,533 Rent ... 10, 548 Vostage. 905 Other expenses. 27,005 AROS eicisinisaisis settee He oa wives 42,733 Depreciation in investment, ‘ and securities...... 110,497 Totalisccisies aveswievsas. $2,189,035 Total......... see $1,716,539 CONSOLIDATED REVENUE ACCOUNT OF THE LIFE INSURANCE DEPART- MENT FROM MARCH, 1870, TO DECEMBER, 1903. Debtor. Credit. j | Premiums. .. $28 ,836, 063 Claims by death.... $9,346, os Considerat: 1,026, 618 Claims by maturity 3,123,380 Interest.. 11,145,823 || Surrenders........ 3, 4241950 To itine fund 81,252 Surrender of bonus. 771',179 OCSii rewaainwene 8,375 Annuities. . 820,532 Ccmmission.. 1,522,706 Expenses of management. 3,945, 082 Taxes. y 635,781 Investment reserves. é 470,668 Amount of funds............. 11, 033, 405 Total ssssesessceesweie eoee| $41,093, 131 Totals viercessance wide Tues “$41,093,129 Note.—In changing the sums of English money (the currency of New Zealand) to their equivalents in United States money, fractions of dollars have been . Gmitted. Hence the slight discrepancy between the two sides of this account. These accounts show that the expenses of management in 1902 were fourteen per cent of the total expenses and that the expenses of management during 1870-1903 were sixteen per cent of the total expenses. The account for 1902 shows that “he salaries of the entire salaried force of the department, in- cluding the commissioner (this force numbered seventy-nine in 32 1902), averaged $1,059, and that the salaries of those at the head office (there were thirty-nine, including chief officers and clerks) averaged $1,401. All profits above what the management thinks best to add to the reserve are divided among the policy holders. From 18707 to 1903 the amount thus divided was $4,856,232.25. Bonuses are distributed triennially. In 1902 the bonuses awarded amounted to $814,475. Insurance transactions——The kinds of life insurance and an- nuities furnished by the department are shown below: CONTRACTS OF THE LIFE INSURANCE DEPARTMENT IN FORCE IN THE YEAR 1898. ‘ N f itis Kinds of contracts. nape acount Bonuses. ; Annuitizs. Insurance 1. With participation in profits: Whole life, uniform premiums 17,425 | $24,230,241 $2,405,453 |......... sisted Whole life, limited and single PIEMUAWING. caeescenenuinsees vere 909 1,872,022 Endowment ............4 hes 17,476 17,427,781 Double endowment .. 1,162 1,454,166 Joint life insurance... 1] 25,320 Survivorship .......... 5 1 2,425 Annuity insurance ............. 199 125,130 | 1,445 $45,578 Total insurance with profits 87,183 | $45,137,075 33,974,494 345,578 2. Without participation in profits: Whole life (transferred from TEMPETANCE ©......ccceeeseeenee 4 $3,152 Bde | ieciten eetdistee.ct : Endowment .. 237 TOSSA R. hse: sacssereicgurctejore)lesavaistaye ah weit Temporary ... 2 2,910 |.. Investment . 93 15,185 TEMOSEEIG - conncawensernveces noir’ 13 1,231 Total insurance, without profits ..... sraisleneratasene tne ners 399 $191,020 BIS eas stera averavesess dec’ . Total insurance ............ 37,582 | $45,823,095 $3,975,508 $15,578 Annuities. TMAMEMLAGS soiicis oo saseuesoceieierare ders occa + 249 $20,619 Joint and survivorship 7 2,667 Reversionary . 1 455 Deer red cas svevaiese it 9 1,071 Total annuities ..........06. REG Tirata aici sisiais nfaieieie loaea ieneemereasd $55,812 33 The number and amount of the various kinds of policies in force in 1902 are the latest that could be ascertained for the present report. They are as follows: CONTRACTS OF THE LIFE INSURANCE DEPARTMENT IN FORCED IN THE YAR 1902. Sum assured| Percentage Ki ut- of contracts. Bareree Ge and total sum | Reserves. Pp Coe bonuses. assured. : Insurance. Endowment ...........ccee eee eeeee 23,522 | $24,141,344 46.4 $6,639,281 Whole life, uniform premiums. 14,859 22,864,641 43.9 6,650, 906 Whole life, limited and single PTCUAUIIS? 4 crerssciercversacneie's wa de aiaseurel 859 2,203,403 4.2 1,283,717 Double endowment .............. 1,788 2,177,892 4,2 266,079 Children’s endowments and 1n- VEStMENES: 5..2:.cnagents ns ee segaenee 577 325,322 0.6 94,797 Annuity imsurance ............08- 468 *310, 526 0.6 59,291 Miscellaneous ..........eeeeeeee 32 38, 583 0.1 53,911 Total insurance ............ 42,105 | $52,061,711 100.0 $15 , 047, 982 Annuities. Miscellaneous annuities, $59,766 POL ADDU gee ees. cy cisvesingieneascins 3 SOT: | | peenicdinnescassl lp aesawmsdecacu $540, 896 * And deferred annuities securing $116,729 per annum. ae It will be observed that endowment policies now exceed in number and amount any other class of policies. The depart- ment states in a circular issued in 1904 that the endowment pol- icy payable at death or at the age of eighty “has now entirely taken the place of the ordinary whole life policy.” 3 34 The rates of charge for endowment policies are as follows: ANNUAL PREMIUMS FOR A POLICY OF $485 PAYABLE AT MATURITY OR PRIOR DEATH. Death or Death or in Age. at the age of 80 10 years. | 15 years. |20 years.| 25) ears. 39 years. | 35 years. $7.50 $45.38 $28.92 $20.90 $16.24 $13.80 $11.12 8.54 45,96 29.44 21.38 16.74 13.82 11.86 9,58 46.08 29.62 21.62 16.82 14.16 12.28 10.90 46.38 29.96 22.02 17.50 14.72 12.96 12.56 46.72 30.36 22.54 18.14 15.50 13.94 AO dreomaawianria ws i03 14.70 47.14 30.94 23.28 19.08 16.70 15.86 BD“ tuceahtnianiaiatesietenacey 17.56 47.92 31.94 24.52 20.64 18.56. lleaweeeaver DO asa caebladesapai-aty dain teers 21.40 49.06 33.44 26.46 2500) [oiscsrnecss ere efleracretsecoaecs OO weanneiages ada voeieuaraiy 26.74 50.94 35.90 OD DZ isiesaie sis atieael | acccecaiatawe vo || eeaieveiznerenaiehs 60} atusobon ness canta 34.46 54.04 BOUSG™ Ils za'easeeveonel ioe we ater al athe Miele seerecres The rate of charge for ordinary whole life policies are as follows :. ANNUAL PREMIUMS FOR A POLICY OF $48 PAYABLE AT DEATH. Age, Premium Extra premiums are not charged for women. Persons con- nected in any way with the manufacture or sale of alcoholic beverages are charged an extra premium, usually one per cent addition. Lives of inferior quality may be insured at increased rates at the discretion of the commissioner, 35 Policies of ordinary life or endowment insurance may be sur- rendered after being in force two years. The method of deter- mining surrender values is the one usually followed by life in- surance companies. Thirty days of grace are allowed for the payment of all pre- miums. . use. ven ccaers vaa dewls's ee ad env we wia ew sl ae alea's 3 PRIVATE! COMIPANISS 3. ssa arene sina seane asec Munna Wate Seay Sra wiskenh Ow uae acl A; RTA Vale: TOANS! 603 kasialend alee eaiauea AG tet wae onde eh HN orate paheaes 6 Private: Ownership: occ. cccutesnn nes astsud sate dae Shae wed Nealya a. healel 38 UU ANCL GY geese coe sae: euch eee io 0G aise ew ou cotanion tose sa Taobao ere tarantino Sone 4 Recs pis: CGSrMaay )icic s saeac a seite Site e.cbe, sedpghe dace duocaacs aha. Sueetaaldre been 8 ReECOMMENMALIONS: ssesceisien seas ese Age's $4 Audi BN Bowes See Serene: oS ee hi sean LS Relatives. caxcwvsciaues a4 eee ssi wees bean atau Rese be se eee Raw 4 SATA PIGS? six des hhsnccets benched eipnarsieeiad. ai ovnjavae sae a lovable bcduaauninn erase asus awpearene 2 Salaries Vs, S€TVICES? sascew ise hee aeene ste ee wa Ne ea eee 4 Savings banks, postal (England) ......... cece cece eee eee 9 Sickness insurance (Germany) ........ ccc ee cece eect tence 8 Sickness insurance recommended .............c cee ee eee eeees 14 SMMC Dis, Wer avn iea einai anata o 8 aa waver Guus wists UA de piatendy gy neh 4 State smnsurance will reduce cost ............... fe Se Space Sua taba ae D State insurance in foreign countries ............-. 0c. e eee eaee 7 State insurance recommended ........... cee cece ence eee eens 13 Summary a0d CONCUSION, 64 isis sea ae age oa dada dea ae bees 12 Systematic: plundering’ sioawcc diese a eteaR ead Geese wa cars daw acene ee 2 Voluntary insurance .......... Pee EO ERWS £04 EOE EHTS Coe AOR eae 11 id Aa Wages of members (Germany) ..........ccce cee eeeeeeeee newer Waste prodiglous) a: snceriassess aus ees Raed de sareeee I re Wisconsin COMPANIES ........ cece cece ee eee eect eee eetees ei Wisconsin Life ......... ccc cece ces ceecceccuccecceuceecens Poe VellOw.- GOB) LUI: se soseiis es sisigueis eiaigig aid: 44 grase aie gos ei eveeo o Siale es eleiaeluie le — _ WS WN WAV WA NAY AY \\\ \\\