^ 7r ^90 V.I BOUGHT WITH THE INCOME FROM THE SAGE ENDOWMENT FUND THE GIFT OF Henrg IB. Bage 1891 Ji,.2ll/JPJ JS.. '..f^.;7. 7673-2 The^kt^ shcjj^s^whan thi& v olume was taken. ■■ '^'i'V'^l/if;;/^^ p^tHE USE RULES. "■i'^ Aft Books'. subject bi ttecall. .Books ,; not pe^ded ■- . for iojtrUctibn of re- sear'cii>re returnable • ■within 4 weeks: i^^^^HMMV Voltimes of periodi- iriiyillUiafy^ Cals and of pamphlets ■' are held in tie library asiJnu^h as poasible, Por iApetial pui'poses they are giyen- out for '■i^. "" '"a'Jtmitedtime,_. ^^ , ■' j^!\. 'v- Sprrowers ^ should nofc use! their library p^yilegjes f or ^e befle-; " ^M • !^^oi, other persons. 'JTi',, . . 'Books not needSd ;. -" i- , ; during recess periods _ .. sliouidbe returned to ' the library ,spr arrange- "i «ients Ifiade -fbr their s • ' • r^turh during borrow- •~^ '»;;; i'er' s absence , if wanted. -■'•'' '■/, . Books . 'needed by Ipbre thaS one persoh areheld on thp.reserve 'list., -, '> . ^ ' „ Books' 'of special •value and gift liooks, :. ,wh«n the giver wishes 'v. i;. .it, are not allSwecfJto % ^ circulate. "' v ' ' -- Marking booksiSfrictiy for- bidden. , . ' f; > . Re'^defs- are asked- to report all qases of books marked or muti- lated. ; ., - . Cornell University Library HG8919.N52 J7 1906 + v.1-2 Joirit hearing of special insurance inves 3 1924 030 201 259 olin Overs ^^ Cornell University Library The original of this book is in the Cornell University Library. There are no known copyright restrictions in the United States on the use of the text. http://www.archive.org/details/cu31924030201259 Lt ^(s'sJtHr ^wJ /^A ^ ^M-7o3 IN ASSEMBLY CrUMBER Msirch Slh, 1906 „ JOINT HESRING OP SPECIAL INSURANCE INl/ESTIC-ATION AND ASSEHIBLY INSURANCE COM}aTTEE ON PROPOSED LEGISLATION ARISING ''UT OF THE INSbT?ANCE II«n/ESTI- GATICN OF 1905- 190G. Senator Ar;r.strong: The first four ror/s of seats are reservoi'i. exclu.sively for the mevfrci-:. of the conmlttee of tTiO h'oureo a;pd. rer^b^rs of the Legiola cirro and cov.,ao3.L 7/ho are nresc^'^t sr.gngel In thiA rt-aring or spes-Kors. Otners vho occupying thei" .must vacate. The. re^it of the seats hack of the four roT's are also reserved, for those directly Interested in the heari ng, as fast as Is necessary to seat those, and nust not be occupied ^Y listeners only, No'v?, if those uresent will he se^-U-id as fast as pos^ihle we 7/ould li^-'e +o proceec 'j. th the hearing. The aisles nust not he oecur^led hy perL^ons SG8ndlng. If th>-; '"'.ei^hers of the intfuranco ccr-^lt^.e'^ of the Asse'^-'ly and Senate i^'i _1 occupy the Ee-'-to m the first 3 2 row as far as poa-ilMe it will oonvenlence all presnet. We are ready to proceed as soon as the mein.bers of the corrlttee who are presnet are seated. I wart to speak a few words to those who are present engaged In the rearing to-day. If there Is '-ny Impression abroad that we are not quite as anxious to hear yor. as you are to he heari. it ought to ve dlssir.eted at the outset. We are glad that the day h- s cone that the recoitr^endatlons of the cor' Ittee and its proposed legislation can he freely discussed, cirticisn freely np.de and suggestions offered with, oust as ruch freedom. We are glad to welcorne you here for the purpose of asBlstlng In per- fecting this legislation Iv any point in which it needs perfection. We want every sane suggestion that can T^e r^ade. '''e will he influenced and guided hy every rational suggestion, as men ought to he under such circiini.stances, and we invite criticism for the purpose 3 Of roacMng an apDroprlate result. I may say to you as a natter of caution, that mere weight of numbers or nolBQ will hardly he of Influence at arriving at a 3uet conoluaion. What we want are faots, and argu- ment hased upon facts. We would be well pleased In the conclusion of the worK we are engaged In Is these pieces of legislation can be based upon judgnent and r^,ason and as little as pftssiblo Influenced by force or interest. With these s-uggestlons we feel that we can pro-fit an of us >-y a day In the discussion o-^ these im- portant questions, 1"^ It ^e dlscnssed ^ot the prrr.ose of a-P-Pording the co^r'it+.ee •^anlir.'ujn In-fori^iation upon v/hich to ''-ase such final conclUBlons as shall be -n.ade. No one present needs to sv^are the recon^^endations in his criticism. Any criticism will be welcome that is ■^ased upon f^^.cts or argument deduci^^le from facts presented. The time occupied other than that will proba>-ly be tine wasted. We are here in a serious buslriesf? ard we adlress ourselves seriously to it. We want the aid and assistance of every rlrht-nlned man o-^ exTDerlenee or possessing information which will lead to an appr-oprlate remilt ; and we will hope that with your assistance when we have done, whether It he today or sone sul:>sequent day, if we find it is necessary to afford o'cortunity to every one who has any proper suggestion to offer, that we will be ahle to arrive at a result vThlch will he equally satisfactory to you and to us . I understand that sone arrfHrgement has heen nade a'-^ong you for the econorizlng of tirre and t'l^at ex- Lleutena^it Governor Woodruff has >^een asKed to act as ft'Ulde., phllosor.her, arrj frie-'^d 'Lauhter) and I tave pleasure 1^ turnlnr th>" r-atter over to Mr. Woodruff and hope t;-at for the econorry of tine he will always rer^enber that we are se^-Klng to accor^plish the ■'OFt In the sr^ort- est time It Is practicable. 5 Hon. Tlmotliy Woodjruff ,- Mr. Chairman and. nembers of the GoTimlttee and Gentlemen of tJje Legislature, as Senator Armstrong has stated, I have "been requested by those who are in attend.ance at this meeting for the purpose of opposing them proposed -- pr more properly speaKlng, proposing anendments to the pending Insurance legisla- tion, to formulate a system o-p procedure for the purpose as has been suggested, of eoononlzlng time and r.aKlng the :'ost effective and concise presentation that it Is possible to malfe. To that end, If It please you, Mr, Chalrnan and the members of your Committee, I will taKe th^ liberty of call- ing first upon some of the presidents of the companies, ^vh are present, tQ speajc as it were upon tbe proceedings and In 91 general way, state the Tiurpose of our prese^ice here-; and l^^en call upon the actuaries to ad,d2"ess you upon the technical questions of life Insurance; the wbole being su -^ed up by one representative of one of the large com-- panleg— I hope In the per.son of Mr. William B. Hornblower^ Whom I have asked to sit here as a listener, and at the conclusion o-^ the proceedings to sum-up. Now, tbere are represented here, if I cay be pardcnod. ^ust a moment elgher directly or Indirectly, either by their own --reBide-^ts, tbelr other executive officers, thei:^ aGt-uarles or conr^ittees, practically all of the ninety ah local reserve insurance companies of the United States. ''^tieT^^'■■"'^y the Insurance derjartnent . There are cro"57d8 also representadives here of 3K55l"Kii of policy holders, and generally epeai^ing these ninety odd IocrI reserve com- panies are represer'tod by all the elements tbat go to maKe then up; and wrile you Mr. Chairman, and tbe r,erbero of the Conrlttce have informed yourselves as a result of tho Investigation and the study you have given to tbe subject, concerning the ma^ltude of the Insurance interests of the country, I am sure there are some efforts of the Legisla- ture failed to appreciate the fact that tboBo ninety odd companies have at the present time outstanding'' twenty one million policies representing one policy for every forth man., wom.an and child in the United States and that the at^ssets of these com-panlos held for tbe ^-^eneflt of these policy holders ariounts to three tires the aggregate capital of all the five thousand three hundred national banks of the United States, or four-fifths of the amount of the deposits of all the nat^ ral banks in the United States. I slm:ply referred to that as Indicating 7 the agn.ltu.de of the T^rslnesR for which this pending leglsla"*-iori Is proposed: ■•"•^p■ InportPrce of It and the nece.s«lty of arT.ToacMnp' it with tbe greatest posslhle care and concervatlsTr. I --^ow call or the Honora'ble Paul ^^orton, ^^resldert of the Eqvltahle Life Assurance Society +o speaK. Se-i^ator Arristrong: If the sv.ep'Kers wl^l Kindly step down fro^r- their seats to the s- ace In front of the Cc'-lttee we can hear t>em more readily. Hon. Paul Morton: Mr. Ch'=jlr'-';an ana ge^^tlenien of t]ne Co'-rlttee I ex-ected to talK to you to^ay on that por- tion of yovr Co^i-lttee's rer.ort wMch refers to the proposed restrictions of Life I^^surance Co— 'la^y Invnstrr.enxG hut In order to save tire, I nave already adlresBed s letter to Senator Arr.strong as GhalrTnan of this Cov-rittee ,. ' In -/hlch I ex: rested -^y views at consldera>^le length on that and other subjects under consideration. The letter Is now In yoiir possession" and I now only asK your Iniulggnc to read the first pages of It. (Reads ) ?'-« liarch 7, 1906. Hon. ¥. i;7. Armstrong, Chairman, Irxsurance Investigating Comiiiittee of the Legislature of the State of iTevv Yorka Senate Chan her, Alhai y, New York. My dear c^lr: On behalf c,r- the Equitable life Assurance Society aa d its off. cers, I desire to offer a fei?; suggestions regarding the legislation recorjnended hy ycur ccoi-aitt. These suggestions are offered, not hy T.-ay of criticisn, buti in the hope that th^ will aid ycur co mittee in accomplish- ing the purpose it has in vie\7. An3^ fair Hisd^d raan must recognize that serious erils have crept into the insur- ance business, and that inportant renedial legislation is called for. i appreciate that ^'■our committee, after the thorourh and iripartial investiga^tion v/hich it has r.iade, and vievfing the situation, as I lzn6v! it seeks to do, from a jiiidicial point of vie\:;, is earnest and sincere in its desire to reach a '.rise conclusion as to the legisla.ticn required to place the insura.nce business of the State upon a sound basis. I feel sure, hov/ever, that in reach- oriQ your final conclusion as to the best nanner of carrying into effect the refonns v;hich you regard as inportant, you vrill be aided Ty fra,nk sugrestions from those who must d) business under the latrs vrhich ^^ou recommend, and 7-b who, therefore, apply to your recoircnendations the test of practical experience. V/mth the general purpose v/hich you have in vie"..'- I ain in entire accord, and in the nain ycur recciaraendations seem to nc wel?. adapted to accoraplish those -purposes. Ycur recommendations tipon the su'oject of political ccntrihu- ticns, lohbying, ptihlicity and State supervision, the pre- vention of re'^oatinn and deception, the prohibition of personal profit "oj officers, and indeed z,iost of your other recori.iendations, are adi'jiraole. Tliere are, hovjever, certain of :.^our rec ocmendations ',,-hich seen to my associ- ates and L:iyself li}cel3'' to seriously injure the insurance "I-msiness, and to defeat the rrrry results ycu seek to '^ accomplish. I shall leave to the acturaries and others '•'.•ho are nore faioiliar than I \/ith the details cf the in- surance business, to discuss the technical questions pre- sented, and shall confine nuself to a fev; general sugges- tions v/hich seeivi to ue to he of cc ntrcllinn inportance. It is fair that I should say to ycu that I have attended a nuiiiber of conferences cf actuaries and insiirance iuen of Icn^: experience, -crhc are, I dai satisfied, aernestly devoted to tl-]eir profession and anxious to pronote the hest interests of the policj' holders, and that it is their unanimous opinion that if tlie oi.ils to a.iiend the General Insurance Law that "/ru have recozriended, coijiaendahle 7~G as they are in many respeats, are enacted without certain changes, the interests of the insurance companies and policy-holders of this state will suffer serious injury. Not only wiK( the insurance companies loe unable t^ conduct their husinesg' in such a manner as to produce fair* returns to their policyholders and meet the requirements of the f)eople of the State of jyew York for new insurance, ' but the conservative insurance companies of other states will be forced to discontinue "business in this state. In short, the res\£Lt of the legislation which you have recom- aaended will be the reverse of the result you are seeking to accomplish, I would not express this opinion so postive- ly, if it were my ovm ovmly, but it seems to me that the united opinion of the actuaries and skilled insurance men of the State upon these questions directly affecting their business cannot be far from right. I have heard it suggested that even if the bills passed at this sesdon of the Legislature faould prove de- fective the harm will be temporary, as they can be amended at the next session of the Legislature, but in this conn-ec- tion it should be borne in mind that the investigation cojiducted by your Committee has commanded such widespread confidence that the laws enacted by the ITev/ York Legislatare upon the reoommsendation of your oomiii-|tee will almost - certainly be followed by the legislatup:-es of other states. 7-d It accordingly seems of the utmost importance that the laws enacted in this state this winter should he nearly perfect as it is possible. In the followin- communication I shall confine myself to surp:esting certain changes in the proposed hills which I understand to he essential to enahle them to accomplish the henef icient purposes you have in view. LIMITATION UPOTT DIVEST3£EIITS« My experience and ohserration in the Equitable have led me to believe that on the whole it is wise that, with certain qualifications, msurance companies should have subatatntially the same freedom as heretofore with respedt to the scope of their investments. In contz-ast with the requirement of the Prassian lav/ with respect to stock investments it is well to bear in mind that in Great Britain insurance companies are not only allowed by law the utmost liberty in investments, but have actuall;/ invested largely in railroad shares. Accepting, hov/ever, your judgment that there should be a radical restriction in the scope of investments, and that a radical restriction in the scope of investments, and that in the future investments of life insurance com- panies, should be practicall y limited to loans secured by mortgage, and to corporate bonds, I offer the folloviring sug- 7 -e the adoption of which, in my judgment, will save policy holders a gr^eat deal of money i/ithout violating the spirit of the restrictions which you recoimaend. 1.^ Elxisting InvestiBnts. The important existing i- .vestments of li'e inourance companies w ich come v:ithin the prohi^jition of the lavv which you propose may conveniently he considered under three heads, viz. (a) Collateral trust loonds ; (h) Railror„d stocks; and (c) stocks in hs.nks and trust companies. The investments of the life insurance companies of this state in secv^rities of this character are siihstantial- ly as f ollo-.rs : Collateral Trust Sends (schedule A) •107,107,000.00 Railroad Stocks (schedule ?0 26,628,510.00 Baiik and Trust Company Stocks: liutual, ;3-3,374,782,60 Equitahle, 42,175,155.00 75,549,937.60 Grand total, '209,285,447.60 These invest}aents :ipve been ::iade under the authc---ity of t':e Issvr heretofore existing, P.nd it lias taken many years to accum:v;lato them. It seems to me th^'t t]ie companies should "be aJ.lo^.ved to retain .9uch of these investments as are sound an;; dc not tend to create any of 7 - f the evils vrlilch the Coinmittee is seeking to remedy. The prohihition against investments in the collateral tnist bonds and stocks of railroad companies is certainly not upon tlae theory that all investments of that class are unsound hut rather upon the tiieory that it would he unwise to place the directors of life insuro.nce conpanies under tlie responsi;;ilit7 6f choosing: tl,e particular stocics and collateral trust "';onds vhich a. re safe and proper invest- ments. Tlie list of these securities no\7 held hy insiJ.rance companies of this State is so short that 7fcur Cov,iiiittee can see for itself that almost \rithout exception the;'' are sound and safe investments. (a) COIIATEF.M TRUST 30:n)S. In schedule C, I srfnriit a statem.ent of the present rate of return upon the collateral trust honds held hy the Eq_uitahle and a hrief description of each issue. Any expect in investments •rill recornize that 'whatever :iia3''' "^^e said of collateral trust ":onds generally , these particular issues of collateral trv.st bonds are well secn.red and furnish safe inves t..ients for trust funds. If the life insurance companies v:ere compelled to market this very large amount of collateral trust bonds this could only be done at a sej^io^is loss and t.ie Society v-ould ,,. 7 - g "be Unable to invest the proceeds in other "bonds equally v/ell secured which t/culd yield as hif;h a rate of interest. the reason vihy these "bonds could not "be iiarketed without a loss is thp.t the insurance companies have heretofore been aaonj- the most inportarit purchasers of collateral trust bonds ("/hich are not legal investments for savings banks), and the fact that insurance conpanies could purchase this class of bonds has had an influence in fix- ing their prices. If the insurance companies should be conpelled to market their holdings they would have to be sold very largely to private investors, and the knowledge that this large aiAOunt of bonds had to be narketed ;7ithin five years would roaterially depress the price, Cb) RAIT.ROAD STOCKS In schedule D hereto annexed I sulv.nit a statG.aent of the aver.-'.f-e return ttpon tlie ro,ilro?,d stocks held by the Equitable. In alncst every case these stocks are so well kno-./n that arrunent to shc.T thr^t they are sound inveatraents seens imneoessary. Tiie dividends records of these stocks are such thf-.t they may be locked upon as alnost as stable investraents as bonds. While, unlike the case of collateral trust bonds, tiiese stocks, having a v/ide niarket, could probably be sold without any serious loss, the companies -srould have 7 - h difficulty in investing the proceeds in other seoxirities of equal stability yielding hb hit-rii a rate of interest. Purthemore, there is an advr.nta.(:e in hr.Tinf a certain proportion of an insurance company's funds invested in stocks of this character, as they are ver37' salahle - a.s a rule much more readilj?- salahle than bonds - and are therefore rea.dilj'" converted into cash in case of eiiiergencj'', (c) STOCKS 01 L/13KS A:TD TRUST COITAl'TIES I accept the conclusion of your ccramittee that e:;cperience has sho-;rn that insur.xnce companies should not he permitted to control or dominate financial institutions. I, therefore, agree that the insurance companies which nov/ control or dominate financial institutions. I, therefore, agree that the insurance companies which now control or dominate banks or trust companies should not be perriiitted to continue such control or domination. On the ether hand, •..;ith uninport;.nt exceptions, the investnentr, of life inaurrnce ccnpanies in banks ano. trust ccr-f-nies are sound and profitable investraents, and yield rn e::cellent return upon tlie value at v.-hich th.ey t:re no.: bein.^ carried. The holdinrs of the "utual e:a(l Ve Hquitable of such 7 - i stocks could not Toe Liarketed 7/ithin five years except at a very serious redu.ction of tlie present prices. The reason for this is that the market for stocks of this chn.racter is necessarily Yerj narrow, especially as the value of the shares of a particular bank or trust companjr depends to a great extent upon the financial strength of the interests which control its stock. The result is that the larrre holdings of the life insurance companies in hanks and trust companies could only he sold to inportant financial interests of whom there are comparatively few of sufficient strength to acquire such large holdinj^s. If the legislature enacts a law conpelling the sale of these holdings, it would place the life insurance corapanies at the nerc3'- of a comparatively^ sjjall nuiuher of nen v/ho, within certain limits, could, hy acting together, fix the price at which these stocks could he narketed. Indeed, there are indicatinns that inove::ients of this character a,re already- on foot. V/liile tZais result to sorae extent would follow in case even a part of these stocks were sold, the loss would he increased in proportion to the aiuount sold. I a.ccordinrl;/- urge that yrhile the life insurance companies should not oe allo\7ed to retain controlling or doiiinatia,(T interests in hanks or trust ccnpanies, they should he periaitted to hold as invest- 7 - J ments their present holdings, provided the;^ shall not exceed twenty per cent of the stock of any one bank or trust company. It is of course assuiaed that further investments of this character are to he prohibited. My recommendation with reference to existing invest- ments, therefore, is that life insurance companies he permitted to retain their present investments in collateral trust "bonds and in railroad stocks, and also their present investments in hanks a,nd trust companies, provided that in no case sha.ll an insurance company hold over twenty per cent of the stock of a bank or trust compan3''. 2. PTJTTJHE ITWESTIIFiTTS. Accepting generally your conclusion that insurance corapanies sh.all not invest in stocks of corporations and in collateral trust bonds, I siibmit that your restric- tions might be liberalized in the following respects without danger to life insurance companies and v.'-ith the result of very substantial!;^ widening the scope of investments : (a) Permit investments in collateral trust bonds issued ''oj companies operating railroads. If thought wise there could be the additional restriction that the Railroad Compa.ny by which the bonds are issued should not hcive defaixlted for a period of ten years in any of its interest payments. Under such a provision, collateral 7 - k trust "bonds issued "bj holding companies having no independent credit v/culd be e:ccluded. Tliere is no reason whj'- bonds issu&d by solvent railroad companies should be improper investments simply because the;!" happen to be secured "ly stock as collater8.1. As a natter of fact, iome of the stron.'-est bonds upon the market are "bonds of thct cIp.ss, and the onl^'- reason rdiy they do not c oriiano cJ.most as hif;h prices as first mortgage r^,ilroa.d "^onds is that they are not le^-al investments for savin.rs ""■"■• anks . (Id) Permit investments in preferred or p;uaranteed stocks of railroad companies, provided the stocks have regularlj" paid dividends for five 3rears at an average rate of not less thnn four per cent per annum. Provide, however, that no insurance company should thus acquire over five per cent of any of such stock issue, ST/JTi)ARrj POPJIS OP POLICY My information is that the forms of policies which you have proposed while in many respects excellent, present certain objections v;hich it is unnecessary for me to discuss even if I viere qualified to do so. V.'hile I heartily cciimand 3^our various recommendations tending to make life insurance contracts plain and to 7-1 prevent deceit or rais takes, I aa firnily conyinced that it is unwise to prescrilie standard foras of policies. Experience surrirests improvements in polii&ieaj and the requireiaents of the public "s^ith respect to insurance undergo radical changes. I helieve tliat in the long run "both the coi-iipraiies and the insured vill he hetter if the cocrpanies are free to adept their ovm ferns of policies under feir supervision. If, hovrever, your coLEiittee finally deternines to recoraaend st?.ndard f orris of policies, I strongly advise that you do not adopt the forras now proposed which have not received, and can not receive v/ithin the limited tine at your disposal, the careful considers^.ticn hy practical insurance raen v/hich they require, and that yov either postpone the adoption of standard forras of policies until the next session of the Legislature, or hetter still, that you erapower the Siiper intendent of Insurance to approve standard forns of policies, so that after some date to be fixed hy law^ no forias of policies 8h£ill "be used in this state v/hich shall not have been approved hy the Superintendent of Insurance. Under this later arrangeuent the companies vrill have an opportunity of iiaprovinf;; their policy forns froia year to year and varying their policies to raeet the require- nents of the public, while the Superintendent of Insurance 7 - m will ^be in a position to protect the public ag?*inst deceit or mistake by seeiHg to it that the forms of policy are fair and plain. LlillTATIOIT UPOIT YiKr BUSIIIESS vrnile it seens to ne that theoretically any limita- tion upon the ai-iount of business './hich an insurance company na;/ ta.ke is xin',.-ise, nevertheless, subject to one qualification stated helovT, I offer no obj ection to the liiiiitation you propose as the policy which has been a,dopted by the present ris-nc^erient of the Equitable Society v-'ill in all probability keep the ne-.-/ business v/ithin that limit. I do recorxiend, howeTer, that you modify your restrictions ao that an insurR,nce company in any year naj' take enoufch ne^c^ business to na}-:e good the redu cti on suffered during the previous year o y terminations , even though that ar.^ount exceeds the arbitrary limit which you propose. In other v/ords, I think the three large life insurance companies should be free to maintain the present af-rregate amount of life insura,nce outstanding. Jlll^IinJi! CO:TTI!TGE>TCY RESERVE I think that a requirement that the contingency reserve of large companies shculd be but two per cent of the legal reserve would be a serious menace to the 7 - n safety of the polic^/'holders, and that any law fixing a ma.xlm.vja limit upon the contingenc:/ reserve is unwise. Indeed, it wculd he uuch safer for the interests of policyholders to estahlfeh a niniraum liLiit which inizst oe reached "before an;- dividends can he paid. There is a general agreeraent ai-iong actuaries that a contingent researve of tvro per cent is entirely inadet^uate, and that a conpany vrith such a reserve would furnish no adequate provision against the inevitahle fluctuations in the niarhet value of securities. If such a la-/ had been in force in 1893 and 1903 rnany important companies would have heeDjae insolvent with a, contin,9;ency reserve of only two per cent. I cja clearly of tlie opinion, hc.'ever, fir>t it is unr-ase to fix any raaxinuni for the contingency re^erYe. Upon this proposition officers and r,ctu.':ries are, so I aa infcnaed, a iinit. Conpetition and tlie natural desire of insurance dcrapEiiies to v.iri:e f avorahle returns upon their policies v/ill certainly insure as liheral a distrihtiticn of surplus as is consistent 'rith safety. Tini] irsut; o? iTO/i-^ARTiciPATniG POLici::^s ?,Y COZr^.CTIKS DOIi'G A injTTJAl. BIJSIITESS I think it uill he a serious injury to the insurance business if the large nutual coripanies are 7-0 not permitted, to issue non-participating policies. Almost all of the strong life insurance companies of the country are doing the major part of their business upon the pai*ticipating plan. Yet there is a demand for non-participating policies, aiid if they can not he issued by the strong companies, these desiring them will be forced to go to tlie vreaker companies, furthermore, experience- ha s shov/n that tte non-partici- pating busine ss of the important life insurance companies has been conducted upon a safe basis, B.nd has indeed resulted in substantial profits which have insured to the benefit of the holders ofparticipating' policies . Such profits have resulted in no Injustice to the holders of non-participating policies because the3r paid a stipulated price for their insurance, and received wis, t their money called for. SXPEITSES I entirely agree vith the recomiaendcit ion of ycur Committee that the total expenses of insu.rance companies should be limited to the total loadings upon the premiujn, and that some limitation should be placed upon the cost of securing ne-- busl^iess. It see.is to rie, hovreYer, that in a nvuiber of respects the predse scheme of limitation T./hich you propose is unworkable. 7 - p The a'bson.ute reo^ulrenent that the cost of securing new business each year shall "be kept within tlie limit that yoTZ propose at r,he risk of the officers of the company "being suhject to o. mlsdeneanor in case of failure to do so, makes it almost imposslhle to allow for the inevitalole v.ncertainities of this "business. It is generally agreed among insuronce men tha,t if your plan of limiting the expense of securing b©w business is adopted the insurance business Will be paralj'zed so long as the lar; is in force. It seeris to ne that the proposition you have in view will be accomplished if after requiring that the aggregate expense of a comrjany must be tept v;ithin the aggregate loading, you then prescribe the mf^iimii::i percentage of premiums which may be paid to agents loy way of commission, salary or other compensation for securing nev/ business. I refrain from discussing this subject more fully because it will be presented in greater detail by the actuaries. LEj^L'RRED DIVIDEITj^ I:TSTIRA!TCE Y.Tiile the mere I study the life insurance bv-siness the sti'onger is my conviction that the deferred dividend insurance presents many ad.v"nt'-ges, that there is a, res.l demand for it, an.d that it should be per-iitted, I feel that the subject has been already presented, that its 7 - q further discussion should be left to the actuaries.. R YI'TnCATE PARTI C IFAT I OITS I think that a life insurance company should he permitted to take a. pa. rticlpa ti on in a. syndicate holding securities r;hich it is authorized to purohiase. In such a case a syndicate pp.rtici"n?.ticn would ordinarily simplj'- he a i.iepns of p)urc.'iasing tjie secarities at the lov-est prjce. To preTont an insurance company fro:a participating in such, sytidicate would he to coiiipel it to pay a, hif.:her price for its oonds than is paid hy t.he participants in the syndicates. If ^-'our Coi.riittee dee:.-; such a restriction necessary it might rest.rict the partici'pation of insu^.'ance companies in syndicate to s;ni(i.icates boldln.5 securities which the insurance coinpcinles are authorls^ed oy lav/ to purchase and under \i':a-xc]:: the insurance companies would he per- mitted by the terras of the s^rndicate agreement to withdravf the bonds for inTestdent, \7hile the off.icers a.nd :uenhers of financial co:L.]_':Li- ttees of li.fe instirarice coiapanies should he prohibited from participating in a syndicate sellin- securitiBs to their cc-iip.any, I question your proposal thai; directors of .1 if ■^ i n s vr a:: c e c orap ani es v::; c ?. re not officers or lue^nbers of financial ccmittees should be 7 - r prohi'bited froa haying an interest in such sjTidicates . Life insurance corapanies require upon their boards of Directors a certain niiiaber of iien of standing who have experience in investraents. Such raen as a rule are interested in the lai-ge s;'ntlicates by which ne"r issues of securities are cisarketed. They covild not be expected to serve upon insurrjice "boards if by so doing they would be compelled to forego these legitiuate sources of profit vThich are entirel2^ independent of the insurance ccnpanies T/ith 'Thich they are connected. The ixiportance of the subject is ny apology for trespassin,^ upon ycur t-iiae -"ith so long a letter. Very truly yours, (Signed) PATJI. JIORTON, President. 8 ■f^x-Lleut. Goverri.or Woodrvf-f": As I ^-tated trere sre pres^'nt here *.he Presidents of Life Inni'ra^ce cop.Tiarles In considerable nu^-'bers, conpanles of Nev; vorK State, and oti-er states than our state, and I would }:.artlcularly like to call i^pon the presidents o-p the three large conpanies of Ne VorK, the KquitaMe, IJew Yor)<- Life, and Mutual in their order. They three represer^tlng one-half o-p all the insurance >^uslness practically of the country. All three of them had new presidents o-P these co''panies who have hee^ hrou^'ht into the field as the resii.lt of +he Ari^-strong oonr^ittee 's investigation and who are all nov/ interested in the R?-"e pur', ose for V7hich f/ese ^il. Is have heen prene'^ted to the legis- lature an.j. -Tor viThich they are .now being considered, and I i^now of no nan better a^le to speak for the citizenship of the state than one of these presidents, who has been called in the late years of his .life to serve this great ^-us^'-ose, which v;e have in con."- on, Mr. Alexander E, Orr, o-^ the city of Nev/ vorK. MP. ALEXANDER E .. ORR ;• Mr. Chairnan ana Gentlemen I h&ve only been connected v/ith. the ad'^inistratlon of 3 Insurance co'ppnles a very few weeks, and I did ^''ot expect to he called v/nc^ to address you for trat reason. However, It lias l-.een su.r-.fested to me, as Governor Wood- ]Fiiff has s-ld, trat I shoiild -'C-iKe a few remarks. The co'ipany that I represent Is not here in anjf feeling of captious onrosltlon to the work of the Arm- strong co--'"ittee or the hills ir/hich they have forrailated for the GO^'Slderation of the legislature. I have >^een desired to say that thoy have appreciated the evhr-'us+ Ive character of the Inqriry and that It has been l'^ ""heir judgment, exc'-'edln'ly servicea>^le to the cor'"'Unlty , pnd that very -any o-^ '"he provisions l'"^ the ^llls which have ■heen rrese^'ted reet with the cordial approhatlon of our ^oard of trustees, hut at the s?5''-o tl^e so'i^e of t.her do not. The oT^jectjons trat -nay ^e "-^ade wllj. he referred to hy others than ryself, '^nt v^e re"-er-^-'er , v;ltn ri'ch apnrecia-^ Ion , the state'-p-^t that ?/as --ade hy the Crslr- nan o'^ the^ co'~"r'dttee dvri'^' t""e Invest j ratlor ,, t;-at their vjuri ose ■i.'as ^ot to tear do^,"" hut to >-'Ulld up the It Insurance Interests of this state, a'^d it Is because v/s believe that it is the province of the Insurance coKFanies, as well as the corrrittee, to aid In formulation of wise, conservative and progressive laws for the government of lift Insurance co-^panles that we are here today„ The «orm of opposition or protest, as I understand it, wn.l only be confined to suggestions of changes in the Willis \vhleh are now under consideration, but ^hlch we believe are absolutely neces^^ary to neet the requlreyie^ts that we all have in 'ilr-d. I am not com- petent, because I p.-' not an Insura-'-'ce ex^/ert, to die- cuss these qtiestlons, ^ut there are en here who are we'll equipped for that "ourpose and who will ad^^r^v o^^-n-i^v-io Q ^i^^A-r^-j QT-e j_Ti danger of being committed. 1 To theso i-ren, ?;ho I ■anclcr'j£?"ta:nci, are now to folio?;- Pie, I resp€Cofully asK your earnes+ ap-l -natient thought and attention.. I thanls you gentlemen. Mr. Woodi'uff: You have heard from the presidents of the "Big Ttiree" , The president, every president of every other Ne77 YorK -City Life Insurance Corr.vdny is in this chamher at this TiODent, i-ut th^y have coleeted frotr. araong their nu"i^er one to spt.ai<: for all, for the pi^riiose of econoin.i- zlng your time and in the belief that he can present the case of the sraailer companies '-vith as much force as all could cor^hined, and I call upon Mr, George E. Ide , the President of the Homo Life Insurance Conpany nf XeTf YorlT. Mr. :jhaiman 9nd Gertlenen: The other kg! three companies, or rather the three large com.panies, of New York City have >^een heard from directl]'' by their presidents. Six of the smaller co-rpanies of the City of New York, nam.ely, the Manhattan, the Germ.ania, the Tifashlngton; the Providence savings, the United States, and my own com.pany, 'che Ilomej deoermined that it would be only a wa^'ts of time for you to hear individuaxly from those loresiderita ^ Tbc-y selected m.e to speah for 16 thorn and It Is with great dlf-"lcience, I assure you, that I undertaKc that tasK. The ee^^tlraent of the gentiep'.en #ho control, or rather occupy the preslderits 'ohalrs In these co- 'P'-'inles Is ■unaninous; we all Knox what we want. Fe realize ver^'" flr'Tly, very fully, the wonder-Pal scope of tMs ch'^nge which is ^.ow pro""osed , The Insurance law of the state of New vorK Ih the resu.Lt of a growth of T--any years. Uno.er that law, be it ViTise or unwise, there has heen developed the greatest conpanles in life insurance which the world has ever seen, Now, ger f-lemen, after a six nonths investigation, after sixty days of consi- deration, a new hill is put before you which I heg to assure you is revolutionary in its character. I am not prepared to say that I an not throughly in accord with the underlying spirit of that ■zGS.-^vTe, but I assart- you, as a prpctical Misiness ra^i , that t'ne intent ■•?] ..''.h you are having m rind in franing that i-'ill iilj.l n /., ':>:: carried out if 1 1 becoraes a law, Nov-/ the objC-Ct^ I u. .'derstand, of your considara-- tion.; is to upbuild tnis busmoso, and I have been told bhat it was your object to c^urtail the larger coirpanles and to bi^-lp tho smaller coi-^panies who need your .sympathy and assjsta/.co , I assvji'e you tbe hill wil^ acco.npllsh the first of these tv7o objects, — it will curtail the lar5,£ cor-panlfes; Mit in the cateclvsni which folowo, I shudr?.!.- to thmK V7hat will bsdomc of vaz , because I Bccr ncrthi.ni; In the bill that woull naKe It possible for me, as the president of p. small, struggllUfr company to do nexiev '.-,har j. an doing today „ Now all of this Is slF'.ply Introductory to the naln general thought which I want to bring out, — that Is that we are not antagonistic to the r^easure as a T;easure, nor are we, the smaller coppanles antognlstlc to what we bellevo to be the Intentof the gentlemen who drew this bill; but this Is so vast a subject that all we asK Is that you give It the time It requires, all we ask Is that you hear the testlp.ony of g'^^ntlenen who have studied this ^-uslness, who have practised this h' giness for years and who, I say It In absoltzte carnestnesR, are entitled to your oonsldoratlon. The acturarlcs of the companies h?ve been called together and they met In my office some two weeKs ago., 26 of them, from all over the coimtry, to consider this measure. The questions they will want to taXe up in detail It appears to me — and I am following the very kind suggestion of the Chalrm.an, In making a free ex- pression of m^y thought — the questions which they will want to bring up, it appears to "e are of such a nature th't they cannot be discussed In a mass meeting. I believe there is only one way to get at the true inward- ness of theso true mathematical questions, and that is In a heart to heart talk among a few men where questions can be asked and where expressions of opinion can be given* 18 So ^uch for t'np pereral attitude of t^e saallcr coripanles on trls particular question, I ^ave boen askec also to sr;er^-K briefly In regard to section 87 of yoiir bill. MR. WAINY/RIGHT: Which ^^111 is that ? MR. IVES: Which you will find on page 33, the act to ST^-end the insurance law generally, No. 996, sec- tion 87, page 33. The provisions of this particular section are in >'rlef that a conpany may acciwiulate and nalntaln a contingent reserve out of the surplus ordlnari: dl^'lslble to policy-hollers on ri certain basis of percentage, v/hlch is a percentage of the -nean reserve or net V'^lue of Its policios, and later on the section goes on to state that tli&t surplus nUst not exceed that a-ount. In other words It is a -^-azlmujn contingent fund v/hlch the conpanies can keep as a margin of safety. Trls section is dif^^lcult to discuss Ir such a general asRc-'-'T-ly as this, if I taXe it exactly as It is v?Tltten. It starts of-f' with « y-nifest intention of dlvl:ilng evi-ry corpf^ny In business into t -^o companies,- one the conpany representing the old pollcy-holcLers v^ho bad th^^ misfortuse to i^e i'^sujed before tht; first day of Januaa-y, 19*7; the second class, the new policy-holders who cane In under the reform la77. New without going into this tocbin.lcal discussion, which is one of those questions I r:ean tr,o+ c..:^not ■■^.•^ discussed bore, you will havc' to taKe-ny word for it; at any rate I will state it as my 19 opinion, that a grosp; Injustice is done bytMs provision to the old policy-holders. Later on In the bill, or In this section we tlnd the closing clause^ which seems in sotne way to bulk together all the accumulated funds of the past and put tbem In with the new funds unless an entirely new systeri of bookkeepolng not called for In the contract, the policy contracts, of r-^any of the conh- panles. Is Inaugurated. I will not atter-^pt to speaK of that feature of tine >^111, which I believe to be enough to condemn It. I wont to spoak of the general underlying principle. The intent of this law is plain. The intent is to com- pel the r.^nager to distribute to the policy-holder all that he should receive of the divisible surplus. There is one o-f those points where I say, gentlemen, the in- tent Is "^agnif Icent ; the way you bave carried it out I believe to >^o wrong. This is as far as I krow the first law 7>rhich has ever been proposed v;her0by a limit is put upon SBK'SfgKsstiDHxx conservatism. The French Government to-day has under consideration a law comipelling the companies to charge a certain premium and no less for the ordinary life policy; and that is the usual trend of lav/ on insurance ratters. Everything previously has been in t:"e line o-^ safety. This "^111 says it is a misdemeanor to be conservative. Now, Gentlemen, who Is responsl^^le for the ulti- mate judgment as to how much or how little of our profits we shall Keep as a safety fund for future times of 2» streRS., Are the gentlemen of this leglslatiire, who finally are to pass upon this Mil are they willing to say to the directors of the life-Insurance ccr'.panles of this country, "Gentlemen, we free you of responsl- hlllty; we will doternlne how myc you ■.7111 alvldeS" I think not , Now there cm 'be, in ray opinion,, no hard and fst rule for all life Insurance companies. The size of the net reserve is no criterion.. You taXe this one simple question, which Is actuarial by the w-y, and yet I "believe I can mzke it plain to every one — take the pro- portion of new and old business which a company carries. Suppose V7e have b company where tl'c great preponderance of Insurance Is Rd old insiarance, kvhere the affect of the nur.erlcal selection which we riaKe In the exam.lnatlon of risks has disappeared, where v/e are getting close up tcr If not beyond In m^any Instances., the ordinary m.ur- tuallty table,. — do you m.ean to say that that company needs the same surplus as a company which has the prepon- derance of Its Insurance consisting of selected risks placed on Its books within the last ten years ? No, I don't velleve that any such limit. Is necessary, but If you are going to put a limit put it so i-ldlculously high that no company in the ordinary conduct of Its business would think of reaching such a figure,. Take another matter; take the fluctuation o^^ secu- rities. In that connection I may be m.et by the remark 21 that ^'^rgage Iopt^b on real estate, the Ideal jnvestrent, do not -fluctuate. Thf'y do not -^'luctuate, g-'Ttlr^npn, on t^.-l^ f aer- , ^-u.t re'-.f-n'her that In 1903, I sr-eaK of the last •■■■■;nlc, T'-nembex that In 1903, I sreaK of the last v;anlc, rencmber that In 1903 those of up who hold the rrarKe tai le securities ca-c up to the Insurance de- paTtTT.r-nt of the state of New York and quoted our i-arKet securities for what they v/-ould hrlng when nohody was buyln any'^-hlng, and the people v;lth i^-^ortgage loans came up p.nd said "uentlenen these ^ortgag: loans are orth par", Yeu could not h>ve '-^oTd trc' cooate '".-1, 3^ou coiill not havc' djsxosed of the '^'ortegres, and yet their ?;tat>r''-nt was unlrii.r-.lred by the panic of 1903, Now taKe two coinp";nles "with exactly th-' sa^'^e net reserve , one with Its aesets cut down by the crash In W'^i str et for the tlrre being, the other v/lth Its mor- tgages unimpaired, To you --ean to sry that the security company, the one T/lth the securl+les , ne -ds the sairie sur- plus, or needed It on Decerher 31, 1903 that the other conpfiny which v/as really quoteinf under your practice, fie tltlous values was carrying ? Inbelleve not. Now taKe thl.'^ very case of 1903, because It Ir-ipresseL itself ve 'y strongly on our rlnds . If you gnetlenien will p'?rdon a personal allusion t- --y own conpany, for I believe that a t ngi>^le exaraple is t^e ^est way to bring ry prgu.m'."-nt before yeu, — 1 1901, or r?' + her, I think, the end o-f" 1900, we determined that the prices of seciu?ltles In evr or^lTiton wer^. vc^ry Mh an:l we laid -asld e» I believe it was t.-e -^irst tire that any c or p^ny 22 had ever done It, a special fund for possible futtire fluctuations In the price of securities. We cane to 1902, the situation was unchanged, prices were still high; and we Increased that fund. When the panic struclc us In 1903 the sirrplus of our company was depleted to a certain extent, but there was nothing It to alarm the policy-holders. Now, gentlemen, had we been up to the limit prescribed by this bill in 1901, It would have been a misdemeanor for m.e to have laid aside that contingent fund and prepared myself for the storm. Now do you think that is wise ? I suppose that It will be said that this is a safe margin; that, gentlemen, Is not so. It is arranged @n a scale by which the percentage which you are allowed to Keep varies according to an absolute rule of thumb, according to the sixo of the company, decreasing as the company grows larger, until coming to the largest com- panies of our state, only two per cent is required. Now I am Informed by the officials of the New York Life, YiTho have reviewed their figures, although you remiember they were only carrying bonds and none of these much hated stocXs, had they had only two per cent when 1903 came the New vork Life m.lght have been, and I believe would have been temporarily Insolvent, Kow that is a serious question, a serious situation which you intend to force upon us by this measure. Now 23 there 1b another question affecting the pollcy-holdor directly. . You ask us to distribute all ^f this money ahove the limit which you have prescribed to otir policy- holders. That means that In one year of high values, (?f general propserlty, of low mortality, their dividends would be very largo; the next year it might be that you would have a hoavy mortality, a shrinkage., In securities., a bad year generally, your dividends would decline. Now In my experience In life Insurance matters, I find that the only way to Keep the pu>^llo satisfied Is not to alarm them by fluctuating. You must have a stable rate of dividends, growing If your company Is growing In pros- perity, 'but growing in a gradual gradation. You don't want these fluctuations up and down where every policy- holder from all over the country says: "What does this mean? Is my company becoming insolvent" and writes to the home office, You^ can only keep public confidence In a mass of policy-holders by handling your business In a uniform an reasonable manner, I do not wish to tire the committee by going into all the details of this particular section, but it seems to me one that is of vast im.portance, I am only going to mention, in the hope that you will look into it more fully, the affect of the relative dividends in large companies and small companies as the result of the provision. SENATOR ARMSTRONG: Mr, Ide it is oiu" policy, of \ . '" ' 24 .,-.. ju>viTi&^:f~^niut not showing him from fluctuations of each Individual year. I think you could — Senator ARMSTRONG: I dor 't get the Idea yet why the fact is dangerous,. MR*. IDE: Because the policy-holder becomes un- settled when he finds his dividend fall in a given year. 25. If we are allowed, in. our judgTieut; to carry f-nough re- serve over from a previous year to carry out my Idea of a -gradual Improvement ^ without giving hlra notice of the faot that thfre has been a slump In a particular year, he Is undisturbed on the same principle — SBNATOi? ARMSTRONa: But thpt l,«i a case of Ignorsnce being biiB8« 'MR, IDEt Vk'ell, the majority of tht^ pollcjyhol lers on the instirancff Question., I believe, are lgn.orant of the causes which must necessarily lead up to a fluctuation of that sort< particularly In smaller conpanlcvq, , SENATOR TULL'V: Why Isn't he entitled to Xrow? ilRi IDE: He Is^ if you think It ie necessaipy to alarm, him, but I don 't thiriic -it Is* I don't t'-lnlf it does any good,* SENATOR ARMSTRONG; Suppose thti.t a fluctuation oc- curs through something else that a natur'^l turn of events and Is soTie thing that policyholdorB should know, how .--re they gplng to compel the revaiatlon of that fact? MR, IDE: That would show in' the diminution of +he surplus, under my plai;i, he would gvt rot a nn^tiler dlvl- ,d€snd than last year, but a dividend very much more stable,, and the e-^foct of the surplus which I want io keep -for that purpose would be to make that perhaps fluctuate with 8onj€> violence. 26 SENATOR RAINES: If you will excuse me, the policy- holder In the evfnt of the gradual Increase would "be less Inclined to forfeit his Insurance and lose hy dropping his policy? MR, IDE: Exactly, yes,. In other words, If I nay take another exanple, It Is very much like the con- duct of a railroad.. I believe it is considered very unwise for a railroad to distirbute what it regards as its surplus earnings in times of great prosperity, bec?usc they must rrepare for the times of adversity which are s'ore to come,* If I TT'ay then sirr.ply state the reasons why I believe that any such scheme as this is unwise, the points could be briefly conered as follows: To determine the amount of surplus necessary for the good of a company, the person determining that sur- plus, or the Board of directors determining that surplus must have an accurate knwsrledgc of its internal affairs. They must be thoroughly posted as to whether the prepon- derance of the insurance is ol:: insurance or new in- surance, whether in consequence of that there Is a pro- bability of a hlg^ or a low mortality, I speak again of the necessity of '^ fairly staMe rate of dividends., which 1 in the saall compahles especially is Impossible under yo^or bill. The ftian determining how much surplus a com- pany must have must also be intimately aware of the na- ture of its lnvof=!tmenta and the probability of their 2V futiore fluctuation alcjersely or favorably. Now I don't see how any law can "be deterrnlned which In view of those facts has as Its tasls the slzo of the net reserve, and I helleve It Is an extremely dangerous matter, as I said before, for you gentlemen to attempt to take away* from the Board of Directors the serious regi>onelblllty which rest* upon their shoulders to con- duct a safe coir,pany,' for, in my opinion, the size of the indivend, the size of thr- return, the size of the con- cession, the liberality of the contract, all other feature sink into absolute Insignificance in conparlRon V7lth the «no fundamental fact that life Insurance must be safe. I really feel that apart from the acturarlsl questions which I referred to at the start as to the >^111 exactly as written, it is In prlncl:lf wrong, and that the m.ore you look into the subject and taKe Its practical oper- ation, the more you will br- convinced that the subject has not had as careful consideration as was necessary bftfore this section was drafted. ASSEWBLTMA.N ROGER 3; Mr. Ide, you have aade criti- cisms and I would like you to be a little more specific In your suggestions of the rodlfication the proposed legislation ? I.fn. IDE: My suggestion will naturally be confined isnly to those polnte, because the others will be taken up by other gentlemen later. My suggestion on this section is that you don't require it*, 28 ASSEMBLYIUN P OGEES: Ellnlnate It entirely ? MR, IDE: Entirely. If you feel that you riust have It which I deem very unwise, If you deem you nrust have It, there Is no reason on earth that I can see why the New YorK Life slriould not be allowed to carry as large ratio of reserve as I carry In the Home Life, and your Unit nust "be put so high that In times of 1903, or other times of stress, that nothing will come any- where near touching It, ASSEMBLYMN COX: Can you suggest any figures ? MR, IDE: That was asKed me on the stand and I come back to this original staten.ent, I want to Icnow the toternal character of every compny, the nature of Its mortality, the nature of Its Investment, >iefore I will give any figures, I do not thlnlc you need the section; I think It will only do harm. 29. HON. TI^OTWY WOODRUFF: I ar: going to call upon a gpri + icr^.an to BpoaK upon thr nuoh "~;ootea gur'Stion of O-'- ferxcid. dlvldenas, enbraclng pr-!^c+.lca.lly the rntlrv" dlT-i- dend question, coming under the alxter-n.th ^^■x-'-r' i-cnt ^ very Br.r)r-^T>'rl»telY: and no tnan !« i^f+tor qiia'' l-f^led to siDf'al<' on that Huhjoet than the actuary of +he Equltahlf Life Asf^urwr-ee Society, ¥.t^ J. (J. Van Clse, who ha« h.'on for thirty-nine years frc+lvoTy ong'ged In the ^-pnpge^ent o-P the life iT^piurance >^u-ijneBf! of +hlF! country. Ks' ym. J. Ct. van CISE: Mr. Chalr-ir'n. end Gentl-r.-n of the Conr-lttfre, and of the Me./ YorK Leglf?latuj?e^ being ac- tuary I am raore a man of flgu.res than of v/orsis, therefore I appear here to-day only fron a sense of duty to protect against the a~e^d'--ent proposed to section elfhty-three of this bin., which In effect would prohli^lt hereafter th*» Issue of deferred dl-<''ldend policies. In the year of 18^7 I entered the service of +he Equl-^fible Life Assurance Society,, and In the ye--.r 18r8, the year follov7lng, that coppany Introduced the defi-rrel dl-rlde^d p].-.n o-f life as'surf^nce and has • ractlcod It ever slnce^ Therefor.- I hav.' f^o^-n^ rr^ctlcol ^-txperlenc concerning th" si-T^ject whereof I shall try +o speaT^ to you to-day» 30 I plead first for the -right of freedom of contract :n the part of the policy-holder of this state and na- tion. A feT7 years ago dopotic Russia forhade the issue 3f deferred dividend policies, Tout to-day they are freely Issued in the eirplro of Japan and in all parts of the British ETnplre. Such legislation as is here proposed Tould not "he thought of in England where the annual iivldend plan is conparatively TinXnoum even the old r-quitable of London, which is often spoken of as the "model co'-'pany of the ¥;orld", until a couple of years ago it changed its period to five years, never d''Clarod iividends oftener than once in t- n years. The question for you, gentlemen, to decide, is whether the legislation of this state shall he- patterned 3,nd "-odeled after that of despotic Russia, or wl^ether 3ur citizens sl-^aT I have tl'^e freedor^ enjoyed in the erplres Df Japan and Great BrltP.in, Gentlemen, how has the deferred plan worked in this coujitry ? Everyone who has studied the history Df life Insi.u'ance Knows that plan has popularized the business to an extent not dreamed of or thought of when Lt was first Introduced. There are to-day upon the Dooks 0-^ Arerlcan life cor^panies about tw» million 3ontractR issued on the def furred dividend plan; and those jontraots T?over the vast amount of $5,000,000,000 of issura.-nce. You see thf.'refore the magnitude of the ques- tion concerning .'.hich I address you to-day. 31 Thftt asRurp-rice and those pollclea Issued have carried hope pnd cor^fort a^.l ^-lesslngG to TT^llllons of h-Ties: f^nd I w uld th'>i'>.-'foro be rocrCprt to -^y trust as actuary an:- of'^'lcr of ^ or-^v'my 1-^ I were not willing t'-' arrear here to-day ana def.=nd that systen of life csRur- ance. What are thr^ objections to that plr-.n ? Rome day it is ft gambling -contract. Well, now, gentlemen that Is not true of any policy o-f llf. aspjurance; hut If uncer- tai nty of loayrient ^eans gambling that aT:X'llcs more to the annual dividend -Dollcy than to *he defer dd divi- dend policy than to the deferred dividend policy. A man talcing an aniiual dlvid.- nd policy never Knows after the first year what he will have to pay, because hi-; pay- mxnts ar^' changing evi^ry y -sr, and there perharjs la an element of paroling. A man ''Ith deferred dividend policy has his premiums fixed for ten , fifteen or twenty years and he Knows beforehand how r^uch he Is to pay, T There Is no uncertainty a'-nut it. Ho ray ^e a^ "iired his dividends will cut down the premium to half of the aount, ana he has a contract "which he can perform, by th- dlvl- d«md whlv^h will be declared upon that policy. A;^ain It Is said that estimates made sot-'- twenty or T'Ore yc'fi.rs age of the r< turns on deferred dividend policies havr not been realized. Well, now, g'^-ntlenen, th--' ■ ame is true of annual dividend policies. 32 I do not su'.'vose tliate is ?. holder of any annual divlaenl policy who has re- llzed the dividends that sanguine agents and otho'^8 have promised he would have, or that they would T^e, The sar-;' facts cause a reduction in ono- as in the other. Those facts arise frcan natural causes. There has T-e-'-n ' shrinkage o-p supplus earrings of all the life insurance c -^Tripanies , That is a state of fact. It is due to several causes. Ohe is the graet reduction in the rate of interest on all investments of which -ae are cognizant; then because of the increased taxation generally throughout the United States of Life Insurance companies; then again fchroBSh competition there has been a liberalizing of the contracts in regard to incontesta- bility in regard to theri surrrndcr velues; in regard to freedom of tracel, and re.='idence; and all t:"ose things have tended to reduce loro-^lt. They were made in order to make the company safe; ther^' is no intention to de- ceive. Estimates were riade by the be. t financial authorities in this country and when it was foTind that those amounts could not be realized the figin'es were reduced; and for rany years ray companh' and others, for nearly twenty years, have no put\H.0hed the est.imeate, but have simply published the ac^n^aj results of maturing policies; have told the pe^yple the--(f6er(«>oeeT^-and^sI an gl£kiTY' been miSTranaged, that there-fore that was caused hecause they issued deferred dividend riolicles*. I ^'.lieve the contrary if anything is true. The desire to mal^-e those dividends large and to r^aintain a large surplus has led gregife car:^' on thc^ part of those r'^le for anything Ik not guilty of< A^lut thirty years ape in my T:ic-!mory, ^>v!t not in the nemory of sorac presnet much younger than jnyself , over one-holf of the llfo Insurance corrp'T-nles of this state ■became b nKrupt throuph nls^,'?nap<''ront . Nerely all of those GOT'^panles had bor-n conducted on the annual dividend plan, I do not say annual dividends caused the banK- ruptoy of those companies; although I believe the deferred dividend policy night have saved nany of thrm. But I 77ant to show you, gentlemen, that the extent to which that haf! occurred and that the shipwreck that then took place might have been saved by the deferred plan of under- writing dividends. There was no thought then of legialation to stop the payment of dividend annually, because half of the cor.pa- nies of this state had become bankrupt, •ne of the great arguments in favor of the deferred dividend policy is that it leads to the accumulation of surplus as was stated by tho president of the Home Life, who -Dreceded me.. There is no institution in the world for which it is more i'^port^^nt that it should have ? sur- plus than it is for thr- life insurance cor ^nlcs. These companies hold in -any cases perhaps the entire savings of hnndreds of thousands of hard working people who have provided for their widov/s and orphans in the event of the. death 8€i death;, ana r ;-.r.'yt. i ••i:l]- of thl:-. rcco-j:ll h'-.L ''^y fix- ...c- forred cllviv;>^nd pl^n: ard It in 'riod'-.^ fisf.-ir "hy tho ;=c:vrru- lation of f^urplus. I say: p"anlr?h thoRp v7ho hc'vc- T-igi^ippgged corrpanir-'s for th-ir ■■/ronsdnirip; requlr"- alT tho -oiiMlclty you. want, ■but ',"0 rot r-triK- l.'v/r til. '"iyf;t-''n thr't r^Rf? ''"t'llt v' the huPlrc-R.s snd .dnlch h=" s 'crovldei thr- nur/d.us ;7hich ^-fiKes it aaf-' ar.d rcll&bl- ■■'"'cr thca..' rolv-lnf thr policl'-^^^ in t he s e c onp ^-n i o s . Agsin I dc'Clsre v/lthout fos-.r o-^ i?v.cc>v-r^-'"ul cor.trF- dlction that this plan provid'.'R -^or t'T- "■".^■st, fairest plan of dl'.'lslon of th'- "hc-^-f-'='fit8 of the lifvi l^'^urance business. The fRnllleR o^^ *rcp;c .^o dl'' irri^i di^-ldr-nrL ^-.lols In nearly an o-p.-h--^^ r-'clvrra reti;.rn o-'"* all the '-or^^y cr-id with compound Int -refit, ^hy th-'-^ In it rot fair thiit tl-'ose ncn who really -^\r.:<(-\ the co:r::r riie«, ~^&kp tri.--.Tr s^.f^-, and !i:5Kr th'-lr i'MoO'-^^i pcs:-i^le, 7;hc liv^e lon£: anu pny their prenluriS for a continued nur-b.^i- c-^ ye'cr;-; ■"■hy s'nculd t^ey not hav- so"^'^ little coi'^'^' en ^^ ;• t ion in the -'H^y of .;Li -/la'-nds for th'r'lr ^-'TO^.ey '.--hich r.rovldc'd or naKe provision for t h o R ^ ■. ; ]n '.i i ■■ ' d ^^ c- f o r • ^ t h -■ e n ;;■. o -^ t h^' pi e r i o d .=; , ASSFrBLv:-'AW ".vAIN^Pir-HT: Your arinirent ^r-r'-n to he pr:M.ioat'-^d on t^e s-^ctlon v^hich rrohl^-lts def-rrr^d divi- dend la . I'V., VAN CISF: Vf^s sir. I£R. ':'AIK''^Eir^HT: I read -It tti?t th^'t s-cticn pives t^- ':licyrold'- r th- option f:s to v/h-tj^'-i- •"■ ev^-li ta/r^ t!''!?---- dlvld'-ri-i i-'-irualiy or It >'e - -^--rred to tn- 'TA q-^ the 37 MR, VAN CISK: You RV.c error, SENATOR AR}.:STRONa: Tho qv.c-stlon of }'x , Walnwrlght Is ^ sod on the provision wMch pern;ito the pollcy- holdor •'•o If- -I-, th.- dividend, remain with the conpany and accTJinulatc ; >ut also perrlt hl-^ to with dra?; them v;hen- ever and if he chooses, )tfR. WAINV;T^IGHT,: Yes. ¥hat objection is there to that. MR. VAN CISJ]: No, Th-^(t simply --rtVes the insur- ance company a banl<"lng Institution holKing money subject to v;ithdra;;7al by the polloy-holder. MR. WAINWRIOHT: H^ve you any o^jeGtion to offer to the policy-holder Knowing ^rhr-t livldend has be^n earned on his policy an^u^jlly; 1^ bo why ? iffl, VAN GISE: Tnt- only objection is the lessen- ing of the s-t-irplus and cr'nsing a large amount of labor, but I would prefer a five year accounting. Let a m.an know every five years how much has been earned; and have it payphle at the end of that period. or have the ■CGountlng at the end of the five years and annually thereafter, I a^- willing to have some provision of that 38 ASR irriYMAIT \7A IT'TRIGHT: Is tJie necessary clerlcl assistance your only oTdj action? inx. VAN CISE: lie. It v/ould mean added liaoility on the part of t.:e ccmpc^ny and i.t -o uld tend to interfere with the element of safety "oy reducing the sf.rplus . ST^rATOR Arh.STRO]:Cr: Yci). raean ycu vrould see no chjectioli. to t'le policy-'iolder learniia-T annuall ^-/hat his dividend in'as, so lonr as it \-.ras net uiade a lia ilit;:' of the coa~'any? l^-:. YK:.' CISE: Yes sir* SEhATO?^ AR;:STRO'TGi And so mipf t be liahle to vio- lation in t~'.e final retrrn throurh uakncm exigencies? it:. yX" CISE: That Is true. SEhATOh AB.:'STF.(y:'G: Then the pllicyhclder would not kncv; at all until the end of his i^eriod just v/hat the dividen'" was. he vrould simply have an estimate? 1£R. VAiT CISE: The coripany she -Id make it so siiiall that they covild he sure of fulfilling t"ie ohligp.tion, and have it a charge in their returns. If the man lives to kee ■ his policy in force to the end of t.';e period hen t':.at pjncunt would "be pai>'.". to him. 39 SENATOR ARMSTRONG: I do not -understand the essential objection you '/fould nalco to an annual ot^tement being given to the policy-holder of the amount of his dividend, and the annual provl.ilonal creating of that dividend to the credit of the policy-holder, against the plan you have rugod. ,MR. VAN CISE: I would prefer that to the destruc- tion of the plan which you have proposed, but It involves a largo expense for clerical hire and for postage and, it affects a reduction of the s^'feguard which the com- pany has by reduction of its surplus. SENATOR ARMSTRONa: Mr, Van Cise, you will under- stand it is not our purpose to enter into any contro- versial argujnent 7;ith the spr-alcers and that these ques- " tlons are aslced irierely to bring out ccrtnin information, certain facts. ASSEMBLYMAN TirAINV'PirrHT: There are many members of this body not familiar with this question. SENATOR ARMSTRONG: I think every n^-'mber of the Committee or every other ^"cmber of the Legisleturc present should asK for any information he v/lshes, but I mean to Inform th^- speaker that controversy T^ith the 39 SENATOR ARMSTRONa: I do not undorstand the essential objection you 7;ould naKc to an annual ct-^tement being given to the policy-holder of the amount of his dividend, and the annual provlj-lonal creating of that dividend ta the cr^-idlt of the policy-holder, against the plan you have ruged. MR. VAN CISE: I would prefer that to the destruc- tion of the plan which you have proposed, hut It Involves a largo expense for clerical hire and for postage and, It affects a reduction of the safeguard virhlch the com- pany has by reduction of Its surplus. SENATOR ARMSTRONa: Mr, Van Glsc, you will under- stand It Is not our purpose to enter Into any contro- versial argument with the spr-aKors and that these ques- tions are asKed nierely to bring out certain Information, certain facts. ASSEMBLYMAN \7AIN'"RiaHT: There are many members of this body not fari.illar with this question. SENATOR ■ ARMSTRONG: I think every m'--rr.ber of the Committee or every other ^'-omber of the Legislature present should asK for any Information he v;lshes, but I mean to Infom the speaKer that controversy with the 4« speaker Is sor.ethlng ive do not deslr*^ to enter ilipon. SENATOR BfAIKES: May I asK a question ? I was going to asK T/hether In T^^aKlng that statement, and you being conservative^ msRlng a low rate of return of pre- nlUTi whether the ag'-nt of some otht-r company rr.lght not step in then and say to a prospective policy-holder that his company had rade a good deal better dividend payment, and causn dissatisfaction on the part of the policy- holder with possibly a ri^-tiirn to his policy, MR. VAN CISJC: ThPt 1."^ liable wltn every dividend policy, annual or otI:.erwise; that is a necessary feature o-P the competition of thi' tinew, the oonpetitlon existing between the companies on any plane of assiirance, SENATOR GRADY: I understood that one of the causes for rocommendlng the a.bolitlon of the deferred dividend plan was that in some way the testimony taken before the investigating corvittee developed the fact that there was a relr'tlon between the abuses disclosed and the deferred dl^^idend fund. MR.. VAN CISE: There la none whatever. The tempta tlon as I contend to life insurance mls^anagm.ent on the part of the managers is In connection with the assets, whether In the form of reserve or surplus. That is all. 41 The control of any fund, whc;thc-;r ti-ust or b&nKlng, gives the temtation tl our poor hrur^n n*;'turc to r-lsr.anage^ and bring ^■'bo-ut fraud or er.be zzlcpivnt, or abuse under '^Thatever term you nay call It, SENATOR GRADY: Do you rean by that th^it there would have been the sr-me oprortunlty for fictitious charges against the corrpanics 1:^ the surplus had been distributed year by year. >[R. VAN GISE: I do. I say the recent dev-'lp^ ment before the Armstrong oorir.ittee, y^r-d as it pppeared to the country, thf3t those disclcsures are sllf.ht In comparison to what occured in thia state thirty years ago when a nur^bor of '^n'^n were sent to the penetentlary and a number of others fiod to Europe; and let me say there T/'as o c-rnlval of erim.e '~'on£: life insur^-nce com- panies, m.any of 'jThich wore sr'!~ll, end r-ny of 7;hlch declared dividends on th, annual aJvldend plan. The number vras reduced from forty-one to aevent^-en in a few years. They T/c^nt into tht- hands of the receivers many of them and the policy holders were never relm.bursed. 42 But that Is a rnatter of history of Insin-ance in this state; It was all set forth in .the report of the Insurance departrent of this f^t=».to. Showing that It Is not the size of the cc^pany or the size of Its s^'urplus that causes '■"■Inian'Lgr-ent or that causes erabezzlenent. There Is an idea in the pu>^llo ^:lnd V7hlch does discredit to the larger corpanies and to their officers who -Por twenty'i thirty or forty years have tried to serve their policy-holders; and rerierriher that they are acting as trustees for them. SENATOR AmfSTT^ONG: Mr. Van Cine, you passed over a point that I \7ant to ^epr sor-sethlng nore ahout fror. you, because I "lo not understand yo\ii' position fairly. You s:o.di th;-ro ;mG no feature of gar'Mlng in the deferred dlvl;iend Dolioy; that is only the uncertain- ty of payr^.ent- Iffi. VAN CISE: Uncertainty of payment of prerlum I T-eant. SENATOR ARMSTRONG: Why should a policy holder who contributes a fixed payment to the coTipany from which large accunnulatlons and earnings ar*=^ ^lade by the conpany, 43. aftr-r p pcrlo-.^ l^^'-^'-^ +•■':• n th ■^lvid;.-nd p:rlO'l, fcp-f'c'it sll th'" ■•• h '^ '• u-jui^-nlf +-:d U' on hi?, ^-ollcy rn::. :-li t'r^t he It 8 cor!^'.rl'""ut •■ u ■'■•o +.".■■■■' -lucco''" o-'^ +,h.;' oo'-'.v.'^riV" b'."'yond th'-' r'-urr- T^ur r VE-Iui- of rb policy, '-Irly ■-■-;;■ use t'-ro-u?;h nlST'crt.ur-.. ■;■>• cur--'Ct eor^.iru.t'' to oo^itri'-ut-- I'ln'th-a-. ra. VAN CISE: I :lo not, tr.inK Rny^iiln'- Vvlo-;?;!.? +o the ■cclicyholdr'r oxc pt wlir. t is- ■m- to hlr- under the contract- "usl r''.]&,tion C>-5 the C'0:rj.f'-ny. If c ni*-:n's family rrcc-lves si I c-P" thi". ^;onf-7 ■""■ r;--:"; "'^ald In v;lth con.pound Interest noholy c?n R&y tha,+ h.- losos or hal "Heon robbc'd, I should Re.y he js br:'ne-('it-.id and that the cor:carativel3'" smal-l amount of rono-y rer;.alnln?' v;hlch i?^ not a aivlclrnd. should e.o as a i^enc-^it (ind ss a corp^^nsatlon to those who hav^ V^o'rr-e. thr: heat =nd ^ura^n of th^ day; who have cari-'l^d thP:t con^peny and 'radf^ Its success by their supr-rlor lonp/'^vity and P'-rf5lst'-::nGo in th(- paynent of -crerlur^R. I bf'llcvo CrOd''^ lav; o-p conprnsatlon runp through every+hlnge I hdl'^ve -:!c should ^-aKo earthly lo;?s ccrpen- satf' jupt an do thr-' hi-h-'r l^';:s, ASSEyi-LvT'A!; COX: Ho-;; do you ^--r^'et tlie sur ■"■■;i^tlon that sore c< oplc mu.s^t drop out hy s^tress of chanrcd •^Inan e 1 =■■ 1 c Ir cut- ^^ t.- ■" ce r- . 44i MR. VAN OISE: :?hey should havi- 8 proper return for the noncy they have paid In. A little overplus should go to the hene-Plt, however, of those v/ho r/erslst In pay- ing prenluns. Bncouragenent should not he j-lv^n to policyholders to draw out, i^-ut It should >^e riven to those who persist. And that is one o-f ^ho strong argUT'entn for the deferred dividend plan. One of the groa+ curses of the ilf.- insvr&nce husl- noss Is that a^^ter it costs so ruch to secure policies that I'Vi'rythlng should ^e ionc to dlscouragi-- giving ^■Inm up before naturlty. If poll-^les could '^c Vrpt in force the extent of the ^^u^^l^ess would ^r- ~vch le^nened and its bene-^lts Increased. I clalr: +hRt under th'- deferred dl'"-ldend plan thi-ri' Is a ilf=!tinct encourRg.-^ment for the policyholder +0 persist in his policy; and that he should bo given sone recrarci for his continuous •oayr'r-nt of prenli^.nso I contend that Is a strong argument for the deferrc-d divi- dend plan, that It '-ncourages the continuance of the pay- nent of preniuns and carrying out the business of insur- ance and gluing prot.-e+lon to the 45. family o-f the poll<;y holder. In case he- Is unfortunate an^ut v7ould ^ot taKe the an-ual dl^'ldend policy. We all Knov; that there are m.any m.en In the com.munlty who because o-^ +helr tcT.perate hsMts of life and family hls+ory, are ■hi---t- + .-r than the average risks. And when you go +o +ht'm. and asK them, to take in- si^rance-, thi-'y say, ''I am not gol^g "^o maKe a contract that I have got to d3e to win, I am a good enoufh life- risk, I can carry '•■y own l^«urance. I will carry my own risk." In those cases those m.(»n's fa"-llles ne.-d li^Rvrance as much as men with a poorer family history, but you cannot reach th'-m. under the annual cilviden/i plan, you can- not say to them, "Oent.l.-ren, you will havessomc- com.persa- tlon for youj? superior ll^^lng." You cannot reach those men. I say to-day there are hundreds of millions o-p dollars o-f in«urf^nce 1-" -^orci' ■•■e-day th-Tt could -"ot have been seciired on the annual 46. dlvldand plan, and In +.ha+. way I say the deferred dividend plan has earrled proteotlon into the hoiiii.'S of r.en who died and left their famille-js dependent solely on these poli- el9S„ SENATOI? ARMSTRONG: Does It not vlsitat.- penalty on the imfortunatc^ ard give that penalty as a prenlutn to the suGCPssful who hav^Tinot contriHitPd in any additional way to thft success of the corpany except in heing nor^ fortu- nate in surviving. MR. VAN CISE: I thinK certain ):<-nalti?s for lacK of success and ni.isfortune cannet be obviated by any Irgisia- tlon. That penalty, however, is conii.arativisly slight. Too much is made »f the qufstlon of dividend, I am s«rry that that, word is used in this eoimtry. In England they call it a "bonus" samething wlnich the pelicy receives in excess ©f life insuranee. It is not a dividend. If we knew what life innurance was to cor.+. ws; could chf^rg^r the araovjit necessary^ and theri--' weuld >>e n® ciiviaenas. The dividend arises from the fact that the comuany charges 47 more than Is absolutely necessary so as to get absolute security. And It Is onlY- the b^^lanoe remaining whl«h Is ppld as dlvldond., SENATOR ARMSTRONa: Then 'vhy not return that tf* the man who h s been overcharged. Jffi. VAN CISS I do not thinX he ha?^ been over- charged. Ho le only clTB.rgod an ariount necessary to nalntaln the oompany, and there should be som* com pen- sat ion for the faithful men who stand by their famalles to protect then and carry out their contracts. That Is my contention, A3SEMBLYIUN CnX: Bo not you think the annual a-0-0Ountlng would afford sor.e restraint on the rianage- ment-, T/here It ha' to appear In dividends.. MR, VAN OISE: I do not thlnK tl sla restraint upon honest managers-, ASSMBLWAN COX: I said "managorrj" vrlthout characterizing any of them. Iffi., VAN CIoE,: The first thing Is a..^urp.nce cosr- panles Is security; security 1ft f'-ove evc-rytlng else^ security r-nd. otr^-ngth.. I would give It at the end of five years r^nd annually thereafter to a policy on that plan. 48 I prefer that, ASSEMBLYHAN GOX: You have suggested a five year limit, ASSEMELTOAR WAIUTOIOHT: And will you a ls'fiS8rlly largi' If agcntR aro to be paid. The conpcnsati on havlT^f >^r-pn paid for th.-lr sorvlcpB th'' profits arc* rir-ceFtsarlly -^inaT i. In th--' ^"lr«t flvf ycarf^, and I thlnK it vToui.d ansvT.tr the pvrpone to begin th'- accounting at the end of thv first -^ive yr-Bxr, rather than at the H^irst or r.-'jo^'I i^ear. ASSEMBLYMAN COX: Does +he qvieRtion of la-ses ent^'r Into that? MR. VAN CISE: They would e^ter sor-e. I do not Knovx v/hether you a-'fireelat.' th''' ef^"'ect of the propoRfa legisla- tion or not, I an spefiklng of so^^e of thC' ^^'ff.-cta of it. First - it would very nueh l-'ssen th" connensatlon o--" the ar^^y of ^e-'.-nts of "^hls s+'-^.'^ and cor-^try, who al"" their lives hav.- ■heen talKl^r defprreJ: dl^'-id-nd Dssur^no.^, ^v'- causrf th. y >>eli've'a In It. Th^y do not k-now anyt:^ln' ois=; a^a If you stop that plan in trl.>^ T;r'-'-'atvr'- wr.y you l-.'^-^sen ana p^-rhaps destroy the li-'i^g of 50, that arry of rien , t^o hfivo talKc-d. this plan because they bellovcd In It, And thf*n you wIIt t?-.Ko av/fiy many men who will not ta)c(> aspiuranco on the a-iT^ual dividend plan. Wo nust consider the Rc-lflshnoso o-<^ ^-.i-^^ ¥o are all '".ore or Icvss sel-^lRh and ro nany ren win not talcc ^'n^Uf.il divi- dend contracts, for all of +helr r:;o'"ey p;o.'S to the honeflt of those dyl'^g pr'"'Tnaturt-ly . But tnclr -f^rlllei-? ^e'.-i r;s- surancp and V7e want tho:lr llvt*s Insured; and t her e-^ ore I say li't the co?^,panic^s o-ff*^.'r i^oth^ Our conpanles Isbuv- both and I am willing to have you insert a provision so that a man can have? fre'.'dom. and choice. I say ho should have that frer-dom of choice b.-twe(?n those two plans. But, gentl--"en, do not -orev'-nt thousands of r^ersons from taK- inr assurance v/ho 7/oul'i talc.? it o^ dhfeShuid dlvid<-nd plan but who will not talco it on the a-'-^ual. Do not d'-stroy the chance of mon taKlng -^ssujrance on one plan who v/lll not talcis it on another. And then again, before passing a rieasuj-e of this Kind, thlnK o-p the tj-p*^-Gt upon the mil- lions of ^policyholders nov; holJ.ir>g deferred dividend con- tracts. Wo havo had an op;r--rtunlty of judging the effect of th'-.' rec-ert, insuj^ance ■J.isclosur.'S and the statements 51 In tho papers by +.ho prcnat-ure giving up of contrftcto of Insiiranco by tholr alarned holdora. Nov/ If you pass a IfJT/ In tho State of Now YorK whlah brands the def'-rrod dividend contract Tmich has b'-'on Issur-d hero ' In thlo country -f^or forty yoars, yssxsi^sSs^-sx which teands and Gtlgnatlzos tho contract of that Kind, you create a fv-'llng of f;ilarm and dlstrudt among tho millions of policy holdcro holding polloloa ISKUc^d on that plan. That 1h 8om'";thlng you do not want to do, I K'now you Y/f.-'.nt to build up and not d'^f^trcy Insujranco businos^: but if you nr.y a thing la unl^v/ful BrxiaHgHsi you brand It as olthor mssHixsJ? Iraroral or iJ.njU3+ . vou nust not docl---ro it unlavjful unless It la unjvist, and If you say aft'.'r the first of January 1907 a doforr^'d dividend policy shall br unlav/ful you say - h. -re ar-- tv/o nilllon contracts covering $5,000,O^G,OC..O of lnsurano>', and that those contracts are Inmoral and unjust, ThinK of the offeot of that upon thoso holders who will glvo up their policies and be unprotected by life insurance--. In conclusion, I appeal to you in behalf of those nil'' ions of policy holders, I apiDoal to you In behalf of the buslnass Y;hleh I have atatcd you loslre to build up and protoct and not to Injure and destroy: and I appeal to you in the name of Amorlaan llborty that you do not ar-«ny to +ho cltlzftna of this great Empire Gtato the freedom of contract whloh they have always en;3oyed in th' past. ASSS}'ELTt(AN WAIHWRlaHT: Do not some oompanles give their agents permlRRlori? m* Van CISE: Lot mo say tbat I ao not Know the rules of the cof^lpanloc^' but as .1 stated before, I am not only willing, but 7/ould be glad to have you pass a law forbidding discrimination and giving freodom of GholOG to a man to take either form, of policy. SENATCR OOGGESHALL: Have you any suggestion as to the protection «f the agents aside from the deferred dividend policy of insurance, to Keep their oomponoation where you thinK it ought to be;, MR. VAN CISS: That is another subject. I am not called treating on thfi t to-day, 1 am sfeilgRst to npoaK on one question. SEHATfR OOGC-ESHALL: I want to get the most light 53 tliat can "be had on the subject^ SENATOR ARMSTRO!TG: According to our report certain figures are given of the margins of the new husines; written "oy jrQur co}:ipany last year, in 1904 rather, and also the aiaount expended in prosecuting that "business. Are those figures sulistcmtially correct? l-IR* VATT CISE: I think they are too large. The amount is too large. That amount includes all advances made to agents and a large part of those were made on renewals. SE!'ATOR ARl'ISTRONG: That v^as not peculiar to your company? Iffi. VAIT CISE.: Those figures are not made in the same ^.vay "by the different companies. They are made in different v/aj'^s and the companies you selected in your reports as models did not give all of that part of their expenses under new "business. They confine it to certain items. I have not an^/thlng to say against those companies, hut they did not give their firures on the same basis as we did, SEI'TATOR ARIvISTR.O:iG-: It is true that in regard to 54 prxrcxrring the business written in 1904 your compare.- had to spend much more than the initial profit derived from that ner lousines'-, did it not? XR. VAM CISE: It did. I think it might hare heen less . SEJTATOR ARI-STEOITG: Was not the maltenance of the discretionary fund represented in funds held for deferred diyidends? Was not that the Dource from which the funds Tirero dra-n for this new business, and is it not a fact that to that extent it Y/as a decrease of that fund and consequently^ a decrease in the security of t he polic3r holder. MR, YA:t CISE: We had a fund in the neighborhood of ten million dollars; a general surplus fund. That is true of all companies, whetiier annual or deferred, or doing business on both plans, that heretofore their nevr business has been paid for in part out of the surplus paid by the policy holders v/hether holding on the de- ferred or the annual plan. ■SK'ATOR AK:STP-0]-G: That is a different question. In one case you borro^r of the si.jrplus of the old policy holder to pay for new business. 55 Then tliis much can "be said: that a conpany declaring annual dividend v/oiild have to disclose that condition much sooner than one dealing in deferred dividend pblicies-, im. YMJ CI3E: ITo ; I think not. gE:j\TOH ARIiSTROiTG-: ^^y :Tot? iffir YA1J CISE: The paynient is the sa^ae. As la:ig as you have an ample surplus you do not hafe to disclose more than is shc?m in your report. SEilATOR AP>ISThO"i"G: But if your fund is depleted, the discovery of that cones earlier v;hen the dividends are declared more frequently than when the;r are deferred- to periods of five or ten or fifteen years. MR.. 7K:' CISE: Hot to the individual policy- holder. All that cost of ne7/ business is then made up duri":g that period.. It is a mere qiiestion of the cost of the ne\7 husi.iess . All corapanies, -hether doi-'ig husi- ns-ss in annual or deferr;^d dividend policies are today paying more f6r that lousiness than t:.je present loadings provide . SEITATOR A1^I:STR0:TG: Do you mean to say that .in excessive expense or cost for ne\7 business \;ould not be revealed sooner with annual dividends than with deferred 56 dividends . Jffi. VA:t CISE: The cost cf new business is shovm by the con any '3 sv/orn reports; no natter v/hether the business is done on the deferred or annual dividend plan, that cost is revealed at once. SEi-TATOR: cOGGEBHALL: The report under the deferred dividend plan, would sho-.- the saiiie state of affairs relatively that it ^'Ould under the annual. SETATOR AIQISTP.0:TG: The excessive cost of the busine- you say v/ould not be disclosed sooner under one plan thap under the ctlier? ly.. YAl CISE: To, sir. SEITATOR AICiSTROlTG: '"^culd not be inore readily conceaJ ed with the deferred dividends than with the annual. 57 MR. WOODRUPS^: The avidity of Senator Cog.-:es?aall to inriiire of Mr. Van Cise if the ahcliton of deferred divi- dends affected the income of the agent leads me at this moment to ss,y to Senator Coggec-hall, and to the others v/ho are so mu.ch intf^rested in tjie af^ents, of ^rhom there are 18,000, as I stated, in the State SJ;NAT0P COGCtESJ-I/J I, : vje represent the workinn; people, you know? J-.IR. TOODRUPP: (Cont'd) and who are all voters (laughter and applause). That suggests to me that I should say at this hour, twenty minutes to one, tliat the prcgc;m is to adjourn at 1 o'clock for luncheon and recon- vene at 2, and at the hour of tvo open the discussion upor that suhject, -'hich is all important to the agents, as well as to f^e company, the question of the limitation of expenses and tJie limitation of business and if possible to try and conclude the hearing iscg; this afternoon or this evening. In continuation of the subject of deferred dividends, I am going to call upon the representative of the Actuaries Committee of the companies, the committee appointed by the actuaries, v/ho hfive been in session for three or four days in jlew Y':rh, "r. Kenry Moyer of the Provident Life. MR. IIFJITP.Y MOYER: Mr. Chairmarij Gentr^emen of the Committee, and Gentlemen: I am not here exactly to talk about the deferred d:n?"idends, I am here rather to talk on section 83 of this proposed new lav;. I think it is the general opinion of tlie actuaries, it is certainly my opin- ion, and I think t::e opinion 53 liETICr rOYEPi: : Kr. Ghainian, Gentleiien of the Coramittee, and Gentlemen: I an not here exactly to talk a'ootit the deferred dividends; I axi here rather to talk on Section 53 of this porposed new lavr. I think it is tie general opinion of the actuaries, it is certainly uy opinion, and I think: the opinion of nost of the actuaries that actual dividends or deferred dividends can either he nade absolutely fair according to the honest adininis- tration r„nd care of the actuaries alli':ation, I cia not therefore going to advocate either the one or the other. I am only going to speak, as I say, on section 83, en- titled "Distrihution of surplus to Ploicyhclders." ITcv; t}:.is subject of distributing surplus is a v-ery intricate one and one v/hich has been in the rainds of actuaries soon soon after the life of f ipe-insurancc had its birth. The original design in an life insurojice cojupany rras to have no dividends whatever, but to furnish life insurance and life insurance only, but that design v;as soon /ost sight of because it \7as found that the com- panies v;ere raaking large siirplus funds, and it was left that in equity and fairness to the policyholders that they vrere entitled to a share of these surplus funds. The 2:ieth od of alligation of surplus funds has been a oLUcstion largely de"bated Toy actuaries of all countires. In this country the contribution plan of distribution is almost invariably used, and on the whole it is a very fair and equitable :aethod. It seems to me there is no perfect method of distributing surplus, no such method has ever been devised. Our actuary method is not like many other methods; it is not an exact science. It is based on the mortality and death andtherefore we cqn not apply the rules of exeat science and the rules of mathematics in every case. There is one danger which is more in the minds of actuaries than the danger which seems to be in the- minds cf .people, SEliATOR APirSTROi-TG: jTot; we all want to pay atten- tion to the speaJcer, His to ice is not very strong and people moving about the room, and leaving the room must be more quiet, im KOYEE; There is one aspect of this distributing of surplus which is very freqiiently overlooked, and it is that the danger cf life insurance companies is greater from distributing too mucli syrplus than it is from dis- tributing too little, fzS I have alreadj?" stated, fairness and equity have been the aim of the acturaies in all their deliberations, but one of the main troubles is, that no two c0npL.rj-.ie5 60 are exactly alike. Tliey are like human "beinrs in that respect. A doctor in prescrToing raedicine does not give tiie same nedicine tc txi^o laen \7ho are siiffering from tls same disease. He has to take inton consideration their constitutions. And in the sane way life insurpjice companies "being of different constitutions, one set rule does not alv/ays appl3'- in fairness or in equity to differ- ent ociapanies in their different constitutions^. Coning do-'?n:i more in detail to this section, it ap- pears to us actuaries that it would require a complete separation of each insurance company into two parts. Perhaps v;e are wrong in interperting the lav; this waj'-, iDut that is the general opinion,, that it T/OTild require us to separate the old policyholders, those who carry their policies and who affect policies "before the 31st of Decemter of th.is year into one classs, and those v/ho taice out nev; policies after the 1st of January, 1907, into a second class. In this separation we would have to can-y te the two sets entirely distinct, v/ith separate funds, separate inTestiaents and separate mortality calculations; keep them practically like t"0 companies running side Toy side, imder the sauie management. This \rov.ld result in great avrkwardness and would .lake the technical parts of our vrork, ■^rhich are already intricate, still more so. WW': 61 A, literal interpertaticn cf the lawj would also, in ; ovr opinion^ result in very great fluctuations in dividends. This h:,s alraa-dy "Dei^n referred to "o j other speaJcers. The has been the aim cf the actuaries in the past as it hr.s of raanagers of f1 1 corpcr-.tions , to naintain the dividends on a fairly uniform scale and n6t to have then rising rripidly cr f calling rapj.dly from year to year. How the actual surplus earned hy a company varies veruy much from year to j'-ear. The mortality alone even fluctuates as much as 10 per cent. Kot/ that is not, 10 per cent, of the suplus. It is 10 per cent of the expected mortality vrSLich is a Yery large sum, and it might be sufficient to hrinp; ahcut a result like t;-tis; take the instance of a iTian pr<3'-ing one hundred and fifty dollars a year for a premi-um, his dividend one year might he a large,, one, foi^ty dollars, and the next yes^r, if vre give him the exact share of surplus earned in thiat year, he might get only five dollars, ilow that certainly would result in great dissatisfaction. It is almost impossible to explain to a layman, 7;ho knows little about life insurance , f'.at this fluctua/fcion is natiral and that he he s only to wait for a year or two until he gets the next dividend. 3eca,use the first dividend of forty dollars naj have been too much and five dollars, the 62. second one, is just as noticea"bly too little. That feature also opens the door to one of the worst classes of agents, the "twister". Perhaps I should explain what a "twister" is. He is a man who claims advantage of the policholder and induce them to discontinus the policy which they hold, to lapse them and lose money thereby, and haying done so tries to insure them in his ovm company and put money in his pocket. It is one of the most disreputable and dishonest pieces of work that a mail can he called on to do. But these fluctuations in dividends would opne the door to these men wider than it ever has "been in the past. Anether section fothe law provides that the list of policy holders shall he opened to inspection. One of these agents finds out that a certain conpamji has dropped its dividend in the way that I suggest, from forty dollars to five, and he at once gets a list of the policy holders of that company in his district and interviews each one, insinuating^ if he does not direetly say it, that the company is ia a dangerous position "because theyxkae have disconiinued their dividends, and he laay or nay not insure them elswhere, in his company. But frequently the twister has this etfeetj he get a m&n to drop his in~ auranfte. It has not alv/ays the effect of gettinhg him to 65 take insurance elsv.iiere, vhich he requires. Then I vish to ca,ll attention also to ^/hat appe ars to be a slip in the drafting of the oill. Towards the foot of page 28, on line 21, I shall read; "After setting aside from such siirplus such suras as may be required fora^ the v.-aj'iient of authorities dividends upon the ca;;itol stock, if any, and for a contingency reserve not in excess of the araount prescribed in this article, every such corporation shall separately determine the ai:^regate anoiint of the rc-riaining surplus T\rhich shall "be equitably apportionable to §.1 policies issued on or after the first day of January, 1907, and shall apportion such amount to said policies according to their respective shares," ITow it 'w'as not the intent to h:.ve the policies affected after the 1st of January'", 1907, to get the v/hcle of the surplus, but that seems to be the vrording- of the bill as drr.vm. All the policyholders v;ere to i^;et none of the surplus accruing in this way. It sr.ys, After setting aside frora such surplus such svns as uay be required for the payment of antborized dividends upon the capitol stock, if any and for a ccntingecy reserve." SEI'TATOR ;\ia;IS TROITG : The intention of the Ci.nittee vas that the wording "v;hich shp.ll be equitably apportion- able to all policies issued on or after the first day of January, 1907," vrould then deternine the aggregate amount 64. distrilDutable to them, and that then "shall apportion such anount" --vvould require, the distrihution of that amount so that it would be properly apporticnahle to those policies only. You are ri^ht in assuming that ve con- teiaplateed creating a different class in drawing a dis- tinction between the pclicies issued prior to January 1st, 1907, and those issued afterward, so there would be a line of debarkation there, but I don't jv^st get your criticism of the language used. ilR MOYf^R: I will point out the vrords; "which shall be". The intent v/culd probably be acrried cut, but the words "wjich shall be" refer to the aggregate amo- nt of the reriaining surplus, and afterv/ard it says "such sjnount shall be apportioned," referring tc the aggregate sur- plus . SEITATOR AR2.rSTR0:"G: "Determine the aggregate amount of the renaining surp^-us which shall be equitably appor- tionable ." ASSEJDI.Yii.IAlT ROGERS: You suggest the omission of those three words? ]jH liOl'ER: The omission of the three words "v;hich shc.ll be" would probably make the intene clear. ( A llenber) Hay I ask ycu a question? I j^ast v/anted to inquire if it is intended tc change the lav: as 65 to futu ee policies to corapel the dis trilouticn of a surplus Tout nux to incerfere ivith the existing conti" - cts and not to apply to e,;vi rr.-'-lng policies this dia tr routicn? SI,l;/iTCR .ASMSTHOi^G: The proposition wuuld not re- quire that, 'because it could nob require a different pro- cedure with rp.fer'ence to existing contrT-Cts than the confei-acts theniselTos pr-ovide, in the judgment of the CoinQij "^tee , IIR KCfiER: Then la her, in the sane section, iiaiued- iately f clx^v/i ng, it would seem to us as if the accunu- laticn of s-;rj.)lus could take place froii: yec.r to year, with inter. 3 li., and lr^,it a 'n-rin would have at ar^y time ha.ye the option of chru'd^ln^ tha/c accurjuiated cash surplus into paid up 3.ddit.Lons , Kow il-ie effect of this would '-;e in manj'" crses bhtit a na.i would allow hit; sui'plus tcr^ accuinu- iate un'f-.il he left sJ. ci;, or even nif.-ht he on his derth hed, then he vould have the:n chan^^ed to paid up additions and therehy dcuhlej in ;:'a.n7 cases, ■ tha. aiiao^int which he wQulsd receive. I think this can surely not he the inten of the lepislature. ASREl'IBiyivIAN COX: Are you referring to Secyocn 84 on "valuation of policy?"' im IVIOYER: ITo, Section 83, page 29, the first 12 56 lines, share of surplus. Tlie fact is al ready accom- plislied by the Investigating Ccrmiittee SEITATOR GRASY (Interrupting) V/ill you go over that again? That is the difference hetrreen a paid up addition and the amplication of the ainov.nt to his preniivxi? i'iR IIOTH^R: I v/ill take an exaniple. If a cash divi-- dend of ten dollars were allicated t9 the policy hclder T/ould ha.ve the right to allov/ it to acciiiiulate fit inter- est and to v/ithdr^ w it in cash at any tiiae, or he has the right at that tirae to convert it into paid up additions, ■■:.a5''a1-j2e at death only. If he did tliat, instead of rfetting ten dollars now, he rrov.ld £:;et t'/enty dollars "./hen he dies. Ilovr it see:as to us that this sec^.ion as prepared v/ould allow him to take all his dividends in cash, if he ple-ases, or to allow it to run on and acciunulate at in- terest, frcru year to year, and then "/hen he is sick, or on his death bed to change them to paid-up additions. The Gonpanies coulid not take into accov.nt by the lav/, the state of his then health, and he could thereby double his dividends just prior to his death, SEITATOR I^:::ST?..OT!Q: You find no fault r-.-ith the option of taking it, bP.t it ought to be accompanied ^/ith sone evidence of good he.'-'lth, in order to exercise the option? 67 1^ KOYYR: I think it would scF^rceLj te fair to the policyholders. I think ratjier he should exercise his option once for all ansd say v;hich form he wished to take, and then if he wants to to take the share form, eyidence of good health V70uld loe required^ SEiTATOR ilR'iSlT.ONG: How is the option usually pro- vided for in existing policies? IIR MOYEK: The option to accurmlate is not Yery freqtient one. They visually have to take one or the other, SEITATOR ARI'STROITG: I mean to take the return divi- dend. n^ JIOYT^R: That option as usiially taken on the policy is United to xrithin a rea.sonahle tirae, tv/o or three uonths afterward. SEATOR /JiriSTROlTG: T' at v^ould he reasonable? IIL KOYRR: That ^^rould he reasonable. ARnErn:LYI.I/JT ROGERS: Alssurnin:- the state of facts which .you have just r' ised as existing, I only understand you to say that he takes that which ho is entitled to, hut he hr-s to take it at a different tiiae t':an he at first elected. WI KOTER: Yes, that is tlie idea. AGSEGLYil'llT ROGEF.S: Wherein does t at do any injus- tice? LIR i'-OYER: He gets a great deal no re than his ov'n sh.are. 68 ASSEi3IY::A:T ROQERS : His s^ are hfvs oeen accu:^aaLiT , interest for his oenefit„ ilR KO^'IIR: Yes, but tho^e vr o '^eco-ie sick take thej: share in one m^ r.nd those T'bo reriain healt y allo^?; t.hera still to accuniulate and therefore the advantage is always- afcainst t'-ie company. It enaoles thin practically to taks out a further policy after he is sick, or on his death hed. It is \'?_\iat x/e c-11 adv erse selection. ASSE13LY;'7ilT ROGFRS: Assume another instance, where he had elected to take his dividends each jj-ear. I'Ji MOl-n^R: Elected in cash. ASREiffiLYJCAIT ROGERS: To take his dividend in cash er.ch yes.r. He night himself hcive put it out at interest in the savings b?.nk, or elsev/here, and achieved the saue re^'Ult ?/hiGh j^gu sa;/ he vfor.ld he achievinf; "by e ecting in sickness to take it froi/i the conpany. IS I'GTER: In t'lat cp.^.e, if he had ^econe sick and took his dividend f-cn the conpanp: and applied it tliat 7rr.y, t"'e ccnpany \:cv:Id refuse his application. They Tj:ouJd sa,y "You are an unhea.lthy yaan. ^.7e v;on ' t insurs you", A3"EluBIl"2:iJi ROCt'-RS: Yes, hut he already insured e w''.en he is gccd he.-~J.th. 3J1 jiIAYOR: I mean, v.-e ■.;on't increase the insurance. 6? IIR :.'niES M. DA\?SON! The point that yon are making is really that the ^vcu'ds "which shall he applica.Lile" may apply 3^0 irhla accuraala L; on. whereas, the conoii'c.ttea inten- ded that tl'iej'' should apply to one of the options that he o-ey could take at the trjie the surplus was declared. How if the woxds "01' s.'u a.Ki.. op';j.o::i oi^ulj. Lb periiiitv^ii ^ ''' d.-Vv..; to "date of issue thereto" were put at the end of the sen- tence, ycur difficulty would he entirelj^ overcome, v/ould it not? Iffl JlAY@i^: I can't tell excatly SEITATOR AFliSTRONG: The Cci.;ji;:ittee understands your criticism and v/ill give it due consideration, and we think it is prohahlj'' a pertinent criticism of that section. riR i'lOYEH; The effects alread;/- acco mplished hy the Investigating Comi/iittea have oeen rerj great, far greater t}:a.n many persons can realize. All the officers of life insur.":nce companies, and even in grea.ter degrees the directors, now understand in a \:r\y they never have done before, that t'leir fir,3t duty is to the puhlic a^id to the policyhc.lders . ¥u3h pood hdd r}-!,e>-3f:3rc air ec-icy hec3n acccrap-li6]:-jd. e^^en vvithoiii; thd pa'jsutv^ of a sj.t\k;le law. But the raeuory of maio is zhor-z .ard vany of -che proposed laws are coLcellent J.n their dcijign. They shew cai'e and forethougjifc 'oo ;;revenr;, these Icipnos of iveairry so fr'V'/quent in our "ieaic hieviaxT nature But ha-^ing p.assed these naces- ary law,a, har.i.n;i- av/axaned rirjcccrs in their- respo jusihilit ies, having provided oiiac th';se responsihilities will he evr ever kept in their minds hy these who in future have control, 70 1 wovJd submit t''at many -f the details of management such as the ex'oenses incj/fred^ the Liea,ns cf providing these exi.jenses, the forms of contrr.c^s and fthe distrioution of surplus he left 'to the adminis Lraticn of the companies, SS'iTAT'"'R APJiSTRO'lTG: '''IE will take a recess until 2 o'clock. 71 SEC. 7. Afternoon Session. SE--'ATOR ARl'TSTROTTG: T'le conaittee will "be in order, I'iR. JOHI-T K. GOPvE: (Acturay of t:ie Prudential In- surance Compe.ny) lir . C airraan: There are t^ro parts of the section referring to the distriloution &f surplus that \TCwould seriOTisly affect industrial ccmoanies issuing par- ticipating policies, although these parts no doulat v;ero not intended to "be applied to industrial corapanies. In view of the fact t'.ir-t the To ill provides necessarily, for a separate standard of "valuation for industrial policies and permits the exy.enses of those companies to continue as at present. It is evident that it was not intended in the liill that industrial policies should ^^^rovide for dividends a.t the end of one yetir. ZQ^ As it wtvs shown at the investigation "by the Arnstrong Coromittee the industrial conxja.nies cannot, froiii the y-'ry natire of industrial ousiness, earn a,ny dividends v/hatevor for a few ye • rs , allow industrial their industrial It v/ov.ld seen equitalole therefore, to ccirtpanies to distribute the surplus on policies once in five ye rs. There is another fer-ture of this section that very evi;iently v/ s net intended to apply to indixstrial policies. I refer to the portion providing that the holder of a policy .■l^:y have an3'' one cf foiir options in having his divic'.onds applied. The Prudentia,l vrould nornialiy have aoout 900^000 nev^ policies on its bcoks at t::e end of o: ry jorx mil lie .ns In a few j^or'.rs ■■.•e ■-old have in force a nu^.foer cf nolicies issued under the • r^**-** i A*^ 'Kj • ; ;-i i «« :J ,^ -!, fc Sec. 7 72 proposed 1 t;. Each poiicyholder could have any one of four options and iniglit take option T'o . 1, say one year; option ITo. 2, another ye-.^r, and so on, \.intil the nmSoer of coiobinations on the company's books ".-'o Id be alraost infinite. It v/ould soct as niu.ch to calculate and record the foru options on each industrial policj)^ as it would on aeach inchistrial policy as it v.'ould on each ordinary policy and as the ordinary pclicy is as the average more than ten t"ir,i;s «ib iarp,e ad t e xuciusvi i^M i^^-^^L-y a.... „.-:;:;.,.:. the relatiye cost of calculatirjg a:'.d recordinrr indu.s trial dividends 'oul^- be ten times as great as in the co rse of ordinary bus i ess. "urthermore, \7hen we add the cost of preparing and mailing sealed notices of all these options to each one of the millions of pcl9 cy holders, millions of industrial polio;'- holders, as at present provided in the bill, the total cost vfould almost, if not entir .'ly, eat mj> the funds that had been earned. Y/e hope tliat t'.e Legislature of t-he State of ITev/ York -/ill conclude that industrial partic- pating policies shall provide that dividends mf/y be in the form of cash or in the form of paid ii-p insurance as SBcified in the pclicy. ASFiF.'PdT-yv' COh: Hiat section are you referring to, Ivr. Gere? jj[, CtOVZ: This is, I thin:^, A3, th.e distribution of dividends. At present soae of the companies provide one form and soi-ie an o '-.her. SIT'A'OK ATh'STRO'. C-: let me get that suggestion again, }:r. C-ore, industrial participatin-- policies may provide, yur suggestion is - - - - 11';.''G0FJj: That industrial participating policies shall 73 provide tliat diYidends iiuiy be in tVie f orra of cash or in the form of paiv'., up insura,nce as specified in the policy. ASSr:3J.Y:l/>jT j-:OGER■^^: Just point cut the precise ±x provision in the section. IIT. GOhE: Thore is no provision mentioned in the industrical coiipanies there, so there is no place in the section "here I could ji'.st nc place this one provision. Is that right, '".enator? SE. ATOP, APClSTROhG: I understand ycu.r sugfjesticn. L3. GORE: At present sone of the comrjanies provide one foriTi and soue anf. ther; thr.t is as to casTi or paid up ijisv.rance; hut no industrial company provides for p.n option 0.1 the par vnlue of the pclic;/ holder in t:'in respect. Such an option ould add r. great hurden of ex;'oense to industrial policies. It is necessary for eccncray's sahe that all incxistricl -lolicies s?iou].d he riB^ndled in the general departments of the ccT.r-p.ny ^ not as indi- viduals hut in "•ulk. The providing of options on tlie part of the policy/.iclder -.vould make it necessar;/ to keep in various departments of the company, separate and individual accounts with, these policies, v/hich could only "be done at a very greatly increased cost to the policy- holder. I culd urg?, therefQ,-e, on behalf, of indus- trial conpr.nies doing a participating business, that they be allowed to specify in their policies hether dividends shall be allowed in the form of cash or in the form of paid up insurance. SK:AT0R AK:-iSTRO.:G; i^r , Gore, do all y.rr policies issued by the Prudential now provide for participating by the policy holder, all your industrial policies? 74 ICR. GORE: All "^^^ut a ver;^ few; the vast majoritj;-. SENATOR AR;:STR01TG: ?aiat are that class which do not so proyide? i'!iR. GORE: We have what we call a limited -payment life and endowment polic;;', issued on the lives of children. SENATOR ARIiSTROlTG: I am speaking ahout your industrial policy only; they all provide, do they, for participation? LlR. GOPiE; All except the policy I have just named. SEITATOR APJ'STROiTG : That is not an Industrial policy is it? im. GORE: Yes. SEi'ATOR ar?istro:tg I"IR. GORE: Yes se:tator ar?:stro]TG; On the v/eekly pa^Taent plan? A limited payment endowment? IvIR. GORE: A limited payment life and endo'wment policy. I'IR. WOODRUEF: How, J'lr. C}iainnan, ncv; that the agents have arrived enmass, from all parts of the state from Buffalo to ITew York, I think t^ie appropriate time has come vfhen our consideration should be given to "the section of the pending legislation limiting the amount of expenses and the amount of business, and I am asked by one of the life underwriters associations to announce that the special train which brought those up from Nev/ York and the Hudson River will return, leaving here at four o'clock. Tliat leaves about an hour and forty-five minutes for those of you who came from the Southern part of the state to be present at the hearing on this question which so vitally 'interests all the life insurance agents, as v^ell as the oompanies; and I am 75 and I am going to call first to prese-it the views of the companies, Mr. Fjnory lie Clin to ok, the actuary of the i/Iutual life . im. EI»,IORY MCCLINTOCiC: !!r. Chairman, and Gentlemen of the Coranittee. I do not know hov: I came to have assigned to me the subject of the limitation of new business. I had supposed that my only topic was section 98 which relates to the limitation of expense of new business. There is another section v/hich rel tes to limitation of the amount of new business, which appears also to have been assigned to me. Vor- I am afraid that I ea-a not qualified to, oppose that section. I doubt v/hether there is any one here representing the companies that cares to oppose that section imless in the direction of requesting sorae delay in its operation. Personally I liave been for ."lany years in favoring of limiting the grov/th of the largest companies at sv.ch point as it might seem that they had reached the limit of their usefulness in the Yfay of giving the best and cheapest insiirance to t":e policy holder, ily feeling is that the limit is about reached vrlien companies have to think about splitting themselves up r.nd making federations" of themselves. In 1892 or 91, - I forget which - I recommended to the President of the Mutual Life the limitation of the new business of the company to - I think - one hun-dred millions of paid for business , and his acceptance of that was indicated by his report to the policyhol ers at the beginning of 1892, That was one 76 cf tlie t- -c cccasicn- -rhicli I referrec-. to before f'.'e Tefis- latiye ncirtiittee on Octooor or "cveidoer, -.'■';en I was asked v/Iiet" ier I ' \vx\ "been ccnsulted ccncerni if_:; tfie commisGion to De pai.c to ageyits and I replied "'^es, I had -iDeen consulted in t/ie earl3' ""O's, -nd "beginning of t e year]900." In t'.e early '"O's I .ir.de this recon-nenda.tion, and I al^so ;iiade ■:. recoriiendation for f:e reduc ion of t2ie renewal corr.'issions, liich was adopted for a short tine. In 1900 I again nade a recou. ;enda±cn for a limitation of ousiness to iDe agreed to ~yy tiie thre;; coiipanies, if possible, and being on record therefore as regards the liuitaticn cf business, and at thiC sa.-.e tiiae I ;mde reco- jiendation.s fon t':e redxicticn cf renev-al coiiii lis s ions - so th:.t I ?..! i-ather curicusly inccr.ipetent to oppose the li itaticn section cf this -ill. I do think, however, that t-;e ■J'e'.: ""'crh ~ if e , as a Irrge corapany, and pcssihly or.'-, or t "0 of t-\e smaller ones riigh.t find it inconvenient to adopt this li.,ltation the first year end that it r;iight "be veil for t"/.e co:.xaittee to C"-nsider the niiestion, if tho£ cc 1- niies sh.ov.lc put tjie na,tt -r to 3''cu, ccnside.'-th.e oi:estion cf delaying the auction for sue'-, ti .le as might "be found satisfavctcr;^, .. ow, a.s regards section 98. T'-.e chject of this section is chvicusly to rech-ce t':e cost of insurance to t]:e -.'.olio:'- ':olders. There is no actuary in t]ie country \rhc can /lave any quarrel •. 'ith that object. "h re is no actuary "ho has not at all tines not only iiade as large diYidr:nd3 as the surplus earnings of his ccripany -'^ould peruit ac tlie ti;..ie. but t'-ere is no actuary who has not alwa-;. s Lirtde ever;- effort within his power towards in- creasing tlie surplus earni gs of his coiapany to ens-ble 7F his dep rt;...ent tc rriaka tlie largest dividends possible . "■<■•- sequently in repre e ting t.V:Le cciupanies, ai;d in represent i/ t;:e actuaries on thir section, I c.n not particnlarly f.-oinr to dv/ell on t:ie bar sl.dps tc t ;e agents. I leo.ve that £.■- n:' friend -/ho Is to fcllo. ne . I -.vish nerely to s.".y that there is no nan in t}ie ccuntr3^ th-t has har;! a longer ex- -lerier.ce or knowledge of life insurance ag.nts, I thinJc, Van i.iyself, a.nd no ru.n -he syrapathizes with t.'.ie:;: racre deedy, no ::ir-.n ■•ho appreciates then aore hirhly, no -.lan ■ho understands better than I do the go<".d agent, his trials, his difficulties, his successes and his uniform -cod conscience. T]ie rcod agent ought to "be sustained; ];e ught tc be helped; lie is needed in this country, an;' tliere are jiiany and many of them, but the point before ycu noT/ is that cf the policy'iolder and the surpl\is. riy point first is that any limitation imposed arbitrarily on the amount which a company o. n spend for a given object, cramps that cci:ipany and to that extent "^ acts as a partial paralysis and to that extent increases the cost of its business. I "'ill not dwell on that point, but all of iron ho have ?Jiy acquaintance v/ith business must see that there is something in it. I don't say that that particular lo s mf.y nrt be cTer'"orne by other good reasons. I merely sa3- that thr\t is a point to consider. "ITcw, in re ucing t!^e cost to t-'.e pclic holder, it appears to me that the first object of the legislature should be to introduce cf-m-)etition among the ccm-;.anies i:'^- t'-.e pro .uction of the largest dividends ar-d f.e great- fel. 78 est returns tc the polic:/ hclders. T'^at coject fis conpany has S'-ug]it in varirus wa/;s to car:--- cut. I night have begun, and I ought to have loegxin, ".-^ir saying that I agree with a great deal th t tjxe cosiaittee has reccniiaended nost heartil;.'. I thi.-k their investigation has done nore good aire 0.y, hich "111 continue, than anything t:iat has ever happened in t'le his'-ory cf life ins;\rance, and I think their ilJ. s are lih'ely tc f.o great f'OcC in the future, assirrainp- cf course, f^^ t those points hich are seriously cb jectinnaole shou.' d be in sorae wajr ■ :;ien ed (Ap")lause). '■;ut that is by the M^ray, J. .icpi- I aia heard. I c:cn't kno ■, I ill trj'- to speck slo'.v-er, if I a..- not heard, i'c'/ t'-O ccixuittee has arranged, first, for a sj^stera cf valuation '/hich saves t'le necessity cf puttin,^- up an unnecessary reserve during t:ie first five years and I for one approve nost heartily. I think that raost of t' e actuaries are entirely co;iter:t to alio this portion of the hill to go ■■•ithcut criticisri - trith^-ut cpx'osition. i-'c^ , seco dly, 'yith the object o."' reducing t.ie cost to the policyholder, the ccn Ittee ha.s provided for emnual dividends, annuf.l accountinp-, and I agree finally - personal- ly agree firnly - to the good effect that that course is likeli'" to have in the bringing the ccnp^nies in the con- petiticn • ith each ot^'.er in re ucinr t"-e cost of insuro,nce to t::e policyholder, "ut in saJ^inT this I ':o n^ t 'rish to c'isparage whrtever ar-i'.nentf^ ny friends }iay use in favor of th.e ccntiriUcnce cf deferred dividends. 79 Tliere are argiinents fcr that also, ./hich I regard as good arrruxients , out th t ncv; I am not discussing. I i'aerel3/ say that en th.at pa,rticular j;:'Cir.t the loringing of tlie companies into nonnetition '-ith each ct er for th^e producticn of the largest a,nnual dividends year -ly year, fie coimnittee has done goo service. Then, t-je limitation cf business, hile it is intended cliiefly to affedt the coni.-anies v/hic'.i are affected ".-.y it directly, so as to prevent their reaching cut too fast and too far and at too grer.t expense, another effect is that ao co:,\pp,ny after cci.rnny reaches that lin't and slackens in its acquisition cf ne agency forces, it enahles ether com- nies to seciire t-:e services cf the agents vrho othen-ise might viorK for t:ie large coxnpany. In that respect Iso, to sc;:-ie extent and in various wr^ys , the li"...iitaticn of ne-;- business, particular!;^ as rerardn the ccH' anies directl;.' affected is going to c2ieapen the cost of insurance to tJ'-.e policyholder in ra;r judgraent. I cone no-; to a delicate suhject hich - all these things are connected -.vith ".'o . 98, and are interesting to the agents - I coi7ie no';.' to a delicate s\ihject -hich is con- nected with ITc. 98 particularly, and thiat is the loadings on the premiui;is . If you have a loading cf t -enty dollars on a hole life policy nd f e sane v/ordlrig on every other kind of policy, you ave the sane average loading th;"tt you have if jcd. have a smaller leading on the -hole life pol- icy' anc a larger one on the other fo^ms, -hich is the present sj'-sten , so that, as ther is no limitation in the bill on the amount of the 81 policies and also for the cost of collection, oGcaiise if you give them to a "bsnlc to collect the bank is going to charge you his half per cent or^on© per cent, or v; hat ever it iv^, or if you oollecfe throu'^ your cashiers or agents the oustoniary understanding is that it costs r.iore to col- lect lor^^er arotmts than sinalT ones. That is hy the nay hc've vcr • The affect of a uniform corrlssion for all K.inds of husir.QDs is. likely to cheapen the co^t of ir.Bv.XF.uoo to the policy holder. I th.ink that is perfectly -^^lain as jegarda all the Kinds of policy except ordinary life,ard as re^prds ordinary life, if the loading is increased on that it is r.o jnore than that Xind of policy can honestly bear becavise it is the most productive forn of policy for a given tniount of prei'iiim that there is in the v;ay of earning svr'plus. How here are a lot of recoi^rendations v/hich I have bRsn able to a^ree thuuoughly v/itn the coriinittee, sub^fect to anenclinents on tliis or that minor point, but I come now to this limitation for the amount to be paid for neir bus- iness. Any liarltation on that subject on first I don't say that the companies cpuld not live under, could not prosper under a law Uniting the cost of the new business, I don't say that; I 3aid incidentally at the start that it tended to crarip and hanpcr their energtea to some ex- tent, butthat can be measured in dollars and cents. Now the first ting is then, if you are going to lir.:it yhe cost of your ncrr bp;f3inocs, you r.rast do it so that p;3ople can imderotand vjiat you neen, c.l^':': that is not done in this bill. It i3 obvious that it v/as not vinder- Titood by the co:'v>f'.i^i 'js that 8£ •mrpplleB their -statistics* Some of the compsoaies ■ gsnr-e in as the ""oost of new buslaiess-, and I know the I.totiiai Life gave in a great jnany things, gave in the taz of the new premixuQS and a large part of the statlone^ry and printing and other sach items arji a consideralDie porition of the salaries of the saperintendents and tho whole salaries of the superintsjndents, and the v/hole salaries of the medical staff, and of the agency staff at the home of lice; all those things were counted by the Ll^itual Life in stating the cost -Of new business, as well as the amounts paid\to agents, and the amounts paid to the medical examiners and the medical revison department. All that was. includeo, but I find that my old company, the Forth- western, v/hich I was proud t'^ sei"ve for 17 years, by. some misunderstanding of "hat was intended, included substan- tially only, the comrjissions on the new business, and the medical expenses, medical fees, and medical revision- I think in addition to that there was only some six or ssven thousand '"iollars included at the cost of now business, although on the other way of ao-countinj, if you counted the cost that you could save if you didn't do new business, the Jforth- western miffht have piit in possibly a rraartor of a million more, possible one hundred and fifty thousand - I Cjgn't tell how much it ?/ould be, nobody can tell probably. Ro'i^, the Massachusetts llutual also counter ths same items as >«he cost of new business, just, those tvo thir:^:^ - the mediS^l fees and the revison and the agjnts firat commissicn, ■within six or seven thousand dollars a;ain; and I see tl^at those are two of the throe oo a-arLiGS - the other one I haven't looked into - vhich are given in the com- mittee's report, very honestly, very fairly, J. oviuire a long series of decisions "by couxw before it couls finally 'cecone intolliglT^le to o^.-'Dryoody, ooc'vif-e it is a n^i^lity difficult eubject. Tlisre ?iT3 first a certain fraction of the president's s-jalary; the preBident of any coripany woii.ld. not require quite BO high a salary if he had nothing to do with ne^7 htxsineMS and there v;as no now business done by the conpany then there is some redi-.ction on the salary of everybody else in the office excepting the sr.all clerks, or nGar3.y so. The salaries of the medical departnent, of the agency departr.ent, night be coimted largely, not alto- gether , because v;e have to have doctors to attend to restorations and all that sort of thine on old buisness, and we have to have agents or at any rate collectors to looK after the old business. Many of the coKpanies prefe:'- to ha ve their agents collect the old premiums, so that a sub-di virion of the O'fice salaries v;ould become a r.at- ter '^v'hich it would puzsle a Solon to make into a lav; which coiildbfeeun'-erstood by every company \7ithout a great i.ui.r-.or of Judic ial decisions. The next thin£,- in addition to the Cfice salaries is the expense of gettin£ out oircula rs, gettiiig out prcs- peotusos, i:?onding out desoriptions of ''..hat your policies r.re, sending out sai>ple policies, printing ?'.:■:■'.' circulatl^-. R}r li cations, all 85. those have to be printed and got out 4-nd it all cost roncy and you could savo it all if you did'nt do new business; and then perhaps you want to advertise a little, and the niiialler ooriiKiissiones you pay the nicEre you villi be temptocl to ac'.vertise. I do not believe in adve rtising except by th.'^ personal contact of the life atf^ent; that is the kind of c-/'vertlr.ing I beliove in, ( A..):.lause) Soiiator Ar:'otrong: Mr. }/lcC lintock, if you excluded those expenses which are apportionable only to first year's busineKs, such as hoiiie office salaries and printing billSj, and so forth, v;hat are the items which you consider as* pure- ly incidental to the frocuring of nev; business 7/hich would not need apportioning to any other business, lir. McC lintock: Wot be ap:)ortionable? Vfell, inthe first pl4ce, everything paid to agents vfho are engagedtn solicitir;^^, and their 3u:o.:rvisora and the direct expenses connected v,-ith keeping them in the field. Senator Armstrong: Well, besides agents, primary or initial coKurdsslone and the exainlnation or medical fees, what else? Mr. MoO lintock; There you come again, say with most companies to natters that are apportionable. Senator Arr^strong: I say, excluding all the appor- tionable natters, Mr, McClintock: For instance, I think you would find in most of the companies that the renewal coianlaslona are apportionable to some extent because it includes the cost of f i neT" businSfc-fi, In ny coirpan^'-, and in the New YorK Life the collection io done cy caBhiers v:ho aro paid fsalariessbut ;iany of tho co.;::ipair.3E5 i^^o^t of the conpanies include the collection of the old pi'o?il uks ' in the renewal coKsnissions which they r)B:'j to the!?: erj-f^^So Assei'-'blyiian Qos.i It has been smgsestedj^ IfTo McClin- tocKt that it vras neceviKary to hav© renewal co;:»iiission3 for a term of years In ordsr ta pi-event lapsase I taKelt, tron Tffhat yoTi say you donH enrploy that method in your com- pany? Mr. McClirtock; I have no faith in it whatever, not the slightecto I won-t ^»o into that because it will taKe ti:te; I could talK for ar>. hour on that subject. Mr, ¥ood.Tufr: 1 don*t thinic he understood your question, ¥jo„ MoOlliitocl:?. I 07;ifeht tb say lii-fiirther ans^i^TBr to llro OoXj.that I dori't BSv.ii.p r^y opinion' aa ^c^pel; I rcc^ra- ly have'?nd \iAK.6- xntA, urd.iv.r.n^. _ v tnovr .that ■ men Tf7ho .a:rs just a3 gcd r-irjcl -n.'-io a/.re .ji^.st a!3"'T:ir5e. a^ X ain,> hold, a md~ .icaliy di:-T?.c.-rrt or;.-^sidos coi'ir'irssionFi and \Gdioal fGos th n there is Inthe Kr>rthv..'s stern, e:i.<\ it .:looc' not rive 15 tl:e -"'irst year but 7 i/d. On tho other :rand it cor.tinuGs t/ie renei/rls as long ao the a;.ci:it stays uith the conpany. I thi: h I ar: rifht about that; if I a not I vro-ald liKe to be cor- rected. B9 Ho'v7 the present value of those renewals is a good deal r.ore thsji the present value of the Hortlmestern rene??^£ in excess of vfhat tl^.e lav/ allo^yso So that you have in tho r.asp.achusetts MT;|tual tlie necessity of a. still greater re - cluction in 1904 in order to do business in New York*, Now the Chairman suggested the possibility of restrict- ing the liiaitation' to those matter^s, T^hich are deperdrnts, as I "stnderstand, direogly on the business <> If that rrete done a good part of the argument that I have to meXe i?/ou,ld drop, because I am goin; to talk about the iii^possibllity of laying out yov.r business before hand end r.aKing cure of not going to ^all at the end of tHae year. That is the question v/hich first struck me vixen I saw that sectiona I have been an actuary for a great r'any years ,^ 3iviiifi in a corner and necestiarily vfhon I vas suddenly put- forward; I vas i'.ade a trustor and officer and placed in charge ox the agents a bout tvo inontlis agOp end being in that business I natT.u?ally looked £.t the personal parti of ito Then I not- iced that everything is a rider.eQnor that runs against the bill, and I said to nyself . ••How can anybody uniertaK.r3 to nanage expense of i.ev; ioi'i'liisss; how can he lay out hlB ex-, ponses before h^rf'd,, incur the cost of lorint and all the rest of it; anl th.&n If the business dossn't cone in, es- cape going tc ,;, • ^'-••" l can't see it riyselfo (Applaus) So yoiT haie ai; absolute nrjcessity^ either if yov. have any lir.itai,ion at aj.l> you have to have either a .1 imitation in dollars and cents y not percentage, but in dollars c'ld cento, on the expenses that you lay out before riand, end. then 99 If you ple?;se, a percentage limitation en ths business whlGh l8 paid by percentage, or can be paid by percentage. That I regard as an absolutely necessary amendment to this bill, if it is going to be worked at all, in this section* And so coming to those vhings which are measured by percentages what arc they ? First, there is certainly the costs that you pay to the eoliclting agent; next, there may be the costs that you pay tc the manager or general a gent. n That could require a reversal and up&«t of the system of the New York Life, and Mutual Life Companies, which together have done about one-third of the business If the State of Hew York, and of the comr- paniea which do business in the State of New York, I think more or less. But these companies can reverses their business if it is desirable and necessary iin the interest of the public. The point is, don't make us up- set our >^usinoBs excepting in some satiafactory manner, In some manner which will work, in some manner which can be m.ade to work year after year, and then give us this point about confining it to the oxpensos which can be made by percentage. I see nothing whatever that can bo made by percentage on this i^uGlneas, oxcoptlng the compensation of agents of all grades and the medical expenses. The medical fees and revision fees can bo practically dependent on the amount of the business. Beyond that I don't see. New, If-^ eomebcdy did suggest}- somebody connected with one of the comp- alnes siiggested that that might be made to work if a sufficient leeway was given in the miatter of renewal comjilBslons. As 91 posaible amendments, I merely say that if the coinniittee ■will consult with those two oompanles, the Massachusett imtual and the' HortRwe stern, get them satisfied, and give us a 10 per cent leev;ay, they v;lii not find me ohjecting to this section as it stands* (Applaiise) Senator Armstrong: llr» McClintock, do I understand you, that if the expenses which are in any event attrihu- Gblo to first year»s businesrs svtoh as you have specified, initial com: d«sion and n-edi cal exaiiination of new risks, vrere rude the basis of -ihe limitation instead of all ex- penses incident or apportionable to now business, that it would be a much more satisfactory plan to say the least? Mr. McCllntoGlc: Tfell, in connection v,-itii that tliere vroulciiiave to be a sufficient niuiiber of renewals toeoable it to v;orlc satisfactory and I can ii.iasine that that ir.ight be L.ade the basis of an arrangeiT'ent, although I hadn't thought of it when I came in the room* Senator Arrnetrong: You said that, if I understood you right p that you personally have jiever held the opin- ion that renei7;;l cornissions prevented lapoes, is that so? did I understand you right? liTo McClintooK: T/ell, I havehad a number of exper- . iences which go to show, ±3a I thinX \7lthou.t exceptisn, in the Horthv/estern and in the Mutual Life, and according to Hr. llcCallls tostii-iony published in the Ilet; York Life, that whenever a body of ■<**■* 'cii!:{irie:'r3 v/liich n=;n b ;en collooted by ^^eneral agent.s he.3 'bsen tv::>ri8d ovct to tho company ".net collected "by banks, that t/iat bu,sinGs,:^ h.'-is be;3n unix'oxmly unri without GxceptiOiT col- locted ro/c clcf sl3- oolloihtocL urtorvarclSo Senator /o'inrtron.g: Then v;ithin v/iiF.t liirlts should you sry thri.t- rcr.ovrc.l cor?-.inf-''ionB ere p-^perly llrdtable? If that l3 too Lard n qu estion give uo tJio b;;(-.it you ce.n on tl:G BJbjOOt? i.:r. },:cCliitocl;: I shoulcl pj/oi'or, if the coMii.ittoe can seo its vmy closr, Iv caae it goeB into that natter at all, I should profor? tlvit those corpanies ■/.■hlch fo-.ir.d it icoro eGonorr.ical to r)r:.y r.,t the boi^jir.r.ina:, eith(-;r the first year or the first tV',^o y?ars, lihe the Hew Yorh Life, sho-.ild be pornitted to -.o sjo; lsjI that thooe coi'-'parios vhich find, it i'.ox-e oocr.oriical to pay through ten years of corirnissioriS or ro;.io-v/alf5 should be pe.r:;'itted to do so; but that thoL'e nhould be fr.ir and f?atif^-;>ctory by vfhich the pros^iit valu es of th0!":ie :?er.ov;c.ls i-hould co; le in alon£: ./ith the lii 'itation in file :'"i:;ot reejr, ao that if you a;'V- the preener.'t vplue of t/:o r'3i;:T.;-aly to the li^Litatioli on th'^ fiv-ritrysar, theliuit shall be f;o chat a co:p8ny could tCi.- o either one end or tl'i,e other, or a r/ii-turre 8a it plossed. Senator Arv_ytron£:: You are fa. iliar, I an^nu.'.e, vrith tlie PCjeduje rdopted by the Co.m ociacut liutual on thellst of January Icat?' ilr. XcClintoclc: Of co. ip'i::; ions? Soi;i-tor Ari'T'tron;r: Yofn. jiir» HoClintoolc: .Mo, 1 iiadn't heard of it» " Senator Arimstrong: Cculd you Inciicate then, in yoiir opinion, . oit liar rsorn or Icb?: socin'ately, about Mien the renevro-l coniiyRion might be reduced, to & collection fee, or r> practi cally the aroujit to a collection fee? .^f^L.. ■■■ "S^-' Sir. HoClintocH: That de'oends on the limit a|:S'4>liB •■ ■-;'".'■ itt'^-jT; V,* '^ ■ .■ •' first year aid I have niade no figures at all'. i^lflfj ' 3U>- ;Jeot, Mr. Chi^irman. '"^^^:^'''■ ' Aase.Mhlirian Cox: Yoxor HUf'.-^efjtion, as I un-.-erii",tooodit , vms that yo-a could positively fix the ainoimt of agents coiTinissions, leaving the company to distribute it, as it saw fit, either in the I'irst or eecond year, or distribnto it over a tern of i^eihra? Mr. KcOlintocK:: Yes, imder present values. Asserbly Cox: You thinX, however, it v/ould be pos- sible to Kialce a ll;"itation on that subject, leaving the distribution as you suf-gest, lir. J/loClintock: If the lirdt v;as broad enough: if th0 JJiS'ii-t- "^"P:^ BXich as not to opixc'ess, say that half of the companies that are no^y working t'lo cheapest; if you fix a lirlt that the half of the cor.'pp.nieG v.-hioh arc u'oriving the cheapest could nov; live under, •',';-ithout Ciiange, v;hy then tlie other half i7hioh are more expensivs in their management uigh be brought vjithin it; aiid that Kind of a limitation, Incon- fess has a certain practical phase to ,it, that coiiiiiends it- self to nof althour;h on general princip les I don't be - lieve in Ics^is mf,f'. lor. HoClintoolc:, No,. X 2iadn»t heerd of it. Senator ArDistrong: Could you Indicate then, in your opinion, oitlier icoro or Icb^. accin'atel]'', about when tlie' renev/al corrdy^-ion nif{ht be recaced to a collection fes. or I"' practi eally the arjoiyit to a colleotion fee? ,,>•?: sy;j6?*' lEr. McGlintock: That de'oenda on the limita#Ji£:^v'4>he first year iaid I have niade no figures at ail' f^^^l^irlaf ' 3ub- .•Jeot, ICr, Chairman. ^-'^fi;''" As5e},ihlynan Cox: Yoiir HiV::'^cf3tion, as I un';o:rDtooodit, v:aa that you could positively fix the aii'iount of agents coicnissions, leaving the company to distribute it, as it sa^7 fit, either in the first or second year, or distribute it over a t^-rirn of 'i'e.'^rs? Kr. iCcOlintocK: Yes, under present values. Asserbly Cox: You thinX, ho?;ever, it would be pos- sible to r-ialce a liMitation on that BUb,1ect, leaving the distribution as you sufcgest, lir. :,:cCllntoclc: if the lirdt was broad enou^^i: if the JLii'dtT/yas sxi:;h as not to opiiressj say that half of the. GOiripanics that are no'7 working t^is cheapest; if you fix a lirit that tae half of the conpcnien v'hich arc v/orhing the cheapest oovild nov^- live under, ',7ithout c-iange, v;hy then the other half \7hlch are more expen.^ive In their nianagenent nigh be brought v-ithin it; aiid that hind of a limitation, Incon- fess has a certain practical phase to .it, that eor^iiends it- self to r.e, althor.^;h on .general princip les I don't be - lleve in la'^s on this subject at all, escept a lav/ of pu'blioity. I cordlnlly con^cratulote the conunittee on everything they have rloiie to "bring out every detail in pun lie. Lir. Dav;3on: llr. HoClii^tocl:, nay I asK a question. Yousur:;;;op>t that a part of the lirdtation :-'!■' yit he by dol- lars p.no. cop.tB, as distinguslhed fror.; p3rcQnt6g0y.*s^^:-you do not particularize there; can you help us a litiji© on that? l-i*. licCliiitocli: Oh, I r,i.uBt say that what I have said in a ra'olini: v?ay j.cout poi^si'.;iliti3;:5 have cor:e up in i:y mind ;--ince I have been on ny feet, end in niy r:ind this idea ocurred, thot if the •■-.anaoor hr.d a knowledge that he could opend so Liuch i-onoy during the coi/ln^ year in addition to the percent a;{es on the nev husinessy that fehen he v/ould have sov-ethln,:; to ^-o on and he '/ould not run the rish as I said oefore, of co: . ittinf;; a ;yisd.3:' v?anor. la that all, Kr, Chair: lan? Senator ArinBtrong: V/ell, I xms very interested in hepring: youj? statenent th-^t you thourfit the r.iargins as vie have rcooi^isnded, v-hich incltides the savings on mortality, are prop/^riy rir.y be tised for the procuring- of neu busi- ness, if I undei-fitood you oorr'ectly. l-r, HcCliirtocl: I £0 futr.er, L'r, Chairrian: I confjid- cr thr.t o'/^'ry -'.ol.'.eT t?ie corT'^'ny has is available for the procui'ins of ii3\7 busineno v.\''iGiently careful in the quantity of tl'-oir risks; in. various v.-ays they have failed to uehe the sut-xIub that they sliould have hiade for the±p policy lioldery. ( Applau'oe) 98 Assei-itlyrnan Cox: So that t'nerefore the aAclition of tlie new business which might have been used to reduce their expenses has not really been available to the poltey holdejfs after all? ICr, MoOlintocK.: I think it j.ay have been of soiae uae, but I have never figured on it closely, but niy impression is that that ar^iFrent has not appliod very strictly in the past to these three coiuitries. Mr, Wooc^ruff : On Ofahalf of" t]ie r.:;onts I ar ;;oing to call upon one of thoir nuiljor to apealt upon this proposi- tion of the llritation of eripen^cs; call on llr, W,c. Johnson, (Great applause) lir. V", C. Johnson: ilr. Chairman, vrith your per- nission, before proceedirig v/ith ry remarks I i"ish to Bay that the train will not loave until I get trhough. ( ap--^ plause) Senator Ar".:strong: DoiTft prolong 3^our arg-ument on that account, but tar.e allttoe tir.ie you need, Mr. Johnson. Mr, Jphnson: Vx, Chal lami cvr:d gnDtleincn of the coi:a- I'litteo, ano. of the l9gislaj;;ure, I stai'-i. before you as a life ii.rjuraiice agent to speak for the life insurance agent of tliis state. Soy g of thcrii have rogretted that they could ncu :;:s rGprenontod h :re ':y oyiinont co\::ncil \;ho might drive hoi.13 to t;ic rines of those ■\ho v/ere listening the strong ar- EU'-.ents v.'hlch ';."3 believe are to -s :-cAq on the sub:;ect of fj .'action 98. S9 But the liiourance agent liD.s occupied a rathor peoulipjc position duTing tiie past year, Hins out of ten asciits of this state,- arc! v;r.en I eay i^iai. I stand hero to spaak for the agents, I spsaK very largely iOr the soliciting agents, tioth of the oltieo and of the country at ones-, vfho go about inducing thoir friends and neighbors to bur ii^sur>=- ance for the protection of their familler;, — nine out of ten of thost? jn'-3Ti * ?, , i^orK are paid aolely by cortmiiGSlonB ■ ■ v-tilchthey resolve on ne?r pre-^i'-^s collect ad and, gentle, * Eienjt-.fop causes .v?7lth ?,1iich :^ou are, .very famrillsr, the arg'tTciento .f;i'.' .Jifi:' 4n^Ai:c3nx:.^-dvxihg:%>iB past year have -. >;l5een' v>^r?; dfi^.;?;/t;Ac^'thore-5xaBb-5©n -a' pertaiti... sliox-fneas of newprerai^;:33 ao-llcotcd,' f; " ■■■ ' ' ■-'■■: '^yiQ agent's h&vs accordingly selected one of their niim- ber to present to you thor,o plain arguments in a plain vxay, arr'Uj-ents v/hioh they believe have bearing under the sect- ion of thelat/ under diacuBsion, Wo, .93, I v/ish to say, llr, Chaixir.an, on behalf of ths agent g, and vjhen I sp0.i pa^t rev; ciayc? "cy oarici I'^ho teii^ha]--;? ■w'erij Bcofirin^ 'i little at tne a£;ont<, per- hape* ccr.10 a;;ont had taon too p'Taisteiit in eojicitins theiu for life ±"bxn.').e result of those accruntings -oiild be a tendency toward the reduction of expenses. I -ish to explain in con- nection with t}.iat that although I personally am a believer in *hat is kno n as the annual dividen- in life insur'-.nce 103. and I an connec'ed person;l.ly ritl: ■ cc:.v nv ^-I'lich practices that :iethcr-, that I an net as n indiTidurl in favcr cf the entire abolition of p, deferred dividend con- tract. "":/ that I raean that I think the conpanies should "be left f -ee to sell a cont act to their policyholders if the p'" licyliolders desire t^-en, vith this prevision: that there shoixld be :\n annual accountinp to tiie policy- holders :"nd a settinf; aside of the dividend annu'"'-lly v/hich is to be declared and to be hold for his futu.re use as a liability'" ckf t':e company C'pplause). Annu-;1 accountings J publicity and furnishing: of de- tailed statements, ouc i a,s it is uithin the po'vor of the insurance departnent to require, will -Tithoiit any question lead to a reduction cf the agency expenses of t'le various ccsip';.nies . That bei :g so, t e proi3osed liraitaticn of expenses ■./ithin hard and fast lines, v/ithin linos v/ith vhich t.be companies coiild not comply v/^itlioiit injuries to their policyholders and to their organizations tliroughout t'.e ^Tnitec^ States is unnecessary. 104 I iiave said also Jlr. Ciiairm n t'lat t^'e acioption cf the proposed ne-- section 98 ^'culd be destruction. In cur view it v-xuld lead in its adoption in anj^thinr like its present form to the practicl destriiction of 'he apency plants of the companies coDtinuin^ to ccnply with the laws of the State of "■'ev; ""'crk. Those agenc;;^ plants are very real and very valuable assets he], onring not to t'';e co pany in the sense of V\e company as a corporation, hut to the policy- h''lders cf those cc.ipanies- for hose "benefit they have been built up. The result of the operation of these agency plants is to bring in the ne^- business '■■jiich is to apply to the policyholders in th t the administration cost is less on a larger volume of business, and on account of the s-"ving of mortualitj'' due to tlie introduction of nev; lives. These agency crga,nizations have bern established only as the result of a great na,ny years of patient efforts. I do not kno.v" a single insurance man that ever held the theory that an a,gency plant jus : happened, 7"one happened in my experience in this country, and I think all the best insurance men -dll agree it has taken a great deal of tine and care to est 'ilish the plants ■■•vhich are nov-j in existence, and plants ,hich I sair ould be practically- destroyed hy the restrictions it is proposed to put on the expense account of section 98. 105. It v.-ci!la Toe an injustice to the agents of the corapraiies if hose agencjr plants were clisorgcuiised e.n6. disrupted. These :-i.en ha-r: spent years in this ousiness. It is t'.e only business for -fbich they are trained, and to have those plants "broken up v^culd te an injury to them, n^ould be an injury to the companies and their policyholders and would he an injury to this state just to the extent that it lessened t".e amount of insurance taken hy its citizens for t';.e pro- tection of their families. ?Ir . Chariaan, there is another feature of this question r/hich I Y^ia",. to mention, and I :ner.tion it, only as indicating the viei;; of rojQ.-:\y of the eldest and best trained insurance i-rien in this country, as to the practicrv.ality cr rather tlie irapractica^ility of the limitations in the proposed prevision - section 98, I a:.i entirely consiicus that if it seened to your G0j;ijnittea and to this legislature that the interests of the peo;plc of this state ould "best ho served hy the adoption cf any such provision as this under discussion that they vroulld concern th+eiris elves in the sli'-htest vrith 106 how it affected the borporations of othei- states. That is not the point, "but I say to you that in our opinion, and I wish to express rayself carefully and emphatically, the adoption of the proposed section 98 would lead to the withdrawal from the state of New York of those coiiipa,nies from outside the state who are doing solely a life insurance "business v/ithin the corders of this state. The judgment I think cf the officers of those companies is that rather than to attempt to comply with the pro- visions of section 98, or rather to permit their agency organizations established throughout the United .States to "be disrupted and broken up, as they would be if they attempted to comply with this provision, they would prefer to forego the pririlego of doi g business within the state. That, of course, v/ould very seriously affect the interests of many of those agents, -he represent these companies by their retirinr; from the state, and the occupation of these agents 'w'ould cease. Tliere is ancther phase of that subject and that is this, that practically all the 'ut-of-state companies T-:, BPJ-'pT/V' 107 do 'busine-'S ivi tliis state on Vr.e renewal general agencjr "basis. Their business within t^'e limits of t}-'.e state is conducted ■■'ith their policy/jolders through general agents. To these gener- 1 ag nts the polic^molder's family collects the death claim if he dies. The policyhailder goes to the general agent to have the papers prepared for any change of the "benef icia.rj'-, orin case he desires to get the cash surrender value of his policy if he is corapelled to s\irren- der. The interest of the policyholders in the out-of- state company are directly entrusted to t.he general agents of those companies in different sections of this state. To put it in figures so that ycu v/ill see to what extent the citizens of this state are inyolred I might spy that according to the last reports of the companies filed with the insurance department, their reports: for t?ie year ending Decem'ber ^Ist, 1905, the com- panies doing an ordinary husiness, I mean hy that not including the Indus trical policies due or outstanding in the State of Nevr Yoric, some eight hundred and sixty- 108 five thciisand policies or more tiian one loillion six hundred and fifty-one million of insurance. A'^out one-third of those policies, or more than one-third of those policies and just ahcut one -third of that insurance is carried in t.he companies of other states* To he exact, there are something over three hundred and ten thousand citizens in the State of I'few York who carr;/- their insurance in companies which a.re domiciled in other states. I do not assume for a moment that the committee had any idea in framing this proposed section 98 that it would result in injiiries to the companies or enforce such a situation which they could not promptly comply with and which would lead to their withdrawal from the state. I simply point to the fact that should they do so, the in- terests of those three hundred and ten thousand policyholders are practically left unprotected, and those poliC3'-holders are left to do husiness at long range with their companies. The agents, Vx. Chairman, raise further ohjections to this proposed new section 98, dn the ground that the limitation of renew 1 commissions proposed in it ^f^." ^ 1C9 mid Ta© an .injury .-^o -jbhe polTc^rliclders and to the company, As llr, McClintock has recently stated, one or two companies do business on the "basis of compensating their agents solely from the first year's premixun. The premiums ftft©r the first year are collected by salaried cashiers throughout the country, the expenses of collection being borne directly by the company through paying the salaries those cashiers and the cost of postage, etc., necessary to the collection of the premiums, the clerical hire and all other expenses attendant upon the collecticns, inclu: ing practically the mantenance of officers for that purpose. On the other hand practically al2 the other cornpanies in the United States do business on vrhat is known as the renewal commission general agency contract. On that basis they pay their agents or their general agents a lower first year commission and pay him certain renev/al conBTtissions for a period of years thereafter. Those renewal commissions are net only in the way of compensation to the agent but they are giren to and do actually cover the cost of administrating the busi- ness Ki and collecting the premium. From those commissions 110 tile ord-iiiary general agent pays all the postage, x>ays the cost of preparing premitun notices, the cost of mailing them, and pays the necessary clerical hire to take care of the bookkeeping and the collections, and many general agencies have a man xuider salary who does nothing but attend to the prompt collection of prenaiiims from parties who do not pay promptly, and unfortunately there is usually quite a large class of those people in any gen- eral agency. This proposed limitation of renewal in section ninety-eight would not accordingly satisfy either of the U'lO classes of companies. The first class now pays no renewal commission and it would either have to re-ad.just its met!{iod3 and pay its agents renewals up to the fou^rth year to be in accordance with that section, which would put it at a vast disadvantage as compared with the other companies. On the other hand these general agency companies which are now paying renewals running for more than :^ur years, under this provision would not hold them long, \ because at the end of the fourth year the renewal would not ezist and the agent would not get any c\-^mmission. 111. The company would not be able to call upon these people to collect those premiums because the a.c-ents would have no ffionej'' interests in it •; nd the;- ■'vould have to restrict their affairs and talce upon themselves directly the expense of collecting the premiums after the fourth polioj? year. The adoption of the provision as it stands Tvould ■v/ork inconvenience and hardship to both classes of com- panies, and vvould satisfy neither. There is another point in connection 7/ith the ques- tion of rene^Jvals and that is, in view of the great major- ity of companies, the best business which is bein-^, d©ne is that which is procured under rene";al commission csmtracts, and tiiat is on the around of its persistence and also to S.n extent on the ground that mortuary experience under it is even more farorable. Your committee, Mr. Chairman, has recommended the adoption of a standard form of policy. It mi^ht not mean the slighest relation between renewal commissions and a standard form of policy, but I st&nd here and say as an in- surance man that there is. The agent who is working per- manently in his own com;:.unity for one company on a renewal contract is ordinarily the tjrpe of agent who gives the best service, not only to his company but to hia policy hold- ers. The man who is working on a brokerage commis- ion is not tied up to any one individual company . He can pass on from one company to another without the slightest in which 1^ which he can properly be ';.en&.lizec' if he infringes upon the regulations of his company. Ee roams frcia this tovm to that tov;n and ver^r often misleads the policy-holders if he sees fit. The agent Viho is working for the conpany under a renev/al coatract that reneval m-^a is tied dov/n to that compan3' end observes the regulation of that company. He lives in one com..axniGy and eipects to do business there year after year and nccordin-irly transacts his business alon.;'; those lines which v/ill permit him to do business there ne.. t year. There is another point in connection \7ith renevyal cominission contracts also and that refers as well it mi'ht seem to the rene\7al oom ission, that the shortening of the period during v/hich it may be paid ',70uld affect the savln':^ to the companies and conseruently aia increase in return to their policyholders/ There is a point which should not be overlooked and that is the point of the continuance of service on iihe part of the agent and the cualitj; and efficiency of the service rihich comes from the ag'sat ^i','ho is working perme-nently for one company, who is trained in the ways of that company, and he devotes his en- tire time to wferMng not in this town and that, but in one 113 coiiimim.it;;, follc-'er -.vitli systematic v/ork. The cotopanj'' Tfhioli operates ■?n e rene'/val comir-ission basis "jB.ys less for its busine7:s in the first instance, and the rene'';.als are offset not onl;- by that fact but by the services renderocl by the general agent in the collection of premiums and tahin3 care of business and by the greater continuity of service and efficiency of its agencies' staff. It is not at all clear to nt' mind gentlemen that the state of IToTv Yoric is entirely justified in practicallj?- aictating to the companies, not onl;; of this but of other sta'tes, that the; shall do their business not only in this but in all other stales on a, plan v/hidi .as in my ijind the practical elimination of the general agency" renev/al contract The great majoritj/ of the companies transacting business in this conn^trcr, companies meny of y/hich have been conducted v;ith a great deal of care and economy and prudence, com- panies \"hich ]r_ave contributed nothing to the scandals which havelead to this hearing todajr, have followed that plan fer a great, great man;/ years. I think it must be assumed that the officers of thjse companies, many of them '.;ien who have hai. thirty amS. forty anc". some of thaa even fifty years' erperienco in the business of life insurance, have the abil- ity to Jtidge for their ovrn com.panies and for their polic^r- taking into viei;v holders as to what is the best method of com ensating agents- 114 tliB-t tlie commission paid the agent not onlj? comgens&tes th'^ a'^cent in case of tlie re::e'^.'&l contract but also loo'cs after tlie business is orifd.naliy vrritten. ■Ve have another point, viiich is that the ;)roposecl limitation of agency ey-penses T7ould be too radical, and tliat there is absolutely no ■- orhable plan under the pro- vision as it now stands ]j^7 which the comphns/ would certain- ly^ GOiT^pany with tlie Is.v;. !.!r. L!cClintocl: has d'-alt v/ith that feature of the proposed 1oa7 to some ei.tent, but I •.••.'ish to ,':o a little further, if I :m.-37^ be -.•ermitted, into ib. A great many people in tloe last fe'v days have asked me v;li-'t section 98 meant. I hope ev' rj^ one here Icnov/Sj but there may be a dience, :Ir. Chaiiman, that some of them, con'-", clearly understand it, so I am bOing to see if I .can ■i>>§ll them. Section 98 provides that "no life insurance cor- poration doinc' business in this sta-'.e slisll in any calendar jT'ear after the yet-.r 1906 e:.:pend or become lii-ble for or per- mit any person, fir. or corporation to ei^rpend on its behalf or under any agreement Y/ith it for commissions on first year premiums or for salaries, agencv es^enses or other e;poense3 of any sort in connection r;ith or attributable to the ob- taining of new insurance or the insurance of nev^ policies in said year, an amount in excess of the total mar^^ins of all premiums for the first i^e^-x of the in stir ance. received 113. in ss.ici calendar year" as asccrtaineo. by tlie proviS-.ons of section 84 of this act. It furtlier provides tliat no com- pensation sliill be ■■)cuc. the ■■•, -ont after the fourth renev;- al jremiura and that the rener/als shall be iimitea to 7 l/2';i of tlie life rate. To deal -.ath -tiiis section from the practical stand- point of an insurance arent and doal ■.:"ith it from the standpoint of collars and cents let "le say that takin-f the hi 'hest ordinary life rate cMrged in this country? by any conpanj'- the totsl e:. ponse i^rovision per uiousand dol- lars of insurance, irrespective of plant ■.•'oiild amount - I am speahin^ novv of the first year, the sum v/hich could be spent the first ^^ear, for instance, v/ould amount to ,17.82. O^-it of this .''iv.SS must first come the nedical fee v;hich has ceen paid for e; aninin.-; the risk, sxic. ripht there I vlsh to indicate that out of the expense fund created froixi these premiums must also come the med- ical fees '.Thicl:! are paic" for e-vamininr; risks ^"/hicL are not accepted and for ezaminin"; risks v^hich are accepted on policies ho-/evcr vrliich are not ta::en and rhich there- fore maJie no contribution v;hatevcr to the fund. There are agency e:;.:penses v?hich 4'^st be met. (Ap lause). Ther^ then cones the cost of tlie inspect in r:: the risk. It is the V'raGtice today of practically all companies ■with the bene- not to wait until after a death claim occurs to ctiarrel- lis ficiary alDOut whether misreprcserxtations were made at the time the insii.ranc g v/as ai:;;;liod for, but to take an in- S]3ection of e-'-ery api~licant at ox ah out the time of the issuance of the 2DCxlcy so that if there has te;^n any sub- stantial misrepresentation of material facts those facts canbe ascertainec and the poJ. icy -dealt v/ith v.hile the pol- icyholdergis here to tailr about it. The cost of those inspections must ne:- t come out of this item of f;i7.82. Then must come the v/hole cost of a^-^encj?" adminis fcration expenses, v/hich includrs the reii-t of branch offices, cler- ical hire in branch offices, posts^ge, ad'vertising, the preparation of and distribution of cir-:ulars and other printed literature tnd erpressage and freight 'in supplies even, are all items vzhich go to mahe up a-^ency c per^eS) including agency supervision ^nd travel and that portion of home office salaries which are properly chargeable to agency account. There are other items to come out of the fund, lnc5->idin.g the fees paid to the state or to the cities in some of the states for licenses for agents, and the taxes paid to the various stales en first year premi'ims. llr. i.IcGlintGG>; ha^^ call-.ed c-ttention to one feet'v.re of this tax in connection with this xoading, and that is, while- the loading on a ten year endov/ment does not differ ill dollars and oeii'zs from, the loading on an ordinary, life policy. If you take a life premium of tkir^jy d--^llars, the (• 5! ^^■■J^flf 117. If you take the same tax on $1,000 of insurance on the ten year endo-wment form v/ith a premium of ^)100 the tax amounts to tv70 dcllars and a half, and that has to come out of the loading on this premium. There is another item of expense which must c«me out of the expense fund provided from the new premium, according to the literal and strict interpretation which must be placed upon the words of this proposed section 98. This provides tJaat any expense of any sort in connection with or attribut- able to the obtaining of ne?v insurance or the issxiance of neviT policies must cone out of the first year loading. That would certainly include the salaries of the medical of- ficersat the home office and the medical directors and also the salaries of the clerks employed in the home of f ice - It wjruld also include the printinp; of the policy forms upon Y/hiai the business was written. That brinr^s me to a consideration of what the ■•income of til© avera^cJ life insurance agent amounts to. Assemblyman Prentice: Can I interrupt you. Mr. Johnson: Cei"tainly, llr- Prentice. Assemblj-man "f'rentice: Hc^v would the expense of inspec- tions in regard to dnath claims payable be attributable in 118. any v/ay to ne\.' "business? V.T, rolmson; Yof- misurx..er stood me, T.'r. ?rentioe. I said tiis.t the companies too.c'.y inspect all applicants at the tiiue they a: he Epplicetion for insurance in order to ascet.in v;hether ther^' has been a substitution before the medical eiir,miner hJio v;hether the man's habits i;re p.ood. All csF,es are inspected nov/. You roi he an application nov/ and vrithin a v/eek sono co;apany h s a report upon your life, and that is an e.. qense thc't has to be "borno as part of this loadin;-. In the testi;.;ony -piven before your committee, V.r. Ch;-irmi.n, hy an insurance ..an of lon,'j esperience who is now no lon;;,'er living-, he staged I believe that the income of the avera'^;e life insurance a^ent in the United States dio not e;-.ceco on the present basis :'-8(3(2 per annum. You and I both lrno-7 that there arc Qien v>;ho have >.ieen very success f^il, men who have ..ad much assistance from the com- pany vvho have written a very lar^-^e business and v/ho have had a :;reat de>l more money thija that, but taking the avera^'o a^ent, the a^cnt I represent tnd the agent j/ou are de&lin^ \7ith --hen you pass lav;s restricting the e-.- pense, it is not to ':e believed that their averafje in- come e;.;ceeds one thousc-nd dollars a year under the com- missions \/hich are now obtainable from the companies in this coimti^.'. T^ose commissions today range from 40':', I icitin? a-:::snt to seventy- five per mi:':ht say, pei h;/ps, at the lo'vest commission to the sol- 119 /Cent "at the lii";laest. Ths.t there have been a fe^v case.^ Vihore ceitaia oom^oanies in oe.tain sections have paid a hif^her com.-ission for the tine tein'-, that has not been generally'', I^r. Chairman, thro"a.~hout the United States. There are coin^:anios in the Gi'q'/ of I'Te'-' Yorh, ^'^iiero I cciae from, who at certain seasons of the year have paid the solicit inr a-;ent more than 75 per cent. The;; have paid as hijh as 85 ,'e; cent, but at the time that the"- were paz-inr: 85 -ler cent, if yoii v;ent to Fc'.v Eaven, Conn- ecticut, which is only 65 miles from Fev/ York, you Vvould find there the comnission was 15 per cent, lov/er. 'Then V7e investigate the comiiiissions psdd in Hew Yoek, or speaking: generally throu^-hout the country, by tho com- panies, the com;.. is 3 ions to the soliciting: i-.gents, the^- probably ran£:e frsm 40 per cent, at the iCTvvest, on a life plan, to 75 per cent, at the hirhest, and a ,2'reat many companies on their endowment jilans have graded their Kom;jissions to make it much less than that. On that basis testi'iionj/ lis, 3 "been r^iven to the effect that the income of the average agent amounts to e,bout $800 per annum. 7,'hile sitting here this Efsx afternoon I have made a f&w fio'ures in connection vath this section 98. It las e en almost ir.possible for anj insurance man to determine •■■hat commission coiild be p^id under thds unworkable for this rr.ason section, ""e ref/ard the section as unv/orkaDle , ahsolutely- 120 Sens.tor Aj-rnstron;;: (Int'':. ) '..iien j-ou can't determine that hov; csn you S}oeal-: intolligGntl^? of it? VLt. Jolmson: If you v;ill allcv/ ue ,to finish my ar- jrument I think I can erplf.in that. There are a ?;reat r-.&n;.* a/jents in the room, ano. the:' are very good. I am' goi:a~ to cover the v;hole suoject, and as I believe no others are to te he .i.rd on that subject, I wotild like riexmiesicn to covei' it all. A company 'starts oiit co .ret ne"" husiness ne:.t year and it lias to ^et it as a fixed thing in advance, at fixed a:ency chja.rj;es, as you mi,:;rht call them. It has its offices in various staves throu2'Jiout il'ie land. It has its eiipenses for clerical hire, and it iia.s its adver.;AS- in,;; ez'oenses, anf- it sets do^n end mahes up its budpo'c, as you mi;:vht call it, in the beginning.* of the year, and determine ',;hat those fiiced agencj'- char,^-es are. It es- timates that it is ,o;oin2: to thirtj' million dollars of "business each yei^r, and it figures out the avcra-je premium and uhat its e:n:>ense fund ^^dli be, and it finci.s out v/lie, t proportion of the fund can go for those fi:ced cliarges, and perhaps fcrtjr, or thirty- five, or thirty por cent, i^ left, and it agrees to pa 3;- that much to the a':ent It lias to make that agreement v/ith its a.-^ent in advaBoo. lihea you. employ an apent t.nd send hi:u out to the ?ta .e of Coloraclo to trarif-act ju:^ine33. he v/auts to laio?/ "7hat jov. are f^olivf? to "oay h''./"/. ■'her. he '?;o es oierc . If the busijess durin.r^ uhe year dGeG.c'"C come up to the business est! ac-^f, the £Lse.4._ chai-^-es bear a pieabsr proportion to the e.Tce.Uc-.-^ 121. than actually oollectcd, because under this proposed sec- tion the company would have no mon^'- to e7-'pend for a£ this hill equalled 11,171,000, and it is then added that it thus appears that a provision which woi^ld have made these mortality gains available for the expenses of new business In 1904 woiild have more than covered the eseess of expenditur,Qs over the firRt yepr's ^-largins. In the -first place, as Mr. Mo Clint oel^ h s pointed out, then you taKe a doxen companues, or when you taKe ■^orty companies and have them report to you their agency expenses, each company raaKes up its expenses on a dif- ferent basis. Some include merely, and properly so, the agency expenses, such as the conT'lsslon to agents, the ^maintenance of offices and the maintaining of those of-Piees, and otherB Include, as they properly sho'ld, and as the provisions of this bill should require, advertisig primting, salaries of many home office employees and off i- cers and llcensesand taxes on new premiums and other items. I say to you, without hesitation, that the figures upon which this exrense Is made up are not accurate, in that 126 they do not cover the flTBt year's agency exoenses of the companies named, and. I believe. If your comr-lttee desir- ed fuj'ther infornatlon on that subject, and If they sought from there companies a statc'-ent of their actual expenses In the year 1904, based upon the provisions of this hill , ?nd covering the Items xThlch this bin would cover, that the Com-^lttee would get some V' ry excellent Infornatlon along these lines, indl &'--> ting that these li-KJUx figures are not correct^ There Is a second povnt In con'^ectlon wl + h these ■Plgures, namely that In com.plllng this state^-v^nt the com panles are glvnn credit In the first place for the gres.c, est aggregate loadings on the premulms collected In 1904 on the old plan and they are then given credit for the mortality savings on the n^nr plan, and by wording both ends against the middle thpre is an Indlctalon on the surfacr of the f"lgures that the conpanles actually erme In 1904 within the erpense provision set up by section 98 « As a matter of fact the nev/ law provides for a nodifled form of loading,, and If these sane companieg,, on these same figures, say nothing of the p<-^lnt first made, that the figures don't fullt express their agency expenses, as tested by the old standard a;: togetherit would be seen they exceeded their expense loadings, and If tested by the new standard altogether, It would llhe- wise be seen that they had exceeded their expense load- ings. This may be done by judging them partly on 4^^e on one standard and partly on the other standard. 127 There Is another Item here vj-hlch s^ems to be an error in these figures. In r?^Klng uj) the figures show- ing In dollars and cents to what extemt these three com- panies exce^'ded their loadings on the old basis In 1904, t-ey aroglvpn credit, In accordance wjth the text of this report, '//1th one-half of the -^Irst y^-r'a mortal- ity gains,. They are then err-' dl ted on the other hand, In accordance with the text of the r port with the mor- tality gains for the first five years by the select and ultlrnate standard under the nev law. If the text of fne report is correct, th^-y have at least been given c redlt for one-half of the first year's mortality gains , Mr Chairman, a sum equalling ?''355,360, so that if that error Is in the figures, as it appears to bf-' in the text the figures upon Y/hlch your committee has its rftcom- en- aationy le-'-iving out the two other nuesticns referred to the- figures don't prove what they are attempting to prove „ I refer to this with a great deal of emphasis be- cause there seems, from reading this report, that it Is on that exhibit furnished ]-»y these figures that your corarlttee justifies the standard of expenses as set up in section 98, the theory being, I presurue, that if three companlos in this land succeeded ^n doing business to that standard that ali che coiroanles could adjust their standard to that ,--!\3-indai-d, i.'vl ■::hat standard would be a ■t'^-ujfl u l :■ i^^.e c(W...anic^ anu to the policy holdor^.. A" I ha.c po'i.T.L^'i ^ui , th«;; coiDpanies did not do v.nc l-.UH!iiie;jo vi i,;:iii 1, :iat otandard, bat assuming that they had sujce^-c^.cu. in ^''f^f^f:- 12S. 3USt ccning within that standard It would be no proper stana^ird t- anply, fr^t forthwlthj vvi fnin nine rnon-Lhs all OD'xiiry p.ies m tMs counbry nuRt adopt thst standr:rd, but as a PU'.rror of fact, thc-y did not cciae witnj.ii the standard for Lne reca3C;n^ ■■.ha't I have Jt'.So pointed o\it c It speiutt to ne ; Mr„ ChaiiTCan, that the sole argu- ment for the adoption of section 98 of this repori- faJlS and that it can he shown that ni o o; . :-•.]? --ny in this country, In the very h st year, in the :rioat e'.Torri.oiricsl year it has, was ahlo to do business at the lowest expfrnce, who succeeded in getting the ir^rgest p^ -non a-r, o-p business at the lowest cost., that noi: o^-c: o--'' the-p. in 1904 conp] led with the sta^-i'ard bet up in this I'^xw , it wa.i Id se'^nT. as if the staiU'-rd was a.iuogct^er too string''' nt to he a|)plled to all cc^rpanles of the lrnd„ (Applause) SENATOR AiiMCTKOlKi: I trust Mr. Johnson, that you will not thin,:: I ai:. t-r/lng to trip you in ay way, or t5?ap you, I only v':'0"' c to get the basis on which j'"ou nads eo'.'''' o^''' "^c^ur ?"", gir'"« . You. ^ade the si'.aterc-ji t that you h';0 no!, h'--'.^ -: 'h.e t^ -Ofipu/'.e thv' ui:^n c.r, fig.u'os Whcj]: ^f':r./l he ir-po.e;! -^y i '~.e .uev/ prov ; ^;. fi is of iaw^ if p'-/i. Dt foL-'-'O V'jO V uuiiers ".r-ind your:.-'nv? Or ■ii s t/at a '■'i:-.y.:.6-^ rGtav^e: .ig? }n „ ■■'■u^-'''g-'jK ¥- , I S'ld; I do no"' ]r ow any com- pany i\ ..''■*■'" errs i;h:) ; re a'^le to i,Kj..' ii- o^dv^nce &::act-iy what u oiti.'l.i/t- ; >.n '.h>.-y -c.o'i..C u-^y f'^r '-e,/ ^L'-^j/iOdS , ^c.';-'.use they a.;;-, ahie to t'-l i. t::t. i-i-r.-u-n t of >^usines3 trey could c/rite next year, a^-a eoiiSecjueni,ly 1S9 are unable to judge of +re ratio the •f^'ixed agercj chxarges would bear to the ar'iount collected and what would be left for commissions, BENATOR ARMSTRONG: Did you compute what could be paid an agent under tne new plan, if the company were to pay it out of the loadings a-nd the mortality gains as well? 1!R. JOHNSON: It would vary according to my best inform.ation. I should say — t.^^e general agent must m.aKe some of t^^e four year r<-newala — but I should not suppose tl^at it ififOT^ld not exceed w th the very best com.pany 40 -■'■ex cent. I have been told bt some of" the leading act- uaries in this com.-.jany that they wovld not be llllng under tbe provisions of this law, to "»ake agancy eon- tracts fr,T mote than 25 or 30 per C'.^nt at the n.aximujn. SENATOR AR^^STr^ONG: Th^^t comput?'.tion w^-." made on t the present 'haals of loading, I pr f^iv.me. MR. JOHNSON: It wpw, and I W!^.nt to s«y right here and publicly, that none of tbe compaies af -fleeted by this proposed 1^'W thought it was the desire o-f yoiir committee- to increase the direct cost of insurance to the policy holders as tbe result of the laws which you are reeomr- T^-endlng to tbe legislature. If as a result of these recnmT-'endatlons there Is an ncrease In the loadings it is an increase in the direct cost of the insurpnce a^^d the premium cbarged ""he policyholder 150. SEMTOR AWSTPOFa: Would you sey, 8.s did Mr. Mc Clln+.ocK., +.:"iOt tre average pf.fr'^-frate loa Ing under tills new provisions could he so adjusted trat virile It ■'•Iglnt Incr^^'aso the r:.Te^iv.m on son.o form of policies, the net rpfli^lt i-'ould he the "^rinT'lng o-p insurpnce to a cheaper cost ibo the policyholder? MR. JOHNSON: I do not s.'iy that, No. SENATOR AR'^STRONG: Will you tell w/- ^Cu ruch you regard as a fair compensation -f^or a a;"e'"t for procuring a thousand dollars worth of insu-'nce on an ordlnadlJ life at the age of forty? }[R Johnson: You arr- aslcing a very dif -Plcp.lt question. It depends altog-^ther on the voli:!me of busi- ness an af-fnt can do in the course of a year. He has to live t/vvelve months, and if you tc.^e the average araount of life insur-'^nce written hy the average a^'ent during the course of a ye^r, I say th^'t on the average fom of unsuranc I they have lourchased in the past, under more f • vorahie conditions, because of advertising and all that that than c^n possibly exist und'-r this law, they could not live under the r-- trlctlons of s'Ctlon 93 ( applause ) 131. SENATOR, APJfSTRn>ia: Arr- yo^-' a pprieral or a sioeclal a£ent? }fr JOHNSON: General. SENATOR SR>^STRO0a: I wa^t to s^y to you tlnat we are flad yo"u .ha e your friends here and we are £:i?^d to spe that they are 'ileased, hut rr.ere noise Is ^^ot poung to affect this question. MR. JOHNSON: Will you teTl re If you are a genera apent, wh-P^t is your coi^^.lssion, or w^at is r^ald hy your company on a •^housa--d lollars v7orth o-^ Insur ene on an ordinary life at the a.-e --f forty? Mutual MR. JOHNSON: Well, the rhoenlx/Llfe wi6h -/hlch I f-^ connected as its general a.ent, has Laid con- iss Ions up to ■f'lfty-five p.-r Ct-rt o-f the prf^rl^jn. SENATOR ART'^STPONG: How --.any renewals are allowed. MR, JOHNSON: Tl^e corrxPny's general agents' contract I i^<\lleve, is a rene al contr^-ct under which "^he x^^e.^Pls contjriue as "long as the afent is in the sp-rvlee o-^ t>-o o co'^ any and for as long ss again. In otn'--r ?/or^s, if an •cent serves five ye rs ond dies his estate would col- lect -five nore renevmls. Those reni-wals run ?it sevan 152. and one-'nalf p'-r cent while the af.ent Is living and with the company, hut not at 7 l/25§ for riore than ten yer-rs. 'If the agent is still in the sevice at the end of ten years, a renewal will not oontiJinue at the end of that tl!ne. If the agent is still in the service at the end of ten years a renewal will not continue beyond that. The renewal drops from seven and one half to five percent; if the apent leaves the service of the company hy depth or otheriffise the renewal comnisslon is less two percent for the cost of collecting. That commls-lon, Mr Chairman, on the r'^newal usually paid the agent leaves is to cover the cost of collection. When the agent leaves the company's service, if he is receiving five per cent, it i"^-'ediately drops to three, so that tv7o per cent wo'-'ld he the cost of colleetlon. SENATOR ARMSTRONG: I am a^Klng for information and not for the purpoBe of trapping you Mr. Johnson, Is ther^ coupled with that percentage allowance for expenses or bonuses or otherwise? MR. JOHNSON: The general agency contr^^cts of the Phoenix are identical as I understand it throughout 133. + r,(- united States., I am only an agent In one state. I cannot answer tJ'at positively, but that 4s ry Informa- tion. SENATOR ARMSTRONG: Tell me ahout tour own. Iffi JoHNSON: The general agent's contracts are Iden tlcal. The only difference In v/Mch trey are not Identl c?'l is In the allowa^.cesmade for expenses. This differs wjth the locality and size of the agent's territory and other expenses Incident to the niBlnta nlng of agents. SENATOR ZRMSTRONG: I do not want to pry Into any affairs that you consider confldentall, hut are you at liberty to tell me what you get under your contract? MR, JOHNSON: I do not hlnK, Mr. Chalrnan, that Is really a proper question. SENATOR ARMSTRONG: All right, I can ctocelve why It mlrht not be. You have not said anything about the dropping as we have of bonuses, prizes and awards, MR. JOHNSON: I do not obje.:.t to that In the sllfe est, SENA TOR, ARMSTRONG: You think af.ents generally 134. ap:.irove of f^^pA, part of it, m JOHNSON: I do not thlnK they have amounted to very nuch. I was tn the of floe of an agent about a ■week or ten d- ys ago r.nd he told ne his coinpa.ny gav© him v/allats, and he opened up his drawer a.nd he showed m.e a number of wallets. SENATOR ARMSTRONa: I do not me? v. that. AfR. JOHNSON: Within the p^st five ye^rs co^pari tively few o-f tbe conpanles and none of the better corparles hrve guven an overv/ritlng a- t)t dsslon for a volume of T-^usiness at the end of tre ye.r, If an agent did so much business. Thf-re '-re companies which have what they c' 11 an agency contest and tbey put up a cup and tney engr-f^ve the nane o-f the agent upon It who writes tbe greatest amount of business In the United States, but be has to win it tbree times to get it. In the better class of cor.panles the giving of an extra oomT?;isslon, t..ey tell me, has ppf^ete^iy practically ceased, I hardly Knov? tf any of them tod«y or have for f^lve ye'rs. 135. MR JOHNSON: Sestlon 98 s'-.ys no company srall spend nore -for s-"lary, agency expenses, or other expenses of h y sort connected with tre obtaining of new >-'Usiness pxcept there loodlngR. I do no+ ^-hlnX they could do so without deceiving the s + ^Lte ^--.^d the ineur-^-ice department under this law. I do not think an insurance nanage-ent would do so under the 77ords of this statutes. That language of" tMs Rtatuto, ap prepared, is r^e-'nt to convey tTfU every ex expense In conneotion .vl + h the new business shall come from loa lings, hut I do not think you v-7ouid approve of the ranfge ent o-p ay compfiny that charged tha t off as sal^try, SKNATOP ARMSTRONG : You r'.-ve herrd Mr. MGClincocX SRy tb + in apportioning the expense it wps inposf^lble to draw a strict line, MR. JOHNSON. Thst is true bvt you would wsnt to exercise it in £ ood faith. SENi'TOR ARMST-ONG: Do you consider the 55^ com- '•'Ission, whlcv-' is ordinarily pfiid on life i^isur-rce policy by your com any as rodinaEy, or HfR, JOHNSON: We can answer that without anyone ob;jectlng to quoting figures by giving conrrilsslons. "Senator APHSTHONG: Thp pvll nee before us was that on ordinary life Insuranoe policies the coimlsslon was sometimes fifty and that it went as^ law as twenty- five or thirty per cent and t^at that sum was paid by a certain company and indeed In the o?se of the Connec- ticut, Mutual the comr^lSRlon is levss than that* JfR. JOHNSON: I do not Know of any that go below forty per cent, Th e Mutual bebeflt pays its soliciting agents forty. Presu^iablF Its general agent gets forty- five to fifty and on renewals eves' even more. I was quoting general agents eoranission when I spoke of fifty- five per cent. I would say t/at fifty_J*lve per cent was below r:^ther than above the average first-year »8 commission paid by the companies for new business, SENATOR ARMSTRONG: Qs.n you or any of your frlnd tell me what the Co^nnectieut Mvtual People would give for an ordinary life policy for a man forty ye'^-^s of age? MR. JOHNSON: I hnve t-orfotten the figures. SENA TOR, ARMSTRONG: It Is aroung ten or eleven dollars I think. 137. 1{R. JOHNSON: Some+.nirg like that. SENATOR ARMSTRONG: I tM^lc If It at the efe of •'"orty, life prenium is trirty-t«o dollars; forty per cent of t;at is nearly thirteen d-aiare. SENATOR ARMSTRONG: Then it is between thirty- five or thirty-seven or thirty-eight per cent? m JOHNSON: Yes Sir. SENATOR ARMSTRONG: If our pl^^n allows psynient to the agent of ^eiy forty per cent of the premium, would you s'y that it in iPproctlca>->le -ind in.sufflcient oortipensfltlon yet? MR. JOHNOSN: I wc^l'l not say f-r-t it wa« an in- praotlcf'ble and utterly Insurflclent compensation pro- vided the companies were free to pay renevval con-lsslons hut they are not so under this bill. SENATOR ARMSTRONG: If our plan contemplates paymeit of a percentage of a first pren^.ium on the ordinary life policy of forty per co^t, pnd this question of re- nev/als crn be adjusted s*^^ tlsfact-Tyily ; from the agent's standpoint, will any enormouj* hardship r suit? 13fl m. J^HNS'-N: I should ;judge not provided a reasonable amount, o'*" Irifsijr^nce covld he written up In futixre by the better Class of agents, ,lf ti-ey oo^^ld write up a reasonable amount of insursnce in future on a firty per cent basis with adequate renewal comnis«ions, it would not >>e a hardship, SENAT'-R ARMSTRrwa: What do you consider inade- quate renewal coronlBslons? MH« J''HNS'-N: Some coiTipanles pay throughout the length of the agent's service, sorae pay indefinitely for fourteen or nineteen years, SENATOR ARMSTH'-NG: I an not trying to find out what some of the compainies do, we rave already ler^rmed the 'coiTi' anies ' views. But we have not had a he^irt to heart talK>ffith any agent as yet, so we would like you now to tell us what you, as a agent, thinX is an adequate renewal conirri.iSRlon. MR, Jf"HNS''N: ■• If you get the first ye-r'a comrrls- slon of forty per cent, I think the cornpany should be left to pay the renewal coranisaion as they saw fit to adjust it with their loadings; some might pay higher coinmisaions. 139 for a short term while others would pay a lower comnla- slon for a longer term, day, a comnlsslon for fifteen yeprsggjj^T^R APMSITO^'NG: You Know that It la customary habit of the agents to realize Immediately on commis- sions due them.? )m. J"HNS'--N: That Is not the habit of the compan- ies domiciled outside the state of New York. I think, however, If you had not net the general agents of the Connecticut Mutual, or the Northwesterm or the Massauch- uaetts Mutual, or If you had obtained the figures of these others, you would find their renewals unmortgaged, SENAT'^'R ARMSTRONG: You do not know of any ro ason why an agent with a contract for renewals would not discount that If he could find someone willing to ad- vance money on It. ASSEMBLYMAN C«X : Eo you think advance should be prohibited? MR. J'HNS'N: That Is a broad question. The asking of advance to the extent It has been done In the past by some companies Is certainly extravagance and wasteful. On the other hand, take a youngman, you have got to 140 educate him, you have got to train him In the business and devftlope him and malce him Into an agent; and when you .>-.ave done t^at it wor^d ^e Impossible to em^-jloy him unless you gave him a salary for two or three we^^Ks or a nonth, until he could work up an acquaintance and get a policy fi>om -someone of you gentlemen f"or Instance. SENATOR ARMSTRONG: Mr. Johnson, you did not tel v;^at rrte of rr-newala would be sti fair for a fifteen ye.'ir period, say MR. JOHNSON: When I yald the corapanywai Id be left to pay renewals within their loadings, by that I Tnft.-^nt the Now YorX Life, for Instance, pays fifty per cent the -^irst y;-:ar, the second ye'-^r, f^^enty per cent and then ccraparltl€ly llt^.le after that. That twenty per c^'rt +,he r^t'cond yerr I'^i within the loadings. SENATOR ARMSTRONG: We do not care what the New Yotk Life does particularly, what we want to lern is, what do you thlrK of it? MR. JOHNSON: I tMnk the policy of determining in advance what a company n'r.all spend -ror ten yerrs on 14a. comr-lRslons is B^j^^figwrong. SENATOR ARMSTRONG: I am anKlng you Wrat you thlfeK if! » r'"- a a enable renewal conr'lB.-iion for a fifteen year period. MR. JOHNSON: Sevf=n anl one-half per cent, SENATOR ARMSTRONG: You are farlllar with the Connecticut Mutual 's plan, apaln referring to then. MR. JOHNSON;! am notentirely faniliar with the ra« rewal r^tif the Con-^eeticut Mutual. SENATOR ARMSTRONG: The renewal plan as I re- neiTiher it mys four fifteenths of the flsfet year's corr'ission for the second ' -nd the third years; three- fiftfjenths o-*^ t'.-^e first ye?ii's comlssion for t^e next three yeats; tv/o-f ifteenths for the next four years; and tivo-fifteenths for that means also the two per cent connetlon fee. MR. JOHNS N, I understand fx- renewal contrasts o of the •:^Conrectlcut Mutaul nhen the agent dJres or leaves their service his i^^tc-'rest teiTinates. The new agent wJbo copies find ta^es tl-at afjf-ncy taKes up that worX, 142. then thpy krc In position to pay Mm for renewals on tha t ^URi "ess, an^i It will give him an adequate Income, I thlnK 1+. Is genorally rr-fr^-rdod trat vrhlle the agents of t]-at GO'^pany -lo riot do a tr.-'-->f-ndous r??TOunt of new husl- ness, that p'eneral agencies fvc good things to get in that their r newal account Is Ir^ edlately given hy the ccnpany to the ne. rT-n so tliat he hr.n an f-'dequate Incor-e to ^^e-Hew R&H vvotK on. If you ta'-fe a conipM'-.y t]*a*- continue? to pay to tte old agents or to his family i^^ he has died these renewal fees, then tl-a*- com^pf^^y is rot in the position to employ agents t'-^at the Connecticut MutBul Is in. You pre taKlif an old company now with a very high reputation, whose agents fin it -.'T'sy tp g^t a reasonable amoutn of ^vsl- nesa find who hsve a certain am.ount If renev/al business t turned ov^^r to them with the agancy. SENATOR ARMSTRONG- If we -aiow a forty per cenfi Initial commission ""-nd a seven and half rene^yal comnls- Rlon, the renewal commisslnn extending -^or t^lfteen yerrs that would be an aggregate eom.^lsplon of one hundred a'^d flfiy-tvo per cent -^ Irnt premium seven and 145 I half times fifteen equals one hundred and twelve and a half, jnd the forty per cent added to that makes it one hundred and fifty-two and a half per cent, J.IR. JOHNSON: Ehat is not only for insurance, but for the }OSt of collecting also* SENATOR ARMSTRONG: Is there any real necessity for con- ilnuing a renewal coLUiiission for the pur-pose of collecting sOLniiisslons after the period of "unusual lapses" is passed? Itr. Johnson: There is this necessity. A company must jontinue the ooLiLiiission to the agent and make it possible for I general agent to "be able to talk for fifteen or twenty mln-- ites to the man coming in and wanting some change in his poli- >y; or comes in and says that he woui:. like to have the thing ?enewod, "but v/ill not have the money for sixty days; then the igent frequently draws his check and pays the preulum and col~ Leota later from the policyholders. So I say that in paying ittentlon to him the agent is entitled to some compensation; md if you discontinue the absolute inteiost of the agent in ihat class of business j who will attend to it; some one las got to take care of it» 144, Elioso policyholders are asking you for favors all the time, SENAT3R ARMSTEeNG: Did you hear Mr. McOllntock say that in every instance where premiums were paid wlthou.t the assist- moe of the general agent, the percentage of payments is tetter? MR, JOTHNseN: I heard llr. HcOlintock say that, and I know 10 is an expert in the business, "but I "believe I can say fairly without criticism that the managers of the oldest and lost conservative companies in the country, the great ma;jority Df them, all but a hn.lf a dozen of the Ai'ierican companies Tiio have Watched the working of this plan, are firmly con- rlnced that the hqzXxhs interests of the jjHttEf^JiHXiisz company ce best subserved and the interest of the policyholder best Jrotocted and the cost to the policyholder is at least as low, md perhaps less on the renewal plan than on the brokerage ?lan. You must bear in nind one thing: if you tale a company paying fifty per cent with renewals and another paying eighty percent without renewals and under no obligation to pay renewals that the renewal company is saved 145 not only thirty per cent of tlie first year's premium 'out it Is saved thirty pei cent on all policies tl:at lapse in the flret three years; and that is the period heaviest lapses. SEIJATOR iLRMSTRONG: That is the evidence given 'oefore the coLi.ission that that was the period of greatest lap^e, the period dixcing the last five years; and after that it was nornal. Do you agree with that, Hr, Johnson? MR, JOHNSON: I do; I think that experience irili prove it. SBNATUR ARMSTRONG: That was the occasion of our limiting of renewals to the iour years succeeding the first. MR. JOIINSOn: If you do that can the agent get adequate .compensation for the v/oik he does? work which is of value to the policyholder, to the company and to the state. Can you pay anything to attract the clean upright at^ent to this 3usiness, to do it squai'ely? Can you ask hiin to coi'ie to the jorvlce of the insiirance "buDiness and do the best class of work, 146 and to pay tlioir men and train &iid odtusato them unless you are in position to -luy lilm 'v.'cll for do in-:,; it? Dealing sii-r;;ly witli individuals: I cnplcy many men at almost the same tirst yo>.r's commission v'iiich I first receive, with re- nc-.."c.ls v.\' fivo or seven per cent for the first five years. 3TA'ri:0V. '-.K'.^.TT.Ql'-: '^v should you not receive a salary? ■ h" should ■s-.n;' commission be ^aid instead of salaries to a"ents? !IR. JO'r;*oC:': 3y paying' salaries you are thon tiirning the business of the American companies over to a basis on \7hich only two of the American companies now do business, I t!.inl" it is rcasona-.le to sa^^ w^ien 3'OU taho these officers of these co:.i j.-.nies, with their o:;poricnce c:'tonr;.in'_ over many ■"e...rs, and vuiat that e:j:"!orienco may have tau'ht them, I think it is reasDnc^ble to concluc'o that the best './ay to r,et results in the insurance business was not to do it by salaries but on a co.xiission basis. If his pro3pcrit3'' depends upon his pcrson-al activit;^ you ^'ill find the results are better than if a man had tjireo or 147 four Irkfflisand dollars per yoar and that Is the limit paid in salaries. SENATOR ARMSTRONG: That applies to the g^eneral agent as well as the solicitor. SENATOR GRADY: It seems to be assumed that ^^-ou regard section 98 as providing for the payi/ient of forty per cent to the agent. MR. JOHNSON: It is not that I assuixie forty per cent was to be paidi I have received that view froLi.one actuary and only ono, and one not having particular experience in conduct- ing the agency end of the company. The other actuaries say ririth one voice that they r/ouid not "oe willing' to tal'^e con- tracts under forty per cent. SENATOR GRADY: It has been sugv„ested as low as twenty or tv/enty-fivo. Did I understand you to say that? MR. JOHNSON: I have been told that. You can see that what coim-ilssion the company could pay would depend upon the volume of compensation to be paid, because the coimiission comes from the loading fixed by this plan; and I iffo not think there is any man in this f,'rf''W^''W/:-vr7'. V 148 chSQiiber, or amnf/hore else for that iii,atter, who can tell what tho present conditions of life insm'ance will have on the New York life or the Mutual, or the Connecticut Life. No one living can tell v/hat would result in the reduction of coiiu-nisslons such as is proposed here, •ne company might put it at forty or thirty-fivo, and another may put it at t?/enty or twenty~five, I do not believe anyone could tell what effect that would have on the volume of business to be done next year. ASSEMBLYl-lAN 03X: As I understand the position of your- self and the agents, it is that there is no opportunity to save in the cost of life insurance as far as agents' compensa^ tion is concerned, im, J0HNSON: 1 did not say that, Mr. Oox. I believe, If you want uy belief, I believe the substitute or aL..encL..ent , tho section 98 proposed here, and since I have been asKed I would say I believe the substitute ie in this bill. I believe as a result of your investigation life insurance will be con- ducted from this time forward very differently. I believe as a result of the- publicity that this state will require that business 149 will in futuro bo conducted, laore oconoiiiioally. I "believe that annual dividends — Itr. Armstrong asked the Actuary this ijoxning a question which I do not thinli he understood. I do not thlnii there is the slifc'htest dou"bt that the requiroinents of each conpany for an annual accounting to its policyholders would reduce agency expenses and reduce extravagances all around, and work it out to where the companies ould give the most efficient service at the loast cost without fuither restrictions. If you take ten companies and their agencies cai.).o around for lousiness and one man in one of those companies insured some one for ten thousand and in one of the other companies a man was ivaken for ten thousand, and the second company does not pay year "by year as the first one does, that man's friends and neigh'ijors will take it to IIo. 2 and the force of com-petition will cause the company having the riCcond policy to cut do?m its coL]iis~ slons and make larger dividends. ASSEIvfflL"ifI^CAN cox: So you do thinlc that agency expenses and coiLdssions are going to be rodiiced? Iffi. JOHHSON: Undoubtedly. 150 AS^TlirnimiMl COX: And it only comes to the question of me tiio d . Iffi. JOKTSOIT: I think so; and I think it is the sentiment of every company's managenient in the United States that that is so. ASSEI'.5PJ.,YMAH COX: I^o you think these figures as to the average earnings of agents should he reduced? IvS. JOHjISOIT: I do thihk that hased on one close of this 'bill. There is another T>;hich provides th- t all load- ing shall not exceed the loading on the life policy; and that results in the commissiin "being held to the life commission, I heliere in taking off the pressure in the large companies "by a general reduction in expense, that it ^vill he more possible for t-\e agent, unhampered to write more business on the average than he writes today. But I do not think that would he the case if an ax is used to cut this line rapidly. ASSEIffilYMAN ROGERS: You said, as I rememher it, that under this hill an agent writing a hundred thousand dollars insurance would receive ten hundred and eighty 151 dollars cci^pensation. In order that we ma;/ more carefully distingiiisxi bet-^een tliis propcsed '.'ill and the present condition, can ycu state what an agent under present condi- tions writing one htindred thousand dollars of lousiness peryear what the average agent would earn in conEaissions . i'ER. JOI-CVSON: It depends upon whether he was workinrr for a company paying eighty or forty per cent. ASSE2.i T.Y!.iA]-T ROGERS 5 Take t'^e aye rag e . lIFi. JOIDTSO:*: I-Ie '.voul:' mrke, takijig; it at sixt;?- per cent, the average hetY^een eighty and forty, he woiild he would on the ordii-ary premiura, at the age of forty, make nineteen hundred and forty-one dollars on a sixty per cent basis for -^100,000 of husiiiess. ASSE:'.'_"I.''0'!A.:': Rogers : And is that figured on the same basis as the ten '-.undfed and eighty? ilR. JOiC'T^O::/ Yes sir. ASSBir^Yl'JC:! ROGERS: I •■ -ould like to know your exact, specific suggestion for cjirmgin,<^ the bill as it now s tends, from the agents vie^ -point. 151 dollars conpensation. In order that v/e raa3/ more carefully distinguish bet'^een this proposed '.:ill and the present condition, can ycu state what an agent under present condi- tions writiag one hundred thousand dollars of lousiness peryear what the average agent would earn in corrcuissions . IIR. J0ir.7S0j'I: It depends upon whether .he was workin.'r for a company paying eighty or forty per cent. AS SEK JYIO^-T ROGERS : Take t"'e average. IIR. JOIDTSO::: He vculd mrke, taking it at sixty per cent, tlie average het'f'''een eighty and forty, he would ne wci,ad on the ordi:-.!ary premiura, at the age of forty, nake nineteen hundred and forty-one dollars en a sixty per cent hasis for t.100,000 of ■nisiness. ASSE:'.r-.Il"LA:: ROGERS: And is that figured on the same basis as the ten '-undfed and eighty? ilR. JOKTSOi:/ Yes sir. ASSElfiTl'I.jM'T ROGERS: I ■■ould like to know your exact, specific suggestion for changinp; the "bill as it now s tends, frora the agents vie^ -point. 152 I'IR. JOfTTTSOIT: I hare said many things aloout agents. T.et me say now. that I ain hot here now to say what the other agents think. I can say from my o n standpoint that I regard ahsolutely that this is true - I am speaking in good faith - I regard that this is true, naiviely, that there .will he a normal and a natural reduction in agency expenses and the cost of corrpany administration in the field and t:?at "better arrangements vv'ill bo made owing to this inyestigati'n and its require- ments of puhlicity, and the requirement of annual account- ing. I'.y ovm suggestion that the amendment and substitute to this section 98 is already in your hill, in your pro- vision for annuel accounting aiid puhlicity. Yen ccviid require each company to report each year its loadings on its first year's premiums, on this has is, to the insurance department , and its cogency expenses including for the sake of fairness the value of contracts for renewals; so that year by year the state could publish the loadings of each compaony and the agency expenses, and then the people would have it before them, they would see that th« company at the head of the list would see that the others learned of itj 153 and that ^■•ould cure it. Conpetiticn is tc "be directed at seeing v/hich can give the "best res'i.ilts at least cost. ASSTAUlJTiSM' ROGERS: V/hat do ycu as representative of the agents ask vv-ith reference to secticn 98? MR. JOniTSOlT: Strike it cut. ASSEIDIYliAlT ROGERS: ^"ith no nodif icaticns*? MR. J0K1T^05 : llcne th. t I can see. I do not think there \./culd he any objection to putting in place of section 98 a provision that the ccapciny should report to the insurance dep-rtment their loadings hy this rlan in seotion 98 and .hare their agency expenses set up there. Then let those facts he puhlished and let the citizens judge for thelitis e Ive s . ASSEJ.j"-LY:.iA!T ROGERS: Your ide'-, is that this shculd be do i.e by force of puhlic opinion rather than oy strtute? !IR. JOIT':SOIT: Yes sir. I think this v:ould lead to the disintegration of frauds. I think every honest insurance iiian is in accord --ith the objects ycu have in rievs, but they think the arbitrary view- yru have trJcen of it is cbjectionahle . SENATOR QUIIHT: I want to say that ycur qualifica- tions — 154 t)jrjimj.^x. . — .^■ROi'TG: I Vv'ould like tc suggest to tlie gentleman that there is nc c-^ntoversial argument permitted. We will put this rig'it in another wa;^^. We are confident in tlie integrity ^f qxxt text, if tfee figxires given ""^y the company are correct, ■'^•'■e would iDe rery much surprised if there vras a mistake in the text . ASSEIBLYI/IAI? IIERP.ITT: Are you sure ycu can trust competition to effect the ends ycu spoke of? MR. J0HN:10!T: I am sure, "'hen I said in the early afternoon that I did not "believe deferred dividend con- tract should be prohihited, I said it "believing that annual accountings under deferred dividend policies, under the policies the companies have Issued in the last twent3'- years, ths-t v.-ould have done away with the pcs'si'bilii of the scandals i.^-hich hare stirred ever3^"body; and I believe annual publicity by the state will cure the evils in life insurance today. That is the normal state of affairs while the restriction is arbitrarj'-. 155 I'B. i'lFlRRITT: You think there is something in the life insurance business so that the things having di do v-rith ccmpetiticn vrili alvrays operate there and with no way to get aw-ay from it - that there v/ill he no chance to cori.t)ine? IIR. JOHITSOIT: Hot a hit. Take any of these companies named here as keeping their agency expenses within a given standard, the company on the top of that list would set the pace for the others. The other companies would have to imitate that coinp'-.ny as the - policy holders v;ould knovir the company at the top gave the hest retuns for the money. Under the old method cf the deferred dividend policies the pu'-^lic had no way at all of telling from year to year what the earnings v/ere and the agents of these cooTjanies -/culd use figures many of •hich were not correct and the policy holder ^vas dependi- g on something not correct; while if he knew the earnings from year to year that situation would have heen cured long ago. SETTATOR ATdTSTROTIG: You mean from year to year or every five years? mr/ JOEIISOH: every year, yes. 155a MR. JOHNROIT submitted the following BRIEP: MR. Chalrrian and G-'TLtlemen of tho- Coinmlttee:- I shall ••■laKe this preliminary statcFientc- The goint C 037^.1 1 tee of the Senate anf2 Assfrr>jly has coT-'-nlebed itt; irrves (•ligation -7f Life Insurance and has Tpalc It^^ report to thf^ Legislature reconi-ending cer- tain a"i',eiic\r;-cnts and additions to the Infixirance Law, intended for the purr;c,s6 of "bcttei' cafeguarding the interests of the policyhollers , citizens of this State. The avo\-iO'j purijose of the Specisl Comjritteo bo raake the insi;;ranco buniness better and 80u.ndcr than ever before and to 30 anend the lav; as to render im- possible th" recurrence of evils such as those dis- closed in the investigation, is one in vvhich every honest vrorKer in the field of life insurance will cheer- fully co-oporatG. There is accordingly a hearty agree- ment TiTlth the Coi-Tiittee in the aim they seek to acoorn- plish. It is not unnatirral , hov7over, that, concerning a business about the problems of which oven experts YiTho have had the benefit of lif^'-^long experience in it disagree, there should be a lacK of haroony beti/reen the reco!i:r.endations of the Oom^-'.ittee and th'- vier/s of trained insurance nen in the matter of th(^' r.et^ods to be followed to accoraplisli desired reforms. It is regarded as particularly unfortunate that the Gon'-lttee ehouid not hsve had opportunity to inquire 155 b In nore dotal 1 into thc' conduot of t^e affairs of the smaller and no-ea.llcd nor.-' consorvatlv.;-^ cor-.panles, trans- acting >^u.r!lness In New vork, '^v.t dcTnlcilcd in outside States. Tho effect of the disclosures c-nccrning the agency oporatlons of jcrtain companies follo77ing "high presRurfi" rac-ti-ods has probably given the Comnlttec a distorted vio>Tr of the norrial condition throughout the United States of the agency 7,'OT'k. of a najoiity of the companies. The ag-r-ntrj, who have produced the neTi ouz- Iness which has built up the Institution of life insuj*-- ancG in this country, have never had an opportunity to present their vie'/js to the Committee; and it si be- lieved that if the Gomnittee had been able to call be- fore it the generpl agents in this State of the smaller GorapanicG, and inquire into their methods of conducting business, the cc^r-issions pfjid them, their moderate cosi- ;ensatlon, and th'-' ork in addition to the securing of new insiu?ances which they do for their companies without other expense than the eonnission on new business, it would have possessed very dlf-^'a-ent ideas as to the question of agency expense. Section 98. The proposed new section 98 of the Insurance Law provides ir substance thfit no comioany doing business in the state of New vork shall ftfter thr- currc-nt year ex- pend for the procin'otion of ^ew insurnnces mere thnn the ■^'f'" H«''W"'" ■ xon i> total loadings on the first ycar-R prerni'iimo thereon (tlie loadings to be in accord^.nce with the standard of valuation established m Section Hi-), It is also pro- vided Lhat any renewal com::;isslon paid agents from a preiniam fraosecuant to the fiest Dhall not exceed seven and one-half per cent^ of the ordinary life rate (Irrespective of the form of policy ), and shall not be payable for nore than four years. Any violation of this lav; is to "be a nisdoiricanor, POINTS^ 1.- The Proposed Restr ctions are Contrary to Public Policy, The State may properly , on grounds of public policy, limit the size of insurance corporations, it being ob- vious that the concentration of vast dinancial po'ffor in single units might wot'K injury to the corainon'/jealth. But within such liraJts of size as the State may establish the companies should not >^e restricted by las in the con- duct of the details of their buvviness, such as the com- pensation to be paid their employees. The State should provide a standard of underlying principles upon irhich Its corporations should do business, but should not seeK to take part in the do^tailed nanagem.ent of their af+'airc. The Stste should, as it does, establish a standard by wbich to judgr- the solvency of insurance corporations. It should provide throiigh annual reports for complete T r,p: 5 Cl publicity concerning the results of their operations. It should require a strict accountability , not only to th© State but to the p_olley-ho„ders, for all earnings or surplus funds. It should requlro the filing and pub- lication of such detailed stetenients of the cost of con- ducting business that Eltizens could form a proper Judg- ment of the character of their corporations. Beyond this it is not the proper pr?>vihce of the State to go. It should not participate in the details of management. It -hould neither seelc to act in the capacity of an agency coTTnlttee, nor, where there exists a limitation of size or of the amount of new insurance which can be written per annum, to arbitrarily fix by statute the amount of money the Ranage]?ent can spend in developing a company's business or Increasing the efficiency of its plant . It is quite within the province of govenrment to, for Instance, by law prohibit discriminations between shippers on the part of a cornon carrier. But a pro- position to limit the amount of money a railroad company should spend per annum for new rolling stock would not be tolerated for a moment. With a proper lim.itatlon of size, competition in life Insruance will not in future be directed toward abnormal growth, 'hut rather toward seeing which company 155 e oan establish the highest standard of economy and ©fflclen® The companies should be left to work out this problem without ri-irthox- statetory restrlotion than the requirement of Gomple«6 publicity and an annual statement ©f results o 11„- The Rostriction of the Expense ©f New Business as Provided in Seetlon 98 is not only Against Sound Public PclieTj but Is (a) Unne«^ee8S3ry, and (b ) Destru«3tlvG,> { a ) Any extravagance In the agen©y fexpense a««B0unts of the Goinpanies which the proposed restriction is designed to correct will be automatically eradicated as a result of the more efficient publicity and strict accountability whish will b@ enforced under other sec- tions ©f the proposed new law. The result of the inves- tigations of the Committea, of the talcing off of pres- sure by the large corapanles whose business will now be limited, and of tbe reforms which have been and will be Introduced into company practices as a consequence , will have the effedt of reducing agency expenses to the lowest point consistent with efficient adm-ini strati on and such steady and moderate growth as best conserves the interests of the po^iicyholders„. (b) The result -of the enforcement of the drastic limitations proposed would be: iwj:'" r"' 155 f 1. Th® destrilctlon of the agency organl^atlonR of the companies sonpiylng with Nev/ YorK laws. The rigeri-^/ plant-s of the ooi:p?.nles are rael and valuable assets belonging to the pclljy holders- similar In a sense to the goodwill and Belling forces of a nercantilc estatlisnaent r Capal-)].e agents have to he edu.cabed to the husiness , trained and developed hy expiyrience . Agency organiza- tions do not Just n.appen. They are established only aa the result of year?: of patient effort and the expendi Ivare of a good deal .of ifioney. An agency eorps, when trained and efficient; is of gi'eat valine to the policyholders, securing a steady and healthy growth In business and a lessening of the cost of insuj:'ance, TiWing both to the lower ratio of administration expense on increased volume, and to the lower mortality dueto the introduc- tion of new lli/cs., To disorganize and disrupt the agency forees through a radical and arbitrary change in the basis of compen- sation, would be a direct injury to the policyholders and the agents, and would harii: the State to the extent that It resulted In a decrease in the amount of insurance Issued to Its cltisens for the protection of their families. 155 g 2. The withdrawal from the State of New York of the out-of-t he- State coripanles now doing husiness therein. thus depriving its citizens of the opportunity of here- after purchasing life Insurance from those cort.panies which have opposed, rather than contrihutod to, the evils which the Cornnlttee has discovered ^nd is endeavoring to ciire. It should not be the policy of the State to dirve fron its borders the smaller and more conservative com- panies, which have always dealt fairly and honorably with its citizens and granted them sound Insurance at low cost. 3. To depriive of an occupation and means of live- lihood the thousands of citizens of this State who are employed as agents by the ccrpanies which will with- draw, and drive out of the insurance business of the agents of the New York State companies, who will find t themselves unable to make a living under the rate of compensation this Act will enforce - an ultimiatc com.pen- sation, by the way, less than that received by fire in- surance agents, orr-the agents of accidents, casually or steam boiler companies. And fire insurance is vol- untariajy taken by the citizens without urging on the part of the agent , whereas the public purchases life Insurance only upon the insistent and Intelligent pre- W^'' 15 Gh sentatlon of Its advantages by tralnc-'d solicitors. III. The-; Llinlbation of Renewal Corcinlsslons pro- posed In Section 98 is not only Contrary to Poublic Policy, but wov.ld be an Injury to the Policyholders and the Companies . The best ins-aranoe whic^h has ever be^^n prosiarod by the companies, j^'dgmg by the standards of persis- tence, mortality e.xi^erience and expense, has been that written by ageni.s operating under renewal contracts. The Corjnittess hay recom'^ended the adoption of standard forms of policies, so that the public m.ay not be doccid- ed or misled. It might not seen that there were any relation between standard policy forms and renewal com- missions. But there is, The agent v/ho worlcs for a first year comr.iisslcn only boars no particular respon- sibility to any individual conpany; cannot be effect- ively controlled or disciplin'-'d, and consequently can misrepresent the policies he sells and deceive his ap- plicants without being in a position '^rhere he can be properly penalised! Ho can ignore company regulations and the bounds of fair practice, because he can readily pass from one company to another without forfeiting any Interest Is future commissions on business already 'YYYvvjirjirjirv^'^''' 155 1 9 procured. The man who worKs for "all he- can get the first year" la frequently a "rolling stone", resting under no sense of ohllgatlm to his policy holders or to the corai^unlty. His business does not persist, and experience teaches that even the death rate under It Is higher than that on the better and nore persis- tent type of business procurred by the usually more responsible agSnt 'irorklng permanently for one company In ome community under a renewal commission contract. Dealing with agents as a class, the consensus of opinion Is that those who are em.ployed throughout the land or loYfer first year commissions, with renewals (rath^-^r on a first year brokerage only), represent a bet+er type In relation to their efficiency and the quality of the worK they do for their companies, A company has no hold whatever on an agent working on first year comm>isslons only. He can pass on to an- other company whenevv r the fancy strikes him. The com- pany does not have its agency force on a renewal basis if a period of depression for any reason com.es to it, finds Itself forthwith practically without agents, and under the necessity of finding and educating a new fa' -. force, at m.uch expenditure of patience, timiC and mon- py. The continuity of an agent's sertflce is much more marked, and the quality of his work better, In the W'." W" 155 j 10 case of a company which has Its agents Employed on re- newal contracts. Such a conpany pays less for its business In th-- first instance and what it pays out In renewal coranlsslons la rore than of-*^set hy this -fact and the greater ef'^'iclenGy ■■•rd continuity of service of its corps of trained agents, plus waste and expense which Is experienced by coTnp-nles whose plan of compen- sation facilitates frequent changes by the agent, with the consequent cost of procuring and training nev/ men to taKe the place of those? ?/ho leave. The comrnlttee has probably ov rloolced the fact that the companies operating on the old general agency renewal commission basis do not have to maintain collec- tion offices throughout the country. The renewal com- nlssion In part is granted to cover the cost of collect- ing premiums, which is not Inconsiderable and which comes out of the renewals of the agency. The expense of the preparation and mailing of prem.ium notices, the neccessary force to attend to the collections and booK- keeping, the postage on notices and receipts are all a charge paid by the general ar>'-nt from his renei^al com missions, and are not bourne directly by the company. If rene7/als are not to be paid, or paid only for fcuj years, then how Is the agent to be compensated for 11 taking care of the oollo-otlons and needs of the policy holder after that pearled ? The permanent agent - the type of agent tb' Con'-lttee \?7oiild presumably prefer to ha"-':- engaged In th£^ buslneos- ordinarily Keeps In touch with the policyholders, lookG &.ftor their neodn, pruciires their policy loann ^^/hun they desire then, arranges tho ehargos of beneficiary or asslgnnent papers necessary frcrn time to tine, etc. This he does without charge to the cor.pany or the pollcholders because of his renewal cori'-: sslons are practically abolished, naKlng a seeming saving, what will be rho extra cost to the conpany -sf collecting rene'j^sl preriums and attending to the needs o;"" Its policyholders .irect ? And '/rliat the loss due to the lossened offlcloncy and continuity of sorvlco of Its agents ? The doption of the proposed now Section 98 would legislate out of their occupations r.any thousands of agents who are cni.plcycd by the companies which would thereupon withdraw from the State. Moreover, the com- panies dor.lclled in other State:.-?, who af- now doing business In New YorK, h^ve outstanding in this State, at the present time, ' cjordlng to their reports to the New York Insurance Dep;-.rtnont, more than three hu di'ed and ten thousand policies, calling for the ultimate pay- ment of more than Five hundred millions of Dollars in 155 1- jnsmrcniae l>en«-flt^. Thes© three hundred thousand citi- zens of New YorX are In the hah It of depending for ad- v-.ce oVid a?siSoc.n6o, In any matters v/hloh may arise l.i co:.inc;CT/l •:>n v/lth their Insiirance, upon the general agent,, of v,ho respective companies. If these companies and agents retire from the State as tlie result of res- trictive ssnEaK.ti::sxxxxiXxiJ?iESffXii;8!injiaH±asxaM!i leglslal : ■'■" leaving the policyholders to taansaot business with cor- panles at long range, it is to be feared the m.ore than thrcG hundred thousand citizens who by preference have purchased their insurance from out-of- the- State companies, will hardly ar.-.reclate the virtue) of steps taKen In the alleged protection of their interests, but which in reality will rt;sult in leaving those in- terests, uncared for. Is the State of New YorK justified in dictating tn all the companies doing business within Its borders that they must practically abandon renewal coramiesion contracts throughout the United Statr-s, simply because the committee found that renewal comr-dsslons were appae- ently, in a single well Known caso, the subject of severe criticism, or even because Its advisers may disapprove of them? A disapproval, by the way, directly contrary to the judgment of a groat majority of the leading ac- tuaries and com.pany officers in the United States - men Ifj^ ri. i§ Who have had the bene It of seeing, through a long period of :'>.^arsj the outworirlngB of experience In cori- ng cti en 'fv"! Ln ihose 'xcohle'ni^^ of Lne bUi^iness i^/lth Tv")!! :;h they onvf oein _ri :':ai_i ;-'"^c' ;:x£v'v„i'-v"i.L .'.ontrxot^ The fac, that 8'i.l Lb?- ';/!c3 ?J:^w IPugn^nd co'^iT;R-Mes ^ijT and the c.;a-- se-rvativij and vif-..l.l managec/. '."'cnranies of other Slates, after a half centuary of; czpiriRPce, trar.saet 'business thrci.igh?ib the ^'jiljre tjcviutry on the renewal coi3jni;ssiG--j agi'iiey nasi^. f'hould oc -.uffi?:ent to Iridicate to the Logif-lat"ure i-Jiat ir.i Lhe ri-opoHdl to so ma t^^r tally l:..ir;j. [■ "renr-walti Is In error-- aijai--, rsrom the fact that such Inter-^ereno-e In the details of buslnevss Tmnageraent Is beyond th*- .nroper province of the State. With bl..j.a otaLcinent of the 8 rgur;,entG on behalf of tlie general age;oey renetral system. It Is fslr to add that one or t^.'o of the largest companies, primarily the nuta^-i.L aife of tiew li'orS; have sv-ent Sf^v-'-^ral years" In grac.nally chang-i.ng ovor their busincys from the gen- eral agt-^ncy ba^-jis to their pre- sent ban la of ppymg first year or rroKf-ragc eo:rr-t^;ttionH onlv^ Ag^'nts of the :m- tnal Ii-Pe receive their .-ntire conpoxis-tion fron 7.rlting bUJTineee i"roa the fir-t /ear'd prenluin, a^d the conpany ma^nt^'intj at its oFn expense fr^K coll^-otion offices throughout the cou.ntry Frith salarlc-d cashiers, who at- tend to the collection of the renewal preiriums and othT 14 155n worK Incident to the compa-'les rpiatlona with its policy holders. The eErjerien-je of the coinpcinleB wolclng on this first year comnlsslom or broKa ago basis nas not yet be'-n sufficiently tested by time or results to justify the arbitrary setting aside of the practice of the bal_ ance of the companies, baaed, as it is, on actual ben- flBlal results „ It thus appears that the porposed limitations, requirlmg as thr-y do a lower first year compensation to agents and a Unite tion of the period luring which re- newals cf.n be psid, will not prove ac-^cptable to either of the two clas'-~-!es of conpanies. If adopted, those companies vv'hich are now doing business or the general agency plan would have to reconstruct their entire prac- tice and arrange through a method other than a renewal comrri.lsslon plan for the collection of their premiums a^id the handling of their business with the policyholder s, ThB other companies which now pay Pirst year comrijssions only, would in turn be put at a complete disacivantagc un less they also reconstriict their business methods and again tooK up the pa/ment of somie form, of renewal com- missions during the period lim.iced.. Com.pliance with the proposed l.^-v; woiad put all clas-ses of companies to a greRt deal of expense and loss in reconstructing their ^^' 1550 business methods, and It would v/orK injustice to all^ naturally meets with unamlmous opposition, IV THE PROPOSED LIMITATION OF AGENCY EXPENSES WOULEu BE TOO RADICAL — AND THERE IS NO V'ORKABLE PLAN BY ADOPTING WHICH A COMPANY COULD COMPLY WITH THE LAW. In view of the neeessar:^: administration and superv vision expenses Inevitable to the conduct of an agency plant, and of the taxes and license fee required by the various states, plus the cost of medical examinations an inspection charges necessary for the proteetlon of the employment of a suitable gr'de of agents. Moreover, the section provides that the total agency expenses for the year 1907, and subsequently years shall not exceed the londlngs on the premiums to be collected during the year. As c-^mpany officers of long experience are wholly unable to agree upon the ef- feet the prevalent disturbed conditions of the business, plus the drastic reduction of commissions v/hlch the pas- sage of this section v;ou.ld rc^qulre m.ay have on the volum e of business which mj siy may be produced during the com- ing year, it is obviously impossible to fix a percent- age o-f commissions which cm be sfifely paid agents If the business fell off and did not r(!!aoh the amount ex- pected , the fixed agency charges would be greater ±6. 155P proportion of tine expense fund arising from the year's premiums than had been originally astlmated, and the per centage left for agents* would he less. But agency contracts have to be niade In advance, so If failure to produce the expected business led to such a situation as just ri^f erred t o, the eompany would f nd at the end e of the year that It had exceeded Its expense loadings; that Its of-^leers and directors had thereby committed a misdemeanor and werC liable to f-^nd and Imprisonment. A 1 aw v;hlch -joijld not be con-f'orned to v/lth m.ore cer- tainty, and the operation of which i 'tght plabe honorable business men in the position indicated can hardly be regarded as a wise and proper one for the Legislafure to enact. V, The Opinion of the Comr'lttee That the Drovi- slons of Section 98 Furnish "a Proper Standard for Reason- able arid Profitable Expenditure for n^-T/ Business" is based upon a stateirunt o-'' alleged Facts Which is Erron- eous and Misleading, The Committee evidently bases Its opinion upon certain statements and figirres to be found contained in its report to the Lesilature (vide pp 295, 296, 297) Briefly summarized, it Is there stated that in the year 1904 a group of three weli Known compf?nles operating on the old standard, expended for new business 1909,334. S8 1« 15 5 q 17. more than the loadings on the new prem lunis collected that year, plus the first year nortallty gains. That the present value of the mortality gains- on the 1904 business of the same companies computed In accordance with the proposed new Sestlon 84 of the Insurance Law, equalled $1,171,034, The r^- port then adds; "It thus appe4rs that a provision v/hlch would have made these mortality gains available for the expense of the nev/ ■business of 1904, would have more than have covered the excess of expenditures of first year's '^arglns. The apparent meaning of the statements referred to Is that certain com.panls actaullS: transcatsd their 1904 • business on an expense basis which vv uld have teen with- in the provisions 2)f the standard now proposed by the Coram.lttee had, it then been in force. Apart from tl^e fact that in tbe exhibit rentioned the companies were apparently t ice given c redlt for the mortality gains of the first year, it is obvious tJn.nt both ends of thsl exhibit have been so worked against the middle as to apparently prove to be so that which Is unprovable. In other words, the ne.v law provides that the expense loading (apart from mortality gains) on ever y ^1.000 of Insurance iSKued at the sam.e age shall be Iden tical, e.g., tbe loading on an endownent policy can not exceed t>at on the life policy. The effect of this 18. 155r will Ir^e to raaterjlally reduce the aggregate loadings on any given volume of huslness, as n the old standard the companies use a combined perc ntage and life loading on the endowment and other prentums higher than the life rate. In the exhibit in the report above referred to, credit Is given the companies for the higher expense loa loadings on the old basis, B^d for the mortality gains under the new. If tested altogether on the old basis the new business expense of the companies named material ly exceeded their loadings. If tested altogether on the new basis the expense- Is also obvlo\isly In excess of the loadings. It Is only by basing the figures half on one standard and half -n the other; only bj'" riving the ompanles credit for what favored them on the new, while at the sar-e time holdlmh to the old to the Qj^tent that the old favored them, that an exhibit was made apparently justifying by the alleged experlen«3e of thiTee companies, the standf'.rd of agency expense proposed In section 98. The fact Is that if the 1903 buslnes- s of the three compam.les named had been judged by all the provisions of the ne-'^ law, namely, both the proposed new Sections 97 and~> 98, neither they nor any other Amerlvrn companies 19. 155i would have been found to have Icept their agency ex- penses In that year ?;lthln the llrriltalons recommended by te Committee,. The report of the Coi^riltteG is a most Import^^nt document, and the fundings of fact upon which its recom- mendations are based should have been such a nature that they could be regarded by ©very one as aut oritative and indisputable. The inclusion of such matter in its for- mal report of" the Legislature leads to a renewed ex- pression of our regret that the Cotr^lttee should should not have found time to consult with men of practical experience concerning :^rovisions av=! vitally affecting the conduct of the companies as those embodied in the section under discussion.. Vfherefore, on the ground that the alleged facts by which the Committee justified approval of the standard of e xr.ense set up in section) 98 are non-exist ent: and on the further grounds that the restrictions proposed therein are contrary to public policy, unwise, unnecessary, destructive, injurious to the interests o-p policyholders pnd agents aliKe hased on erroneous con ceptions of the propc-^r of-^ice and value of renewal con- missions, tisX too stringent, impr^'Cticahie and i-,iposs:bie to be complied with without gr?.ve injury to those inter ests 20. 155t Which the conr^.lttee is endeavoring to foster, your peti- tioners pray that s^^ld section be RtrlcKen from the Bill 156 J.IR. V/'OODRIJPP; I have been requested t'- nctify the assemblage that the train going west will not leare the city until 6:20. I ani going to call upon the representatives of two companies outside of the State of ITew York - that is, domiciled outside of the State of I'Tev; York; and the first is the representative cf the Prudential Insurance company, Mr. R. v. T.i.-.^derhury, of '"ewark, :'^. J". SEZTATOR APlffiTROlTG: I v-ould like to announce that those v.-ho are goir.p; to "^'ew Ycrk v;iii kindly depart now in order to save i^iterrup'^ion of the next speakers. \^e ^-"il]. now proceed with the heari g. IIR. R. y. TJIIDEKBURY OF ITE^-'ARK, il. J.: Mr. Ciiairman and Gentlemen cf the Coramittee, I appear for the Prudential Insurance Company of llewark, TI. J., as stated, and am also asked to speak for the insurance companies outside of the State cf llew Ycrk generally. I do not know who else there may he to be heard. I have not understood th^it any one is to speaik for the 157 them, gentlemen, and so I am expected to say forthem v;hat they hare to say on the few points respecting which I will address you. I want to say in relation to this suoject discussed so well hy Mr. Johnson that the outside companies feel that the proTisicn of this bill limiting expense v;ill not enahle them to deal with their agents fairly or as they ought. The details of it I ^cill not go into, as actuaries and a.gents can do it hetter than I, hut I want to say that the sentiment aiiiong the officers and managers cf these comp-'nies is that the provision restricting the expense that ma^y he incurred ae such that they will not he ahle to pay living salaries to theiragents mnd that that ould he a detriment to the husiness and a misfortune to the policjz-holders all over the country. SEi'ATOR APJ'1STD.:^C-: Do ycu kno'.- whether they predi- cated that statement today on the fact that they have perfect freedom in adjusting their loading. TTothing hut competition \^'ill prevail to keep that within hounds? liR. IirDERBURY: r'o, I do not know the reasons. The details will have to he discussed hy others hetter 158 a'ole to do it than I. I was only speaking of the sentiment, universal, as far as I am able to ijiudge, among these companies I have seen, that they cannot lire under this rf-striction and pay such salaries as the men are entitled to receive, BEl'ATOR AW.ISTROHG: There is the utmost liberty left with the companies to fix their loadings and noth- ing but competition will restrict them in any way. im. LIjTLERBIIRY: It ...ay be they hare all taken a mistaken riew as to the provisions of the 98t.h section, and that there is v.'ithin the limits you now suggest a freedom they did not appreciat e. That ques- tion I will leave to the actuaries. V^Tiat I want to say is that the ag'^nts should be treated liberally and that the company shall be permitted to pay them under any system you devise and settle upon, fair and living wages. It is the policy of this country to l-sgislate in favor of the working iiian ; and we pay large taxes to the govermnent that the manufa "turer may be able to pay living wages to workmen; and i. all legislation that should 159 iDe remeiobered; and if any"body is entitled to ccn- ideraticn in this legislation it is the army of agents thrcughut the United States, vdio have net been ruilty cf any sin and should not be ma.de to suffer fcr t'^e mishaps of others . Of course, you understand I an only speaking for tlie principle - I am not criticising the committee - but simply here to express a view which seeiis to be universal among these people. ASSElCIYliut getting smaller and si'naller a.11 the ti:ie. SKTATOR APlIBTilOrG. ". o . I d id not s. ^- that as a criticism, hut I rather choe.-.'te'i to ycvr cjiaracteri- zation that the agent must be primarily taken care of. }1[. T.i:n)ER3TJRY: Very well, ahclish him if you wish; but if ycu are tc keep him, do not starve him. SICl'ATDR AK'-STROI'TCt : That shovrs hew wise cur resolu- tion was in f e heginni.:ig not to enter into controversy with the speakers. \f:e ill abstain from it in future. 13. I.I;.DER:;.UF.Y: That was merely 'oy w y cf opening. SE;'AT0K ARI:STR01TG: a very gccd opening. m. TiriJERI^TJRY: I want tc speak for the outside ii* ;'■• 161 flO^mpaJiifrS , espec.ially in urgir^ upon this com.iittee and ^iie Legislature of this state that care be taken not tc invade the rules of coLnity v;hich iiave ordinarily erriisted between the states of this country in matters of legislation, umL not to regulate the internaJi management of corporations of ^Iher states as a condition of allowing them to do business in this state. There are certain provisions, not many, which I wish to point out, which I think should be altered so as to lirdt ' thea to corporations organized in the state of New Y^k, y because I think if I don't do that you will be in dangex. of provokir;g in other states unfortu4ate action that v/ill bring "^ confusion intoothe vusiness of insurance. And I suspect the matters I propose to call your attention to were due th over- sight and not the intention of the committee, T^rliich had a large problem and on the whole has v;orked with consummate ability. But no one is infinite in ability or perception; and any committee, however, well advised, might make mistakes, l^ow take the provision with regard to real estate, limiting 162 the amoimt . S'lTlTOH AR?:f3TR0i:G: Section 70? I!R. LIITDSEBITRY: Al'yliow tlie provision is to the effect that an insurance company doing business in the state of New York no matter v.'here organized, ^;^-hether in England, or in Germany, or some one of the 45 states ©f the Union, cr-nnot purchase a piece of real estate for the purposes of its business anjA-zhere ;vithout getting the permission of the commissioner of insurance of the state of lle\! lor::, end it cannot e::cliange this real estate e-..en if it is in Xamchatha, Berlin, London or .ny- Yi/here, v/ithout o-ettiiij the permission of tho insurance commissioner oi the state of Ilev; York. ^n'hJZOR ARi:OTRO:'Gt ''ages 7 and 8 that v,ili be fouhd. !!H. LIKDBEBURY: '^■i-se 3 is tho one I have in mind. It says, ""o real proper- y shall bo acruirod by ecaji life insurance corporation vuador sub-divisions one or tv70 hereof, or under section fourteen of the general corpora- tion lav/, e cept v/ith the approval of tho Superintendent of insurance." and then it continues and says, "ITo real property shall be disposed of by any life insurance com-'^any, by exchange for other real property as the Iffffym^- 163 consideration of the transfer in '.iiole or in paj&t, unless the acquisition , f tlie latter shell be requisite for the convenient accoianodation of the corporation in the transaction of the -.usiness and shall be approved ■fay the superintendent. ASSniBiYI'IMT ROGERS: You ash the insertion of the word "do:nestic", I sup^'ose? ,HR. LU'DERBURY: Yes sir: line five before the 'v7ord "life", an. before the v'ord "life"' in line 8, I suggest tlieit you ^ait the v/ord "denies cic", before "life". That is ay snccestion. Ho the nert is the provision regarding stock com- panies, pa'^e 56. This section -"hich is section 103 of the sa.ne ..ill says " on a,:d after the first day of Janua3:7' nineteen hundred anc^ seven no mutual life insurance corporation do ins business \vithin the state and ■■-0 stoch life i-..surance cc r:_. oration hereafter issuing or :;rofessi;.:_: to issue any -■articipatin-- policies, shall issurc ny policies \-hich co not by their terms give to the holders thereof full right to partidipato in the ac cumulations of said :-orq.oracion as provided in this chapter." \ \ \ 164 IToT.^ if tliat V7as intende'l to prescribe a policy for the state of Ee'v York I have no object to it, and my reouest is that it be amended to limit it to the state of Nev; York by insert iia.^r after the v/ord "issii^e" in line SO "or delivered Virl thin -Siis state." SEl^ator armstrons; It is linitef now. It says "no mutual life insurance corporation doing business v.'ithin the state and no stock life insurance corporation hereafter isr-uin- or professing to issue any partici- pat in:- policies." "■.IR. JIFDHRFJEY: Yes sir. The poi t I make is this: this prescribes the form of policy that a foreign oor:)oration shall iseue in this _mrticular form all over tiac \rorld, so tiiat not^/itlistanding the charter of the l!assacausetus corporations \7hich I kno-^ of and various other insurance con~anies throughout the United States, specifically empower thorn oo issue both parti- cinatin^ and non-participai in olicios, yo. provice that the;- shall isf-;ue only the participatin'?: or the non-participating, not either, all over the i/ or Id, o.nd the^' cannot (".o business in '^ov-/ York, ^^^'"" 165 notv/ithstanclins' tlie- are authorized to do it. ^;^rATOH AH!:STro:"a: That was our intention. It was intended to ejcolude coiTipanios tliat issued par- tic i;p a, .in,::.' and non-participatin'--' policies, who oon- tinu.ed to c o it anj/'vliers . HE. I'lnjERBUHZ: Then it becomes a q^uestion in regard to the proprictj'' of yo'.r doing that: - you will observe the provision is not r- ite as the Chairman st&tes it, as you e:-.:cludc companies that do one hind or the, other, but jt'ou provide that a company shall in its policy nii-:.l:e • revision of the sort I am no-y referring to; and .hereby you proscribe the form of tlie poliqy '^^'o 'be issued b?/ these forol-'n oorpori/,. ions in their ov/n state and other states •.-.■'hero the~- do business. "o that vmder the lavv's of the '-tste of ?Ias3achusetts and the lav;s of the "^tate of ITev/ Jersey these oorpora'jions are no;' issuing participating and non-partioipatin^; policies by stoch and mutual companies, no\/ you undertai'^c to s.y if v/ithin their ovm states, by the lav.' of their state they continue ..o issue both glasses of v>olicies thcv shi.ll not do business in ■"e\7 York 166 I si^:");;csG that i3 Vinv/ise and a violation of the la'.vs of co.nit^ tlic/u have eiistod iieretofore betv/een the states. This state shov.ld not resoriue the form of policy used -J-; forci,T;.n corporations i other states. You do not '"o it i"^i regard to their standard form. I'ou adopt a form r.hich you s&v- shall be used b-? the companies in this state, expressly limiting the operations r/ithiri the state; but hero 3^ou provide a section in relation to every policy "horovcr the policy m.y be issued. I grant the propriety of this state enacting such yirovisioiis \;lth respect to foreign com^;anies as touch their solvency and their morality so that the- shall conform in £ ^c^loral ■"%iy v-o the .)u\.lic policy of .his state; but the aolvency, raortali'.'y and those thinps bcir." trlren care of, I submit tliL-.t the Ic islativrc of this stale ought not to attempt to ronil^.te the internal cffairs of the corporations of other states, anc that to c-.o so must come to be re?;ardc-f in other states, and thav to co so must co;-.c to be rcpardcd in o'jhcr states as a broach of interstate comity and leaf to rct:--li-:.vion that mus'^" injure the business. ] 'I f l~ Ir r f 167 '^'"IIAT':!": AniSTSOrG: Eove else can wo accomplish this result. "■.'E do noi; v/ant to interfere v;ith the corporations of ]?ev7 Jersey or any other sj:ato in the sense of ir.vad.ir^ tlicm; 'Jut the comi:dtt.,e has come to the co:.:clusion tliE,-; •Tartici;^)ati"^^-;'^; policies, since the cost of them c&nnot "bo figured accuratel;^, nus : bo sold at too much or too little | if sold for too much injustice is 1,'h Cone to the man 'v'.ho buys it; if sold for too little the deficit must be made vrj from 'uhe ^thor policy holders in the coin .anjT', That is, c- mutual companj^ th:.t sells non- ;}articip£.tiii;':: policies, if it sells for too small a premium it must mahe that shortage up out of the other policyholders; if for too much, it docs not return the premium, "c v:ant vo make it so that it is not mi::e'' vlth particpatins aff:iirs. ^ hich is but a safet^' valve to cover up deficiencies of e".:.cess char'/es., li vjo alio-.: com-anies to issue participating and non-part ic ipa ti -I'": policies ai\yv/hcro, then simply deprive them of the -oy/eT to do it in Tg^"' I'orh, then he great mass of the biisinoss vHi be done outside of Few York, and the com-aiies i,: ITe" ::or?: •■ill be c'cploted 168 of 'business tiat is thus sold because it is sold at a loss s onetimes in a mutual company, if not generally. MR. LIITDERBURY: I can see :'-0W reasoning on the line you have just pursued might lead you to think nuttial companies. shoi^Ld not issue both participating and non-participating policies; but is it so with regard to stock companies; and it is only in regard to stock companies such as I represent. SEMTOE AEi-ISTROIIG: v;e say stock companies. !!R. LIIIIERBURY: That is not a mutual company, and one that issues policies is not if it has a capital stock, aid the policy of issv.ins policies at too low a price falls on the other stocirholders. SEITATOR AEJilSTKOiTG: Te know of no stock company that does not limit the dividend i^aid on its stock and declare or provide that it will distribute all the remainder earnings to the stockholders, which makes it essentially a stock company. I appreciate yorr criticism and wonder if there is no comi.iOn ground on which we can accomplish wha'i you say and not run the danger. 169 IS. LiriiEIlBURY : In I^assaclmsetts , v/rilch f.';overrxS its i-tisurunce co:-r')smies rel,. and Ims its code of lav7s "overnin'- this matter, but wliicli permits and intends to contimie to permit its com:;anies to issuE "both, kinds, its coa"i:.nies should be allov7ec. to continue that practice, and that ITev/ Yorli: ^louid not e. elude chose companies for that reason froin do ins business here if their solvoncj' and general principles answer to th-3 highest standard, you are .properly ;;roposin.;5 to set up now. Great care should be exercised by this comirdttee in this legislature, in its attempted rep'ulation of internal aff-t^^'drs of foreign corporations. I do not doubt you arc intendinr: to do that, but I cannot irnpress too strongly upon the committee tii.e view I iiave , that it is a rather dangerous subject to deal vath and one tJiat cunnot be handled v/ith too much delicacy if you are to avoid confusions that v.dl malce federal lecpislation im^ierat ive. SSIIATOR AFliSTROrO-: Hov? that you understand our purpose, vie t.HI be glad to have from you a stat ment of 170 the result of your mt.ture re i lection. im. Lin}E:^:EU21; : Now, or at another time? SENATOR A3I.!3TR0"G: By letter at another time vail answer very well. r,'e would be z^c>.d. to have you communicate your views to us "by letter after considering this carefully. M2. IirDEBBURY: I shall bo glad to coEknunicate with the committee on this point, but, with due respect to the remarirs of the Chairman; I must say they have not changec my view yet, ASS:L;3Ly-L!.:i ROGl^R?: Your s-ngj^sstion still is that we should insert after tho vi'ord '"issue" "or delivered within this state" on line 20 paa-e 56. IS- LIiTirT-2r:r.:: Yes s:...x . Now, section 83^ page 27, under the head of "distribution of surplus to policy holders." SEN ^ TOP AE^^STHO:"G. '"'hat -pag^- - £8? 13. LII3)S?R'PY: line 13, pa.^'s P.8 , after the word "issuo" you inssrt tij'^ ^/oi'ds "or Ce.lJ.-'r&xi^.C within this state." The provision is that evsrjr fcr?^ign life insurance corporsotion doin.^ basmass v/ithin the state shall provide in every policy issue'" on or 171 after tlie first daj'' of Jemuary, 1907, that the proportion of the surplus aocruiii^ upon said policy sliall be ascertained and distrilDuted annualljr and not therwise. ITo-., then, a^ain, this is a rer-ulation of the dividends to be declared by forei'jn corporations on their earnings or out of their surplus earnings, and is a plain, direct and unquestionable regulation of the internal management of that corpora ion. Of course, you gentlemen v;ho are lawyers ell understand the rule that he.s obtainerl in the coxirts on these interstate matters. You cannot get the courts in any sta-:|e of the Union to take co.rpaizanee of the internal affairs of a foreio-n corporation doin;'^ business in. the state. So it is that / the courts of BTev; York, in regard to a corporation domiciled or doing business here realize that in regard to the declara- tion of dividends and the issvie of stocks they have not a risht and ^sill not assume a rig .t to interfere or take juris- „- diction at any tii-;e; and that the comity and practices on vaaich our sovernment is est."blishec: require th t those -■■uestions be determined !■- the courts of the hone state. 1 72 It is a frjadamental principle wliicli has been reoo!jnized in our sjrstem of government since the Revolution, and •'which you are endeavoring to change in the interests of the wel- fare of the people, "but which assumes a v^ant of virtue or a v/ant of intelligence on the part of the governments of other states. AS^HJ.IBIYJIAH COX: '"e define the conditions under v^hich they shall do "businesp as far as we can witlaout interfering with the iiiter state commerce law. !:!R. IIITDBRBURY : That being so, of course vre nust say that you have the power to pass this law. I am not denying your constitutional right, hut sajr you sliould not exercise it in this way. It v/ill involve you in difficulties and reprisals from other states. A^.Z^::3IYl'ir^:3. ROGSR'^': You conceae on this question of annual and deferred dividends, T.hich to my mind is one of the greatest ruestions before us, that if vre af-opt your proposed £5:nendment, it v.'ould pretty largely emasculate it. im. TjrDSRBURY; ''ntirely so. I think this invosti^^a- tion in the state of ^"■e;^ York was the best thin? of the 173 day after day and in the entire conduct of the investi- gation and the rcaailta of the work of this ccmrnittee there is nothir:g that I can say that would ililly e press my admi- ratior* of it and my Idea of its ralr.9 to the public and the state; and I think th^^ye bills*- p.-esentod here are in thsir purpcrips B.VA ^--ro''' is ions, as a v:L-Qle, most admirable. I thjnlr. ifc vvcMd be hard to find a couraittee at any time in the fUvi^rc that v7oi,ild do its wor'-: better or so well, or present srioh =-ood lesults; but I look for bills to be pa?s?d by this legislature that vail coramend the:jiselVQS to the Le.;rit;la':ui'0 8 of the s"!ates by their intrinsic merit. I / also look flc'l hope for vsilfcTji. It-.gislat ion in the various states on tno su'";,le(.;t of insuj-anco by the voluntai^/ adoption by tbe otnor states cf bills so wisely conceived and rjer- fectly vVj-tIvo-^ oi^.t that thoy will commend than selves to the people everyv;here else. 174. Mr. ■'.'ain'crri.'iit. Hr. Liiic'Larljurj'' , lii-s the legislatior e of Hex; Jersey' siich Jurisdiction under tliese special lav/s on corporatioiis that they coTiir asJce the law as to special charters as to them coniorm to the le.rr in this sta-i;e? r.T- linc-erbui^/: Oh, yes I Eve^ry special charter in Few Jersey is subject to repeal. Every cliarter. And there could he no difficulty; and I loci; fcr -che practical adop- tion in ITc Jersey in another year of such bills as are adopted here. Ilr. '."'.sinv/ri-jht , therefore, the le.'.islature of ITevv Jer- sey mi'-ht follo\7 the lav,' of this stace and ;:uke the s,me provision. I'r. ."I'lndarbury : rj::cactly. ::r. ••;c:..in7;ri>.t : If it thou,o;ht '■/ise. ':r. rindarbui^' : Ezactly, what I aai sug:e sting nov/ i.nd v/ii:h all friendliness to tlie provisions of the lejis- latiire hero .aiii the work of this coni.attoe is that you do not attempt to force upon tlie 7:ieople or the ie-^islature of other states provisions that tlie^ vill resent and reject beccuse yoi". h^'.ve attempted to force them an?, to invade their jurisdiction, as the -"ill feel and clsr^im. If you. do not attempt to legislate with regard to their afir.irs, as they v/ill view it, and invade the conlty v;hich they -vill think is due to them, they will then pass these acts as their cmn., B.nc!. we will have real uniformity of le«:isl;- tion on insurnnce that v;ill he of imiaense benefit to all the coffi-oanies and the people and will relieve the 175. Mr. lindartury: 1^ tliis report, no. There mcgr be some - no I have no ^"iarticular criticisns or very fe'..' in the thin^::;s I v/ould su^if est should be altered. I an speaking jarticui..rl3' nov-,' 7.1 th re^^trrdt to the extension of those pro 5 visions to forei;;ri corporations v/hich I think are unv/ise Slid, v'hich I think t.HI create confusion and In^urj to the companies and to the people. V.T. Refers: Don't pou thinl: "v/e wonld 'jo far from our purpose if ve undertook to establish an annual dividend, and require our domestic companies to issue gn:m£2 dividend policies onlv anc let other c-OLipanies of other states come in competiti ;:.! with them? !!r. J-in-arhur;/ : Eo , because v'ith the provisions rf 'uiblicit^; you have hero, if that prevision is as beneficial as the ' enl:le:r:en have said it 'co be, anc as the doubtless think it is s^ad I am incline o to think it is, with my limit- ed knc le c" '^e J our companies that c.o not ado_t this can not do business. The Fc".- York companies th£,.t act upon this and advertise it and let it be knovn v/ill drive the otliers out of business. The'- r;ill do all the business in ITgw York anyhow if the-; do not elsewhere in the United Btates. llr, Fi0;-:ers: Then your objection is academic? Xr. lindarbury: To.- Tij? objection is thtt you ou^ht npt to interfere -ith the methods nf doin^; business of foreigi IV'6 . corporations under their charters and the laws where they are orgtjaiaed, but leave it to the legislature of those strtes or to the voluntary acts of tlie companies to conforn -co the regulations th, t 3^ou uake. It is not academic. Eased upon the &r:damontal nilnciples. I'o^v there is another provision L'hat it seeins to aie contains something': of an oversight. It is that nith re':ard to e::aminations. You. have a provision here requir m--; the Insurance Corai^ission of ITe York to eraraine every insurance companj^ doixii^f: "business in the state upon pa,:^e 11 or 12-- ever3' three years, ."n aclmirahle provision I fninh, and I saj' I ■-.ave no fault to fine, v/hatevin- evrn thou- h it does ertenc to corporations froij] vithout tjie st.-te v/ho are rloin^r business here. lut tlien you h.:ve another "orovision v.'li^ich seeias to require the OoraiViissionei' . '^^en-'tor /.rmstrona: On -.h-.t ■■. "-e is ti.at? y.T . Lindarbury: You have -.nother on pa'^e IJ , yoi;. hstvs.., a - revision that seev::s to require tl:e Oomiiissioner of Insur- ance of ~Je':: Yor--: to e;-clude from LTe- YorL the Corporations froin every o^.her sta'^e \.'hich foes not adrait yo; r coiq^ora- ticns to business in tJifi.t st&.o upon tlie more certificate of j'^oiir Coiitr issioner . lu other '. ords, you compel your Com- missioner to hi;- self invcstip;. t e is every three years every three years ev: rj; forei^-n company doin. business here, and not '. ahe tlie certificate of the In~;urance Department of his home 3ta-;;e, f-.nd then y:)U say th:.-t unless the other states './ill t.ie ^'our „.ert certific. te ■.Ithout jny e:.i..mination X{ f I.ir- Arm strong;;: 'Je gey "ma^''." I'r- Lindarburj?: ""'el , "may." l-Ie niay, '-ell is that right? Senator Armstrori;^: '.~el3_, heretofore it has been s'^. !.!r. Lindarbai^.7 : Is it wise? Senator Armstron;';-^: '"e have inodif''.e(i it. i:r. Lind^rhur^/: ITo , j/ou have not; heretofore "by an act that :nacle it the duty of the Insurance Comi-iiissioner tonact- uallv e.anine the corporations of foreign states himself — heretofore the liave V/e en allowed to accept these certifi- cates. I'Tow v/hfit I su 'Merest about that I am net srDealring f«r these conpanies, none of them have ashed Tie 'cr< do it- -"but ^ 3^ou see tiiero ths^t 'orovision v/hich must excite resentment I should thinl: in its worlrin^ out. You ou^ht to allov/ theci to examine your com_''anies if jrou insist that your Com- miRsioner phall be ali-'v/ed to examine theirs. Senator Armstrong; now can we prevent them? Mr. Lindarbui^r : ""hy you say that if they do not allow your companies to do business in their state on the mere certifioete of vour Commissioner he sho.ll es:clr!d. e all other coin'.'i. niss fr'.m 'Hie st-r'e. I sur";ect tlj£. t is not deliberate- ly/ In'Sdiided ahd thax it is provided in tiiat -v/ay perha-os b:/ se some o^''-jrG:ij:nt and it seems to mc tliet &. moment's considera- tion '.oulc". indict. te th^t rhere ou-.ht lo be a change. '"r, Rorers: Yo'r criticism lies then to section 59 on )af;e 12?" 'Ilr, Lirdarbury: " ell,' it is 11 or 12 -- no, it lies this v'ay: I rlon't caro v.-het]]er 3'ou provide xhat 7/our Comnissioners shall accept a certlfic_te of forei3;n Com issloners in consid- er a"u.i(j^ 178. of iiieir acceptins ijov.r Commissioner's certificate or wlietr^er you :'^ve eF.cli the liberty of e. .aniinin;:; tlie other; you ou lit to make it eli.ce. That is all. Sen&tor Tully: ¥0 ouestion about that. -;ena'Gor Armstron?5: I ■juess that is so. !;Ir. linr'arbury : I'ow the :ig t sufj-estion I Is ve is in re- ffurd t© section 96 on ■■^- .>e 48. "enator 'i.rmstron-; : Yqu are doin- veil as an ami scus cura lre . ''hen you start in for your client I would like to "li-.ve you announce it, so ■ 'e will Irnow v.'hero th.e line of d.e- ms re at ion is. :'r. I inc- ? rbury : ' ell her' comes; consider me nov; start- in- in fori::; client, tlie "^rudcntial Insurance Company of ' ..erica. .^on£■.tor 'rmstron-;: All ri li'i . ':'r. Kc-'crs: The limitation of nc"' busines" . I'r. lindarbury: Yes, tlie. article on limitation. Sec. SB you have provided here - sec. 96. '•■ e n. tor i. r ms t r n •• : "\ze 48. I'r. T'indarbur:' : Yes. ro-- -'iLxen, on the .principle ths-t I hve .■.Iror.rfy s-joken of I su^-est that you insert in tliat be- fore tlB" \.'ord "life" v.hich is tlie second vord, line 14. >.he ■rorc. "comestic;" and that on the second line 3'ou tahe^ out the -■,ords "d->ln- business in this otate." I have nothixr; tc acd -jo '^hi.t I " vo alreacy stid in sup-ort of thi.t su:; as • tion. It is u.,.ider t>ie Comity reasoning \.'hich I hc-ve adv. n — but -lEBi'in^- that; because that is not the main tliinv -^h .-j ■:■'.. I msh to caJl yo^.r afL-ention to -- it is the sentenco re .1 ..: in?. You state' ";■: cor-oration more than t-.7o thirds of L-.-ie outstandinT insurance of -..hicn ^ i.- ■ ir«- 179. nn DecemlDer 31 shall consist of industrial insuifance ." 17ov; tliEt I i-,a.^inG tlie.t tlic o"b}ect here \;as to e cept the com- panies that were doin.": '.-hat is ce.lled - vfhat is knorn as indu-strial business, of v.-hom there v/ere onlj? four and three of v;hora di- 90 of the industrial insurance of this cou.ntr3', the John Ilancoc-.:, the Ilotropolitan of l-e\ "lorlz, €.1"^. the Prudential of Fe' ark; and one is the Gclonial of 1< "67: Jerse;^ a snail hut jr^'in.? end he.il thj.' C'')in"T.ny, thou'h small. The other three hbr.ve oeen regarded as the three industrial coiiiji&nies . Fow then, is r-.o happens that this t'vo- thirds "orovisions cuts ri"ht hctwev-n them, and e ce:-;ts the I'etropolitan e.nd leeves the Joim •-•lanoock of Eassachusetts and the '^r, dential outside. 'nd xn^r su7-estion is tht^t that tv;o-thirds be clBn-ved to 60;,.-. On ;>ar;G 48. 3er.£..tor "rmstron;^;: You are a^'are that tn the ne:. t pa'^e there is a provision ".hich v.'as intended to leave that in and leave that nov;, reduce that so as to e::cept them all, are you not, ^' lie re this otlier provis^ion, besin.inj: «n line 11 o::' •;;•.. '-e 49, provided, ho-v; ever, that is in case one corporation c. ce -ted as aforesaid the policies issued _^,in any vear e.. cluc-in'^ industrial policies shall not eizceed in amount '30,. of the 'total amount of outstc:.ndin3- insurance on the 3l3t of the pr cedin" Pecomber. That aeans a liiait- ation upon ordinarj^' business in industrial compi-nies. :'r. Linda rbu rr; : I'es, I uj.id or stand that. '^cna tor ^rmstron'^: That ^^ou Aren't cbject to. !-r. linoarbury; I don't object to aiything else, if you chanf^e this tvo-thirds to sicty. let me give you figures. 180, Sentttpi- IrrsstjffifBg: A half, to cover them all? Hr. Iiindarliuiy : A half^ ttjlt there is no GTidencer ojt. it becaase tliege are- tiie fig-nlre.s', I have gottM th.eiax, pf the MetTopolitan ^business 75?o as sho-vai by the last printed report, 75v3 is industrial, of the Prtidential 635^, the- Han- ,oocl5 625j, of the Colonial I have not Sot except I am in- formed by them that it is about 60, say 60/Sw Senator Armstron.'j: Kalre it one- half . Tir- Ilndairbuiy : !'a&e it one-hslf, if you please. If that were done it irould bo entirely satisfactory. I have desired that you should noif treat these dompanies viftiich compete with oach qt.ferw Senator Armstrong: I*ut then tojgether. I ?dsh you had noted this feature first. ^;e are gettijo- together as v/e g® al onf; . ( laugh t e r ) . Mr. lindarjjrary: If you can get togetlier at the end it is better then if you be together at the beginning arid part at the end. (Laughter) That is all I have to say, sir. Senator '!.rrastrong: Tell, v;e are veiy much obliged to yo •■'r. Lindabury. (Ap .:'lause) . Lieut.Gov. roodrufx: I am going to call upon the Act- uary of the Stave Mutual of irassachusetts,. Mr. Sartellci Er. LJndabur;/ drifted somev.hat from the stibjeet u-iider which ho Wf.s i-'Ut do\/n, v/hich v/as that of the limitation of ex- penses and tlie limitation of buaineSvS. Mr. Sartelle will speak of that particular subject eaid will take up the sub- ject of comitjr later. 181 llr. Sartelle: llx. Chairman and Members of the Conuaittee, as tile preoedinc; s-eaher \;;as not instantly killed by drift- ing' from the subject, perrait me to s :y that I v.lsh simply to say, as re-oresentin.e a Gom:_-iany affected by or bein^ under the provisions of the Lias sac husetts lav/, tlie comer stone of which h''..s been a cash surrender value, which is not pro- vider for in the policies e-^parently as dravvn in this bill, that "we say it in a spirit of sadness and not in a spirit o£ spite or boasting that v/e can no course open te us but to withdrav; frem the state if the provisions po throu:^h as dravvn. This ef course lis, s been said before and I merely em- phasise that point, ■■e cannot comply with the t^o standards and we must comply/ rith OLir r^vm. In re.'^ard to sec. 98-- Senator Armstron';: You s.re ar.are, ere yoi not, that \7e permit any company to establish a hi-jhor and different stand- ard tlian provided her.; in, so thtt 3'ou ;nay still comply with our laws of I^ev/ Yor':: if you choose/ Mr. Sartelle: But your policies, es I understand, do not provide for c^^sh surrender vt-luo. The;.' provide for less values, for excendoo- ir.aurau'-e vv-lues. for a p^id-up value.. In addition to those -./hich ..u-y be <;;ra:;it'5d ii'ider tbe l:-wv our policies are &-utom^-tic«:'.J y pcic \ip : r ce.y be s^arrenderec! e:ach anniversary for a os.sh ^J.iuo. Hr. Pogers: '^'ell, that is the bill prrividing for a standard ±07-0 of poJ.ioyo Z.Ir. Saroelle: ■^ro\'idin~ for st ndard form of policy, st that this v;hole natte:.- ■>7oalc:. be cohered by the remarj-is of the preceding .o--BntlGmen who ha-ve sp-:ihen in regard to not mshin":; 182. •those provisions which you have many of than sm}ly to any- thing biit your domes"i;ic corn-.anies . That is v/hat our stand- ard foruis do - Mr. D&\7son: Do you understand the ::assachusetts law to require you to put the cash vtilues in the policy? I'r. 3artGlle: ITot necessarily. I!r. Dffvson: Then do j^ou understand thf.,t the standard j.->olic27 23rohi1:it you froili "psyins cash values? i::r. Sartelle: The standard form? I'.T. PaKson: Yes. y.r. Sartelle: I c-o so understand it. It is not pro- vided there but it is a-:;ainst our ■'practice at least, '"e say that there shall he a definite value pt.id. ^'nd to t^k& it bej'onf". question of \7l:i£t that value is, as a matter of rractice ve insert it as a -x.rt of the contract. !3en£--,tor ' nnstrong: "r. Sartelle, there is no thin:";, which I see in the lern '.■■1:1 dh -re vents your continuin'T 'l-o issue f- llassachusetts polic:/ of that character and issuinp: Few York policies of the chara -ter we require. Jir. o:-r*©lle: Oiir Isr : compg^ls us to issue a Jlassachu- setts contract r-.herever we '.o. "e cannot issue a different contract in ITe-, Yorl; frora the one we are issuing in ?Iassachu- setts. "e ::re not open to tliat provision. Senator .''.rmstron.g: It seeijs to me it v/ould have to be vivisect o/. then. 185 and so;" Your lev/ s&ys "Thous shalt do something else." ■.'e C(-ainot do botli ah. 11 and shant oi- the tv^/o shalls. (La-iiijchter ) . So that as I s>.y , we are sorry, ertremelj'' sorry anc we c^-.ni'aot see this in anj- other li3ht than that vvs must lose the money that v/e have invested in our i-g-encies, •'A'hich are in fact a "oart of a plant, a working plant, we must lose them at least half the tiae. I p;rant this; that the lav/ of Eassachn-setts mt.y clK.n.i6. That is perfectly poss- ible. I doubt it, however. (laughter^nd ap'olau.se . ) Senator Armstrong:: '■'hat object can -'Massachusetts have in keeping such a law ujon its boolcs, which vould require it to issue everywhere that kind of a policy, when it does not concern either the companj? or its policies in Kassaciiusetts- the provisions in other words TSiicli ITr. Lindarbury has dre'vm our at 'Mention to se^m to be those that we can not effect- ual Ij; enforce in Te ■ York without u.. "vln.-, thau general pro- visions. Here is ^nw which Jlassachusetts would be rather obstina,te about, it seeij^s to me, if insiste:' on. llT. Sartelle: I thinl: we have sometimes been accused of beiiir^ obstinate. But hose are the facts ' ith us. 5; en at o r Armst r ony : Ye s . !!r. Sartelle: This has '.■een a thin--^ that we have been accustomed to say, and I think I will be borne out lizr the facts of the case thci.t it has -.een in the past as literal a policy as any, so that tlie do comply with the provisions of r. 184 tlie laws of all of the states in wlaidh v,'e sought to do business, 'bu-c the Ibv; I am tlrxinking ^particularly noT-* of the State of Missouri, in v/hich we do a large business. Senator Armstrong';: Lot me interrupt you lon^" enough to ask what oash surrender v-lue you sllov/. Mr. Sartelle: T/e allow the entire reserve of a pol- ic;? under three years, less a surrender charge. Senator Armstrong; Of how much? I'lr- Sartelle: The surrender ciiarc^e at the 'nreseiit tine dex)ends upon the present value of the future preia- ., iuns to "oe recdivec?. , and is fixed at 5;i of those future values; or iv.der the contract we ma;? take a less sum. "e cannot t-. ke more, v/hich :.ieans that "Wfeen a limitef^ payrae ment polic- has paid its last payment we .■ret perhaps a d«l lar and fiftj? cents. Senator Armstrion-':: 'ell, now what lias your exper- ience been - it is uite aside - but I am glad to be able to ask you that c v.ostion---'--hat liasyoiir experience been withJithis polic3'- as to its effect upon twisting so-caliec- wo have ■'::een -r.fraid of the provision of cash surrender par: ticul.^rly for that reason. Ilr. "artelle; In a certain .iieasure it will be ans- wered by this perhaps; and not entirely either. Otir pol- icies as a whole consist as well as those of other com- pfc^nies, so far as ';o can tell. For instance, some years we thou--ht to isr^ue a five -^ear dividend policy. :~'revious to that ti:.!e, r.ithou'^'h the lav; ' ave lis tiie right to do it, we 185 surrender values v;cs enacted in 1880, went into effect the first of Januay, 1881. We hare been imder that law then some 15 or 18 3'-ears; Init Roing over the experience by anounts of insurance, not Idj'' policies, not by lives insured, as has been some figures presented to your coiamittee, but by insurojice, v/e found this: That at the end of five 3/ears there was IQf... of the entire business put in force still on the books. That 10'^'; of tlie business did not renew by paying a second preuiuni, so that the only claiiu we ever i;.iade in regard to five yea.r dividend policies were that at tlie most the earnings that heretofore nine people ha,ve had mipiht be divided a^mong seven. That was th.e lirait that they could get. As a matter of fact, v'e eliminated what is faniliarly knc^-n as the Contine elevaent in the event of death bj/- making the sane dividends in event of death prior to five jrears that v/e paid on annual dividend policies. And to-day, if one of our policyholders dies having paid five premiums under such a policj'- he gets exactly the spjje as an anmial premium paying policy \70uld receive as a dividend in addition to the face of the policy. IIov/ I do not v;ish to talk too much. I wish to uake- these points that I was going to imke have ^cbbtl covered, out I will say that since beginning the issuing of the five year policy we have invariably set aside, tis we might use these words, a contingency surplus-or contingency reserve would be better, we have absolutely, policy by policy, set do^^m against it the provisional amount which was paidunder our regular annual 186 polioi^a, and oarriecL tTiose alGtig and put into otir lialigiities as a special liatillLT/ tho siimo of all fn.ose together with, interest upon it, as the sirm itself was n:yb suffiolont , New then- Senator Armstrong: ^dded to your resarye liability, Mr. Sartello: Addod to our reserVvi lialDility. Thore is in the report a special .eaaase fcr siipplomcntal contracts not inv&lving life continginGi&s anii thrmgs of that kind. And we iBYQ put thoso in as a liauility, always j and at tho present i time it tmornts-- we arc a small company; wc are only one ! hundred and fifiy millions in round iTomcors of insurance in force; and tiiis is practlcaj.ly one hundrSd thousand dollars, Uow I was go&Lg to spc ak — Sona^^or AiTnstrong: Of premium you mean? Mr. Sartello: InTo, ono hundred thous £ind dollars of dividends, if wo call them dividends. That is an apportionment cf a surplus that havo boon apportioned fcr these five years dividend policies. Here was tho fact exactly, if our law used to compel us to pay a cash su.rrondor raluo at the cmd of two years. It is probably very v/oll recognised thajj the reserve is not made whole at the end of two years. Those policy holders then who wore policy holders that were going out at thS end ef tv/o years did not in the old surrender charge on endowmsnt policies make good the losses to the company. _ Wo therefore said, These aro tho ^follows that we are after", in other words, we might uso that erpression, Tho present law requires three premiums to bo made similar to the How York law and now 187 tui-s sxirr^erider -ciaxu-g-e- j_s :rec-or:ni^ed, ,in this lav/ e^s a certr.in percent- ge of the reserve . Th'-,t is an accurau- lated charge, I iierely vich to crll attention to it that the jiian v;ho surrenders at the end of three or five years with a s. a] 1 reserve value pays very nuch less for ■breaicin," his contract tl:an th.e aan Sho lives to sixt3'"j we vfill say T/hen his reserve is t^vo-thirds the fa,ce of the policy itself for roing, than a, nuch poorer risk - Senator Arustrong: You are BMc-.re, hovever, th' t our present Icuvr only allcv/s t-.-o-thirds cf the reserve for a surrender valr.e. Mr. Ra:'telle: Yes, hi't oiir law in that case v-ould take ver;'" iiuch less, ixnd on a pe.idup ijclicy the principal is Vfhat \%e hold to. There is a principal of forfeiture v/hich is recognized I 'believe in every court of equity, that the breaker of a contract suffers the penalty. And that is the pri?iciple t'lat v;e recognize. I vas foing on to say, Yr. President, to call attention to f-^is tahle of fi-^^-ures hut that has already been done. 3ut I vyill not take the tine to do this, althcurh this point th'.,t v;as :orou~ht out hy hr. Johnson I believe ■■ould ;e very fcrci^.ly dravm out if frora ti:e first ye-r's e^qoenses - 1-et us take for instance the largest coiTa~any mentioned, the Yorthv;estern - en pare 404, if you ha,ve the second published report. The last colur.m but one. ^'irst year'§ e::penses one ..liTJion five hundred and tvrenty thousand dollars; now the loadings on premiums are six hundred and sixt;^- seven thousand four hundred and sixty-seven dollars. There are not but two. There are simply tv/o sources from v;hich ycu are facing to get i.iarKins, as the question is 188 one from loadings, the otlier from mortR.lity, Jlow if you su"bstract j^our entire loadings you will have left your mortal ity* ITow, go over to page 411, ejid under the nodif ica.tions that have oeen ...mde, the ^'^orthwe stern J:aitual is c.i'^ren as 0737,470 as the present worth of the future gains from mortality. ITov; these two sums are not rif2:ht hy .'"•115,000, And apparently" there was an error. ITow I wish to sixbnit that the fir.ures of a sinrle year, made up by thirty odd d if ft, rent men, ■'/ithout any instruction as to how tliey v/ere heinr made up and cover- ing: a sinp.'le year is not a sufficient oasis upon v/hich to determine so [:rc.Ye and iiaport nt a. suhjcct as this. And that in the fluctuation - then you ;7ill ohserve in the sura total t":-."..t is Qiven there the I'^ew York life, for instrnce, has er.pected losses of '"3,031,000 actual losses I gave you 878 - which is almost 62;f of the tahle. Then following it the Kutuol life lias 59f'; the Prudential 66;". IJovr if your new company - and I notice I believe that you have xrisely opened the doors -for the fondling of new companies. And yet by the very rule you have set up should your ne,. ccm:'any have the exioerience that these old ccmr'anies have, 'as I heard it expressed yesterday, I think" it \.'as '^.y one man ::ere, they would go up in a halloon in a couple of years. "l';niiie for a long period of time that may he all rirht, "i-^et there are fluctuations smd in any single year the suggestion would Tje that you allow jrour company to hold as a contingency re- serve of a axiarantee fimd something in addition to the 189 amount v/hich jcu have provided in section 83. It has already been sc.id that evei'y workino; actuary, that is every man actually engF-^ged in the business is heartily in favor of some restrictions of the expenses, Tliat ive bcliev? that this particTilar way, save as perhaps a me a s \i ■"£■'■' v.-hich cornpsuiles can be barred as they are, there should n^^t be imde a hard and fast rule, the inadvertent viclaticn of which Toecomes a inisdcmsanor , etc. Gentlemen, these points have been covered and I will -- Mr. Cox: Let me ask you one thing, referring to the llassachusetts legislcar/are . Has there ever 'been :a.ny attempt to get that provision repealed, \7hereby they compelled your policies to be the sane everywhere? 111'. Sar telle: Not to my knov/ledge. Mr. Cox: You never have complained of it. Mr. oartelle: ITo , we never have complained of it. It has alv/ays been. ICr . Crx: Of course you would complain the moment any other state shoLild attempt to get ap standard forms for use in tlicse states. lire Spx-telle: That is absolutely a grave question.. Nor I will - - Mr, Rogers: Let me further ask, is that a rule in your special cha,rt2r or a general rule a,ll over Iilas s aciius e tt s ? Mr. Sarteile: Oh that is the general law. Our specj.:;:. 190 charter allows us for instance to do Toiisiness on the mutual participating pla.n or cther\7ise. Por instance they - 3iit tbo.t is another t'-ing. :Tow they themselves use the arguinent that these policies on the v;hole were so fair that they appealed to persons who examined them and knew what they were, that we were not at a dis- adv'ntcige in going out into ether fields a.nd ineeting other companies in competition. It was the Massachusetts system so to speak. Sut our lavv' says every domestic life insurance company'" shall issue su.ch a policy. Now originallj'" rememher Massachusetts "^ras the first sta,te to pass a nonf orf eitvire law. In 1861 the law put upon the statute hooks which gave extended insurance - they gave 80^"^ of the reserve hut a], owed the forehorne premiums to he taken out. T.c-w- that W3,s so drawn originally that there was a suit hrought against aii outside company and this lavv' was pleaded, jecause that suit was hrougjit, because it v^as contrary to the policy of the state, the law was changed to ca,ll simply to these domestic companies. That law was in force for twenty years. In 1880 a new law giving cash surrender value law was passed which went into effect in 1881. ViT. Dawson: In order that we may he perfectly clear, the lav; does not compel you to write a policy with 191 tenns of surrender values does it? Mr. Sartelle: Well but our policy compels us to. Mr. DPoWson: Tour policy compels you to, but if your policy had'nt any provisions alDOut it than you wouj^d still be refiriired to? Mr. SarteHle: Still be required to, the same way exactly, yes. Is'nt it five years and a half mortality in that? Mr. Dawson: ITo it is five years ; Senator Armstrong: I take it that you urge that there be no limitation on the first year's expenses? llr . Sar telle: Ah, no. ITo , not that. I do not intend that. If some v/ise provision - because this thing seems to me to have omitted several things, to take into account that premiums are not all paid for the whole year. That with our experience fifty per cent do not renew. How that covers those who pay only one quarterly premium. There are certain expenses thfit are absolutely fixed; for instance the doctors examina- tion, the inspection of risks that have been told to — Senator Armstrong: Yes, Mr. Sartelle: Now then we can not get the whole of that unless the premium is renewed. How if they do not renew then this was the suggestion, if you allow the mortality made for five years, why in reason should 'nt iite«.l 192 you allow the present v/orth of the future loadings of margins or loadings for a similar period. (Applause) Because we never can tell ( I am sorry for the noise, I iDeg your pardon) it is too serious a matter. It is a matter of life and death. It is a matter that life insurance is one of the most important interests in the world; and as one of our life insurance presidents - not one of the home companies hut one of the foreif:;n companies said - "Warts and ri.ll, it is the hest thing that ever happened for mankind." (Applaiise) Senator Armstrong: Your suggestion, if I understood you, was that xn addition to mortality gains as so allowed, we may solve this pro'ilem "by allowing: the present worth of a certain number of 3'ears loading? Mr. Sartelle: Yes. Now as an offset against this expense which can not he predicated any of it. Now notice, will you please, that the words of your own committee, the estimate gain from mortality is to he so much. We can not estimate a particle, we must well and truly determine. Senator Armstrong:. We understand of course that criticisn. Now the other suggestion that was made v/as that this he modified hy only requiring the eisqoenses which were unqualifiedly connected with the first year's business, the first year's e3q)ense heing commissions and medical exaininations, Mr. Sartelle: Yes, hut thas'e are a whole lot of othe r things; the policy department and then there- is noprovision H 193 apparently here for taxes, it has "been pointed out. But now taxes is a question that of itself might take all the afternoon. In some states v/e pay taxes upon the premiui^is , in some states v/e pay taxes upon the reserve, in some states we pay - in ITew York for instance \fe pay ■both. That is ^;;hichever is tlie ], arger, CJ,.aup;hter ) and those taxes ra,nge all the way from preriiiiras - from one per cdnt, which is your franchise tax - hut heca,use you have a retaliatory feature in the la,w we have to pay something else. We pay to your tax co^imissioner in the beginning of the yea,r one per cent of the gross prewi\ims collected in the state of Hew York. We pay later on in the fall after we have made up a list of all our policy- holders in the state of ITew York, we then pay to make up the difference on one-quarter of one per cent on the entire reserve. Now this one-quarter of one per cent on the entire reserve goes on as long as tJie policy is continued in force. It is not dependent upon premiums whatever. Again in other states we impose tiecause your own state imposes similar taxes. Senator Armstrong: Tliat is retaliatory. Mr. Sartelle: Oh yes that is purely retaliatory, yes, In some states for instance, in one hefore the company does lousiness, in the city of Louisville, Kentucky, it costs five and one-half per cent of the gross premiums 194 the first year. Before there is a two and a half per cent city ta:c, there is a t^vo per cent state tax, there is a tax for your company to do "business, there is a tax for your agent to dc business - and honestly this thing happened within a few days in a little villa,ge v/here the inhahitants were less than tv;o tliousand, the occupation tox for a life insurance agent x?as :'i550.00, and vre had to pay it in order to allow a man to ^walk throu^ the streets with one of our rate hooks in his pocket. (Laiir;hter and aT.pla.use). Hr, Cox: Wnere was that? Mr. Bartelle: It happened in Kentucky- Mr. Cox: You are not recorixaending that for Nev; York state are you? Mr. Sarte3 1e: Hot particularly. (Laughter). Senator Grady: That is the only one ve have'nt got here jet . It. aovernor Woodruff: I aia going to call on John M. Holcomb, president of the Phoenix of Hartford, on the same suhject, a:enator Armstrong: I may say tho.t we have agreed to tPke a recess from 6.30 until 8 o'clock this evening so that that will be the haur of recess, and hold an evening 195 session from eight o'clock on, those who are present. until v/e finish with P7"' 196 John M. Holconib, of the Phoenix life insurance company of Hartford. Mr. Chairmn,n and gentlemen, I scarcely think that I need a.pologise after the openinn; remarks of the chairn-an, for askinp: your -^.ttention to a few general ccnsiderationB, which I think should he iDorne in mind on this nost iinporta,nt question. 197 It the Close of the year 1934 there were In forcirtg In New YorX state in what may be called the reguoar life Insurance companies t706,OOJ P£.lcics, representing ohligatlons die at V'^-irlo s times In the future amounting to |;i,490/"i00,00G, These corawnles paid In the state in that year claims ano^-ntlng to about |21, On©, p-0'^„ Of this there y/ere outstanding in companies chartered by other states, but doing business in ilew YorK, 248, 00? pocilles, representing Insui-ance to the amount of $5-ax^^'00 COG, an average of aoubt $2; 003 for each policy. These companies in that ye^:r paid 1^ the state in claims about f 6, 400, 000, This business constituted in a general way about one-tenth of the tot?! operations of these foreign cci'penics » Lifie insurance corporations located outside of Hew YorK stf^te in the five years from 1900 to 1904 inclusive paid in claims alone In New Yorlc over |29,ooo,cOG. In the year 1904 these companies poaced in Np'W York state 50,P-00 policies for ^85,000,C00 of insurance, an average of about ^'1700, for each policy. Prpctlcally all of these policy contracts T/cre Issued u, on a.: ^ lic^.tlons secured ?>y agents !!)per--tlong in tnat state. It will not be denied th'=it the people of Now Yorb. have the right and the r^owor not only to regulate., bn.i.ic) up or destroy thj-lr own corpor^j. tions, ^ut they al=:o b^'/-e the right to' prescribe u-')on what cond'tlcns corporai-.:' 'x;..:: of- other sf^tes shall be permitted to do buslne-^s wlta them.. The bill which Is before you p^^ovldes, In some of lv> feat^ores, not only how these corporations shall do busln^^ss with thf^ people of New York state, but also in many ways how they shall conduct their entire affair.^-, and It is, therefore, a serious question whether such a corporation can properly comply with the conditions r ,: 198 Which may be prescribed for the privilege of transacting business in the stste» These co-utside coinpanies have many policyholders in Hew YorK state whoso interests can best be cared for through agents. These agents have devoted themselves to the legitlmpte worK of spreading abroad among the people the protection fo life insurance, and their with- drawal from the state would inflict a danage upon them w 7/hlch it is the duty of the managers of these companies to avert if they can do so by fair arg^aments. Life insruance has never been done to any considera- '^le extent except tiirough the instrumentality of agents, and it is perfectly safe to say that it never will be. This is shown conslusively by the experience of many cotb- panles - especially those in England. The Equitable Life Aasurp.nce Society of London- one of the strongest of all life insijrance com.panie Behaving been in business continuously for more than 150 years, located in the heart of the greatest city In the world, within easy reach of many m.illions of people, but prohibited by its by-laws from employing agents- has issued in the past thirty years an average of less than 300 policies a year, A life Insurance company is not a sa ings bank. It exists not for the purpose of receiving money, Improving it at Interest and retuj-^nlng It go it-^ depositors ^ b-^^t to repair the loss occasioned by the terralna ion of a life valuable to those dependent upon it and to the state o The premium reviuired to meet thi?. loss must be sufficient not only to maKe good the loss itself, but also to meet the necessary cost og bringing this protection to the unsured, to pay reasonable expenses o f oonducting a large, complicated and delicate business, requiring skill, integrity and experineee, and the taxes 199 levied upon It by thft various states in whloh the oper- ations are oonducteci. A mutual life 1 n sura occ company exists for the purpose of f^jmlslilng to its menbcrs sound Insurance In such forms as best suit their various needs, at as low a cost as possible, Vhether this ean "he accomplished In each Individual case by increasing the number of policyholders or going Into liquidation muvSt be left to the judgment of those whose Knowledge of th«> affairs of the Institution Is sufficient to enable them to Intelllgo-ntly decide so Important a subject. If nn Increjase shall be deei^ed to be for the good of all, the terms and conditions upon which this shall b© mad® and the localities whore new members shall be admitted must be decided by the careful consideration of all aur- roundlng elrcumstanceg, and these cannot be known ex- cept by those who have :.n Intlmatf Knowledge of every detail. of the situation* A mutaul life Insurance company m.ust charge equal rates and equity must prevail In the approt onment ef Its surplus earnings. But this Is not all. '-If It has but one scale of prf-m.lums, It must be sure that Its members must, In the quality of the rlsXs assumed, ba «n an equality. It must also Issue to Its irip'mbers policy contrpcts alike In terms and conditions. It would be as false to principles of rutur-llty to Insiire good and bad lives on the same terms, as It would be to discriminate between Individual rvmbePs In allotting HKp surplus. In what way can this balance best be secured and presented ? Plainly, In a business obtained chiefly at the distance from the home office, the greatest car® must be exercised that the personal history and physical condition of the ar.-.llcant shall be Known, A competent medical examiner and a faithful and honest agent aro essential. No contract should be entered Into without a full Knowledge by both 200 parties of all materual facta. The- company must Know the condition of the appolcant. The applicant rust know the Condition of the oonpany. The agent oust he the medium through which this Information Is exchanged. In what way can i^oth prirtles ^e most effectually or-- tect(yi2. If the compensation which the sgent receives for his la>^or Is dependent ont only upon the ■•-^ayment of the first Dre-'-^lum, i^ut alao u-pon the continuance of the policy, then It will be directly for his Interest that the Y-ollcyholler shall live to pay, shall be satisfied with his contract and that the company shall moet with success. In order that It may retain the confidence of Its members and the public. As renewal prem.lums are paid ■'"^^'"■' fipf-nt can and does loerform many services for both '^■crtles for which he In f-ntltlod to fair ronumei- at Ion, The system, of renewal commissions extending over a considerable pelrod Is not in the nature of abonua, but is of dlstlnot value, and the Instances are rare v.-here \,'L^- agent, under this ff>rm of com^pens? tlon, receives n.ore th.'-m Ms services c?rc- reoson'"l>^y v^orth, or n.ore than the compfrnj": or the policyholders can aft'ord f^ pay. Life Insurance agents are engaged In an honorable work upon which they rely for support of themselves and their fam- ■"llles. Their occupation is on-e of as mueh dlp:inlty, ivj- portpnce and value as th?;t o-p the mlnlPt''r, the la'/ryer or the doctor, and they undoubtedly receive les;'? fcr .-.he- amount of Intelligence, ability and labor required for their fwx'k. thr.n almost any other class of laborer.3s It Is not those V7h? cm afford to earry large po- licies who need life insuranoe most. It is those v;ho can only afford to pay comparatively small premiums, and any la?/ v/hlch would tend to restrict 201 the business of life Insurance compp.nlcs to the wealthy, and even the well-to-do class, would certainly deprive the far more numerous class of this protection, ThPt ^-ortlon of the >-lll y/hleh Is before you which seeKs to rogul-ite the amount to >^e pnld for new business and -for collecting renewals, pfter naming moderate allow- ance for other necessary disbursements, would leave a condensation to be divided between the solicitor and the general agent under which life Insurance cannot be brought to thoses who need It most. This bill would destroy ag-'ncy orgr.nlzatlons which have cost much m.oney to establish, Mnny ^f these companies h"^ve been conducting their business for more than fifty years, honestly, faithfully, econonicFilly and unselfishly serving the public. They have adjusted their premium reateo and their entire policy contracts upon eqvltable end safe prlncip.es, and that section of this bill which seeks to dictate the premiums which shall be charged would be an int.. rferenc© with those principles which have been established Sfter many years of exr.erience and "^ost cFifeful consideration. All life insruance corppnies doing business in any stf^te should be reaulred to r.^'.lntain a condition of per- fect solvency; should be regulated to a reasonable ex- tent in the Investrent of i;hese sacred trust fund 3 ; should be required to five the public full lnfoi'ij;a-i.ion of their opera tions„ Coripe cltion and public opinion will be far more powerful to Keep these companies econo- mical ana honest than st^ fcute larc* In -July last there ivas appointed by the Senate and Assembly in the state of New Yoik a joint conmilttee "to investigate and exarune into the business and affairs of ""Ife Insurance companies doing Uusineas in th.s State of He-w York. ,Afftirig-TuicL3x 'these instruc- tionSi the comicittee sent a comnnmieatioii to the companies char- tered by othor S'tate^, but authorized to do business in Hew York, Tjeginning as follo'.7s: "In the course of inTestigationby the oonmitteo of tho Io^XsIq.'cxlto into th© affaris of insurance compaai fA doing business in tho S'txata of lew York, yo-uur company will very scon bo reacheda To facilitato our iaq.uir7 w© WQuLd xoqu®sty©ur company to furnish the Information mentioned below, the list being praotically tho samo as that "waiich donestlo conpanies thus fi ftsanlnGd have given," ITumoroua quaatlons were askod, calc-alated to brlns ciut tho mothods of those ooraixmics. The partical report of this •eornmitto e has alr^dy heon pu llshed, and by It tho people, tho public press and -tJio mranners of the Uew York legislature have boon largely Influenced in their vie^ of life insuranoQo It is not too midb. to say iSiat when the cntir report of ttiis couaitte e shall be made public, and sufficient tim has elapsed for careful oo^sidearation, a very narked change of aentinant will rosult, TSo matter approarJhir^ this ±d inrportance in its far- reaching results has over before boon brought to tho legislature o "ttils or any other stato for decision. ITo one ot all familiar 7; it: ! tho history of life insurance can doubt that tho requirements of P this bill, if enacted into laws, wcxad place all the companies Kf engaged in this business in a oonditicn of practical liq.uic"latiGn. Tho officers cf thcso companies are tho custcdians of the most sai trust knoTiTii to tho business world*. Thoy acknowl5dgo their r>y the public, may lead to consewuenoes not intended even by those v;ho advocate It* The interest of the state is deeply concerned in this matter. Life insurance Is conceded, by those who have given seocial questions the ^-^ost study, to be of all in- stitutions the nost powerful in curtpiling the publie expenses connected with the suppression and punishment of crime and the carln;? for those who cannot care foe themselves. If any laws should y«^r.nie8 of this state end of other str.tee that thin pro:oos(*.cl hill would make apply to the covrsiexdes of our state ar'icl others who now ohject. It has ever been, ?'.e iir. Liiiclerhury properly said, f'ir.ce t.-.'.e hef iiiing of tl?:ls nation it hes ever been the rules find regul ations of the states that no act should he pcs- Rorl vaiich should affect the internal r.nnaseident of their G companies. In two ii^Ktfiiices v/hsre it was found to be the case, or-.ce in Ma:s;-iachustett8 under the le\7, I believe of 1861, in which the P5nn Mutual Life insurance conpany was cor-pelled to pay under Jhe extension feature as laid dc^>ni 03' the Kosi^achufietts lafv a :policy after it had forfeited uivr-er the contract r.s hiJAde with the Penn hutual Life In- fii-irance Corapany, after "that occurrence % anrt Tf/lien the L;af::i..aohiisett8 leglalature 'liGCovered tiiat their law vras iv.aAe to o/opiy to fC'TelEu coj-^ipejiios , oowpanies of foreic;!! states, it pro:»perly Diaencec' that la w so thet It nhoulci P'^s^^ly that ^-e.y no longer. Another iiifitf^hoe vllX be Kiiovrn, in tlie oaf->e of hiasoiur-i vriiers tlielr lairR T'ere hia.'le to .•■•...j.jly to go: panies after tyfo yerxs -:■./■'" to forelgii oortpaniofj. !?hey aiienaed that law and I >j3lif3vo txis.t the only stf.-tes v/Jiioh \v..vo laws v/hich 8-"- feot t:.ie oontre.cts of." i-isia'-ance r.ov«/ are Kew Yorlv, }.r;.eBa- ciniEGttr, Maine, Michiger, Colorpo.o, KerituoKy, New Jercey r.nci iiia^-oin-io anci all of tho^.e relate only to lation in 1860 r.nr: iip.s enle.r,:^BCl it in 13SG, rr';:);-ilyin-f only not to tj:..e internal n-ma^^e; '.ent of coidpcnies Ir.it to tcnation ih'porjcd toy otJ^.er states upon the stRto of ¥.3v YorK, ye p.slc thct this law, gentle: en, shell lie therefore jjsrle to apply only to the coirornicfi of l3ecyTities with ths govern- r.ent of siich f.;te.t'3 ox countr:.c-c,, then " etc. This is -anc.er nec-Vion 33, i :oelievej. section 33 you. Fill notice there thdt the obli£;etion iraposed upon the other states as to the adxiission of j^Iev; York coin^inilQB todo hUBiriCSB m that ntate-. shall be the ce:Etificate of the solvenc].'' of the cor-pan;/ and the recuiren^ent of 8 one Juinoie regulations to he imposed tipon that coi:r;)any. All corpor- ations have th';lr life only frorj. the parent state v."hich r;ave theM hirtho YHion they are adraitte''' into anotherstat© they "-JUst expect to afrec to the re^xilations v/hich that state shall iixc^e upon foreign coi^janiesy and it ie rjore than lir^'ely that if thip prinoiplc f:hall he carried oiit in this hill of c:iPn;;sing th3 prj.noiples oi" interstate c^'Td/'cy and intorferir ;^ in tht^ yer;io::ia.L ;2^nage^-ent of the coirn-anj fi-a of other 3tfit^\i,,, o/^at r'^-'-clvjrocal le^^if-lation nry he ;::ad6 ic apply to -.he oorp.uiie^ of thir^ stcteo I oon^t aay that ±c- v.'ill l:c so hr.t it iu noro fnan likely zo he true and if thi.T law should papy. 1 car. say on behalf of the Penn hutr.al Life Inauranoe Corpany that it '.?Duld ccirool it to hecoBe aliiiost a ccrlioration of the state of Hev/ YorX« 207 It iTlght conflict with the requireiosnts of the state of PsnPennsylvania arid of other states which vouia inaKe sirail- ar repoilatiors as applying to the corpor ations of other states, ir.cluclir.g Pennsylvania, and the only alternative Fotild -re eitlioz' to stay in New York and oake its contracts agroe v/ith the provisions as laid dovm here or to retire jiTorn the state. Nov; I asK. the gentlepien opresent, the inem- hars of this corjnittee, that while this act is adiilrahly firawn and is intended to protect the coi-vanies and the p policy holders, I believe that it is too drastic in its rea8io:-Go in regard to the coripensation of agents; that there should i;e a lar::.er :. argin to cover the first years oxiTsnoies ard the contiiiurtion of renev/als for a inuch longer ti]B« The clF.fjs of ren that ve most desire to see in the ar-.eiicy forse of the co^paniGs, are iven v;ho v/ill devote their lives to the biisinenr:! a: d exercise honesty of purpose and be faithful to the coj^aiiiGS and truthful to those they re])resent. Such raen cani-ot be secured at a low price andit is therefore, neoesriEiry in our opinion, that:.- the coiipenBation to the agents shall be nade greater. If this lew must be Liade to apply to foreign cor- porations I T'ould aslc on bohald of the foreign companies that it be modified in sokie important particulars j enlarge tl'.e coi'irlsRions ai;d allo^vance for agents; to rmKe the sur- rendrr values on a oenoral principle that they shall not be iesf; than bo imch, axid have thew. applied in any iicnnsr ■. 'lich the coiitrpctv/itii the othf^r ooj'i:>anies shall alio-',?; that tho 208 ihvestrients or corrpanlefl-of other states shall not be dis- turbed, and that the distribution of surplus and the liiilt- ation of the growth of free siirplus shall not be affeotsd as regards foreign conipanies. The loasinga ought to be left also in the discretion of tiie -"'b esign- oonpciniea and if they Qov.e into yotir sjrate and endeavor to do b^^sinGss coj;:oetition will surely regu- late the \hole rnetter, and if they do not do as well as yoiir coivT!.->r.niv?.s do, they ca.iiiot sell inaruuance to your cit- izens. Senator Ari.vstroiig: Coinpetitlon hc.s not v/orKed soup to no?:. The sane claps of insurance practically, we are told has been sold, is heing sold at different rates to-day; Y;hy hasn't the lav; applied in those cases? Kr« Barlcer: We don't assume that the rate shall be changed, but tiie surreiider values are niore liberal in the Pennsylvania cor:panies to-day, nost of then, than in the requireirente as iiis.de here to-day. Senator Arr:strong: Well, if the lav; of coripetition may be relied upon, xihy has it not operated to produce equivalent rates for sirllar forirag of insurance as between the cor-rpanies doing business in New YorK to-day? Kr. Barlcer: ?'ell, I suppose it is because they have paid a greater aiaount for their business than they properly should exper.&m 209 Senator Armstrong: Fell, doesn't that in a raeasin^e ansv/ex yomr ar^uETent, that the lew of competition i-ay be relied upon, if v;e leave open the arsount of comniissions? Mr. Berker: I aay it would reaiilate the issuing of policies by the coivroanies of other states o Senator Ari^strong: But, as I uiio.erstand you, the law of competition has not, up to now, produced uniform rafree for similar classes of insurance, lEr^ Barker: It has not, no; owing to the difference of expenses of the different con^nles. Senator Ari-Btrong: Then if that be left to the dis- cretion of coripanies how v/ill the lair operate differently in the future than it has in the pest to regulate it? Kr. BarKer: Well, it may not, but I may say that the auresnder values of the Pennsylvania companies are largely to-day, after a few years, than would be allowed by the laws of your state here, and the preraixims are in most cases l07/er, Mr. Dawson: ■ Mr» Barker, yoii understand that the standard policy does not provide that a company must guat- antee the rlniiuun surrender value named in the la^r, do you, and ms.y guarantee more; is that your understanding of it or not? i£p. Barker: Fell, no; I understand that the law as regulates your cocpanies would require them to give at least a value of 80 per cento Mr, Dawson: That is correct, ■ lir» Barker: But I object to the clause in that policy that says that all companies must issue policies which shall "be entirely free from restrictions after one year. The companies of Pennsylvania might very properly think that there should he a longer period, that the privilege to go to war should not he granted freely to ever;;- person who applies. Mr. Dawgon: Have you definite sur:gestions to make on thesre? Mr. Barker: Only that the form of policy should be left with the company, and perhaps to he approved of by the Superintendent of Insurc.nce, and should be governed by certain general regulations as to surrender values, and a fev.r other i-iatters -i/hich mip;ht be left to the Super~ intendent. Senator Armstrong: How can we restrict the forms for our domestic companies \Tithout restricting the forms to be issued by foreign companies within this state? I'lr, Barker: Anything is possible, llr. Armstrong, of that *ind. Senator Armstrong: We don't attempt to regulate the stj'-le of policies they shall use outside of this state, Mr. Barker: The fact that yon would force us to adopt that form as standard would require us, in view of the laws of Pennsylvania, requiring, us not to discriminate between different policj'- holders of our companjr, to adopt for all our policyholders your forms. Assemblyman Cox: Would the issuance of a different form of policy in the sum stated be a discrimination between 211 Mr, Barker: It would be if certain restrictions were put in and left out in others, as you propose to have the restrictions. Assemblyman Cox: Don>t you issue different forms now, to different policyholders? Mr, Barker: Hot with those general provisions changes, no. We issue different forms, hut to army officers we issue a form of policy which provides that the shall pay an extra premi\Ajn "because we consider them an extra hazardous risk. Senator Armstrong: Well, do you issue any sub- standard policies? ¥ir. Barker: No, we don't, but for travelling in the tropics within a year, or for army occupations we charge an extra premium, ViT, Dawson: Do you xmderstand the standard form to mean that in case you desire to issue a policy vn'. th an extra premiiwn you would not be permitted to colleot it after the first year? Mr. Barker: Yes, I do, Mr. Woodruff: Before the adjournment , I want to oal]. on Colonel Rand of the John Hancock Co. of Massachusetts, 212 Mr. Rand: Mr. Chairman, and Gentlemen of the Committee and of the LegisLiture, In vie>v of the lateness of the hour, and all that may be said, and of your infinite patience, I am going to ask yOTJr kind permission to file simply a "brief and lay "before you the questions vrhich arise in the minds of a Massa,chusetts company. (Applause.) Senator Armstrong: The Committee will have a tisro or three minute session, during Tthich we will try to agree upon a day follov/ing this day when we will hear further arguments, not interfering at all tonight; there will "be a session tlais evening, beginning at eight o'clock and we v/ill continue that until those who are present at these hearings have been arranged for, have been heard, and rre vrill try to announce within two or three minutes the day next week on which v/e will go on. 213 To The Joint Committee of Senate and Asseiribly - and the CoriLiittee on Insurance of the State of Ylevj York. The Joixn Hanoock I'lutual life Insurance Coiip sny - in- corporated under the laws of the State of Massachusetts and duly licensed to transact "business in the state of }Tew York respectfully represents that certain sections of the hill introduced hy the joint coLoittee, entitled "An act to anend insurance la.vr generally" will, if enacted, work hardship not only to J^ev/ York Companies, but to all companies chartered 'jy other states, and at present doing business in strict conformity with the existing laws of New York. This co)npB.rxy hs. s at large expense esta,hlished its agency and entered into lawful contract in the tran^^jaction of its hLisiness within the state of hew York hu!' now, if its construction of the bill and the consideration be correct, finds that conflict of laws must occur and embarrassment to husiness result without estacl: sh.iiog new- safeguards to the policyholders of this company, '^hiie the company urges the principle of Equitahle Ccaity between the states, it hegs to call your attention to and make representation as to the effect in practice of certain sections of the proposed hill, as affecting this company, as follov/s: Sec. 33 (Page 11) Under the reciprocal conditions, if any State Conmiissioner shall refuse to accept as conclusive and absolute the certificate of the ITeT/ York Superintendent, of the solYency and goodness of the 214 New York company, then the Superintendent may preemptorily refuse to give authority to any company of such offending Coumissicner's state to operate in Hew York. Under such a provision the companies of Massachusetts would he con- stantly in danger of having their business destroyed and themselves arbitrarily excluded from ITew York, if hy chance some new or weak New York company were to present to the Massachusetts Commissioner the certificate of the New York superintendent and demand admission to Massachusetts and this was refused, because its condition did not meet the requirements of Massachusetts law. Por instance, in this respect, the standard of valuation of policies proposed in Hew York is the so-called "Select and Ultimate" table and method, which calls for a ^ery much lower reserve in the early years of a policy than the standard in use in Massachusetts. Therefore a company while in full conipliance with Hew York law might easily be much deficient in Massachusetts, and unable to obtain admission there, and by consequence of great danger of exclusion is u.pon the strong, sound companies of Massachusetts. Then under the Massachusetts reciprocal law the saiie disaster could be inflicted unv/orthily upon the ITev; York companies operating here. Sec. 39 (Page 12) Under this section there is a requirement that at least once in three years the Hew York supetintendent shall examine eYery outside company doing business in New York. Already in 5ur own laws there is the re- quirement upon the J'lassachu setts Commissioner to examine every Massachusetts Company once in three years. This New York requirement would, therefore, compel the 215 ICassachusetts companies to su'omit to the douTole "bunien of inconvenience and expense Y^^hich would sureljr be retaliated upon by the Massachusetts CoriiT-issioner upon the ITev; "^""ork companies. And more than that, similar retaliatory provisions are in the Imrs of most of the states and there would hence be a continual series of burdensome, unnecessary and ruinous expenses entailed upon IJew York companies. Sec. 83 (Page 227 - 28) If Sec. 83 applies to ou.tside companies, and it is not quite clear fiat it does not, the method of dividends and the amount of surplus that tob.j ba retained, would be objectionable from the liability to misapprehension and error, and especially from the hardship that m.ight be entailed from rigid requirement made obligatory upon any and BYery company ^a^hatever its circumstances or conditions which varjr in all corporations. Sec. 84. (Page 31) Provides for the valuation of policies and the standard of valuation proposed for all companies differs from that of every otlier state and hence the standard of an outside com-na.ny, as made up l-iy the ITew York Department, must show a diffe.cint surplus and financial condition fr>5m that of its own books or as estimated by the department of its own state. This section, Moreover, would compel the department of every other state to adopt the standard of New York in making its valuations under penalty of rejection by the New York Superintendent. The "Select and Ultiimte" method is wholly new and untried and it is more than possible that in some, if not 216 in many of tlie states, mt might "be considered illor.ical and insufficient and its forced adoption at the mandate of this lav; he seriously objectionahle and the cause of retaliation and confusion wholly disproportionate to any Toenefit such cjiang-e could possihly bring. Sec. 87. (Page 33) Section 87 raahes an inflexible rule for the measure- liient of the surplus a coinpany ma,y hold, regardless of the tine and nature of its nusiness, and might Tery easi_y^ in case of depression or panic, ruin the most reputable and best intentioned coiir-'an3.'-, and its c/oplication to outside conpanies, therefore, is so objectionable that exemption is asked in tbas respect. Sec. 97 and 98. (Pages 49 and 50) The rule for fixing the loadings upon the preniiujiis and the limitation of expenses t:iat may be incurred in acquisition of net/ business a,re so inconsistent and inadequate as to entirely prevent the Massachiisetts companies from entering the field at al2 T'^ithout Tiolating the la\7s of tlieir own state in a rerj essential and important particular. As for instance, the first yea^r's n-' expenses are limited to the loading and the saving morta l ihy in the f iro L five yB-.rs a? mdicrt'^d by ';;j..e "Selec v: "and "Jlt:'"mat^~TiJ^-rf3a~T~Tj'7,ua-i;:i"-:~r'~ ^hils dv. an ordinary"Tif 3 ~pul 'i^lf' ftx3uTa~p£r?.i!ni' ""the uc-'ini: of almost the entire I'irst premium, b'.-t by ihe Afessachustvc :s law of fidll net valuation no part of- the net premi-um could be i;.3ed for that or any other purpose except for insi.irance, ocst and reserve - leaving only the bare loading perhaps Soo ^ 217 of the preraiuiiis , for all comiiiissions . Liedical and other first yeai'-s cost; a sum so inadi-quate as to make er-j ne y Ti u s i n >-^ 6 o ? .mp o s s i"^ d 1 e . T h i n p r ^ I'x ;; h i L i v e c o n d i ■; ion is made eTf.m mors irjpc.sai'ble ir. any form of limi^sd life and endowments as the relatire loading is less and less. Sec. 101. (Page 53) 3y the proposed limitation of investments - to say nothing of the exclusion of stocks from the assets, the prohihition of purchase or ov/nership of the honds issued by .hO' ever worthy and suhstantia-l a corporation, if such bends are 'cased to the extent of one-third upon other stocks even if guaranteed oy the issuing corporation would confine the investments almost wholly to mortgages, which at the ruling rates of interest and attending expenses would drive the comr^-nies at once to a 3.f^ or lov.-er rate for the premiums and reserve values, and com-pel an immediate and ver3' considera.lole raise of premium ra;tes for insurance, and loT.rering of surpli^s and dividends. Th6 pompiilsory t]irov/ing so m^iny hundreds of millions of collateral debentures upon the riarket under the ban and discredit of a- legislative enactment could not fail to injuriously and dangerously affect all financial values and occasion a gre:.-.t loss to the companies by such forced sales. Sec. 102. (Page 55) The prescription of a standard fo-.rm of policy for all cogipanies of all states inevitably makes great confusion of inconsistent and irreconciliable ccndi'bions in those where 218 conditions of policies .have already 'oeen made su'oject to Btatuatory rules. In the Massachusetts law positive value in dollars and cents ae defined incash and paid up policies of lapsing policies; these provisions are raanda- tory and so far vary from those fixed ]:?y the TdIII that the Massachusetts companies could not possibly obey both, and they have no choice as to w'':ich of them must be observed. This company therefore prays that such amendments may prevail as shall relieve outside companies from the emba.rrassment consequent upon conflict of laws and burdensome limitations of the sections of the bill herein recited. John Eancccli;, i'lutual Life Insurance Company Tj-y Arnold A. Rand, 2nd Vice President. ETEIIIIGSESS 219 Senator Armstrong: If y»u will be in ©rder we4*ill proceed. Mr.Woodruff : In opening this session of the hearing, Senat/>r Armstrong has suggested that we take all the time that we desire, as that is perfectly agreeable to him, and he says smoke and be confortable, and be happy, and as I have already said, keep it up as long as we want to. I am going to call upon Mr. R. W. Weeks ^f the New York Like, Actuaiy and Vice-President o f the New York Life, t© speak •n the subject of standardisation of policies, and in ;, doing s« I w ant to call attenti«n to liie £act that Mr .Weeks has I been, as had Mr.VanCise and Mr.MoClintock, 39 years in the p« life insurance business, a strange coincidence that each ©ne of these great actuaries has been just that lei^th cf tin© engaged in that great work. MR. 'vTESES: Mr. Chairman and Gentlemen: I have been slated to speak on the standardization •f policies, but would like to aay a few words on the legislation in general at first. It seems to me that this legislation is of a rather startling 33ature;it strikes mest people that way;generally speaking, it perhaps ceuld be called revolutionary. It implies a principle I wSioh" is only just now beginning to be put into legislation and that is the principle o f the right and intention of the p»«ple through their elected representative to exercise the most comi3lete regulation and control of the conduct of £20 corporations extending, i f they wish, to the minutest p^r^ticjT" lard of their a St ion. And that is a principle with whidi I am fully in accord, which I ^g^^ut with enthusiam and of which I welcome this manifestation b ginning in tlie field of life iDSorance. I imagine that this is only a beginning, that the same underlying purpose viiich has brojtght en this prop'3sed legis- lation will be applied later to corpo rations of nother natures. I think this sudden development in the life insurance field is a part of a world v.ride movement and is to be welcomed as such; and all those whT are of radical minds, and whn have sympathy with th!hs movement of the pe&ple of all the ccuntries in the world should be anxious to soe this sort o f an attempt made successful. While that very desire to see it successful would lead us to desiro that tlte greatest painiS should be taken that no element should appear in this legislation as finally adnpted which will provoke reaction later on, it wculd be most desirable for the cause of the people every way that every step towards popularization, tov/ards socializati'^.n ^f the people's industries should bo ■ taken with the utmost consideration and in such a way that there can be no violant objectLm to it later and no movement to set it back. I think'that in the main the le.'gislaticn proposed is of such a sharacter that it will stand, but it does seem to me that there are two or three things in it which are not essential t© the main objects in view, v/hich will possible and 221 -'pj-(3l3aJily~T>3:cuiuc^,_jr^ "tiiose I am veiy confident will. Speaking o f the ste-ndar^ poHoy. This, of course, is a novel proceeding. It aeans that if adopted the State of L New York prescribes the precise fonn of words inwMch any citizen of Kew York may have his life insured from this timo on. It is a thing v/hich no governrr.ent dees; no government has ever attempted to do. Even the most radical government in the wcrldjthat is, the gcveEament of Nev; Zeai.and,vhere the process of socializati9n has gene the far-'iiest, has not taken this step, nor anything like it. Ihe goveniment ot How Zealand gives a model ef incnEanee, hut in another roanner. It has formed a department, a 'b-areau ef the government itself which carries an the hiosiness of life ins'i;i:tSiaiGe,has an office just f: I like a ojmpan^r. This office has a hi^ad; it issues policies, celleots premiujjis, it hires agents, it pa.3'"S tiaase agents commissions, while thoy are really in the employ of the State gcryerament e f Uew Zealand; the office collects the premiums; it invests the reserve in mortgages and in bonds of various kindSj and pays divideneis to tl^ie policy holders., so in every respect it is lil© a ].ifc insrxaaoe c-apany, bat it has the security of the goverr.monfc back of it, am it of course has I the government ir-iprrLicatiir en the policy fo-co. But the government of Eew Zeala:ad does n'^ t iii?pos.e ^ahese policy forms on other companies or does not restri.et 0'.-:iipeti >ioiu It enters ffeely into comrvetition with privst:- ij.r::3'-:£'rr.&-':i: 0'-.::.pcL: ies in ths-t country and allows those companies to use their own policy for-oin.Of 222 I course no private oompany oeuld oomiDete with t2ie government t ,' with a form less liberal or lass favorabls to tha peorile I J: ' ' than that of the government, so that in this way the govem- laent exercises a thorough oontrol over the forms of insurance written by the companies without doing it in the manner of command Welljtalse ether ^'^overamen'ia v;hich are conserning them- selves with the welfare of policy holders. Ihe government of Gertoany for instance, v/hich has lately adopted a very rigid and thorough imperial insuraniee law. Dliat gcvemment does not undertalse to dictate policy fcrm.s, not a standard form for all tlie companies, but it makes each policy form a subject of a s.Trt of an negotiation betv/oen the oompany proposing it and tha department of the government which has cba rg9 of instsi-anoe . In Germany the insra-rance department is made up of experts mainly of university oduoation and other experts in actuarial soi3nco,and in law, gr^vemment of fioials, half a dozen of them, make up the bureau, and thsy have besides a special institution called the Advisory Council, and this v/ithcut bureau cannct adopt any important mea.sujre/consial1t;ii^ first the adtissry council. The advisor;;^'- council is composed partly «^f men in the government service, some one from the ministry of tlie interf.'-ir,S0me one fran the ministry of the treassury, and then also of insurance men outside, representatives of various companies in Germany, so it has about fiftesn or t wenty 223 men. Well,'.-/han these men cjet t«ge the r, they meet about once in three months — the hurcau must refer tt them any important questions that have oowe up. y/henthe Hew York Life asked a concession from the German government the question o f the p«licy form we sh«uld use there -was a matter cf several months negotiation with the bureau. I v/as there in i^erson.and at the hureau office a numher of times, and it v/as a matter o f corraspondenoe for a long time. JIow our policy form was finally approved by the government with certain modifications which they sugs'ested. These methcf.s secure all that the standard policy c£jn secure that I canaiipagino , and that is the security of the people against bsjirg deceived; that is all that I eee that the standa: policj'' is intended to attain, to provide that the policy holds] and the beneficiary shall not misundorstand, or be confused, or be deceived by any lack wasn't it? As I have iDeer. toid that thoj i^cre asked to preoars a standard f'sr.-n theQiS2 3r?-es and g\Y*in six mc-nthG -to do it in it. low if you would ask the Ac "rdar/ Socio'iry to prepare a standard form of policy Vv'.it'b.i'ja s±s rar.nt.ltiSj pprh.apB 7fe might "be able to do it "boeause we wo--;-.ld ne alio to speair: for all parts of the country. Seooator Armstronj^: ¥ell,i;a-7en^t v;e dons that in effect, MrcWeeks? Mr c Weeks: You h^•v'^n'^t g^.-^en us sis months. Senator Armstrong: 'I'ho law j, if passed/y/ill be passed teforo the first of Juue „whioh will afford you seven months pi'ior to the first of :ae-z-b Janu-a/.y to deYxse fcirjs and secure their approYSl for b'ifi'iness after the first .^f nest January, Ht, Weeks: Yes^ but not to suggest changes in the standan farm that you adopt now. S-ejaat^r^Amstrcing: In. the four. ..standard forms vr^ have prppo sed , Mr .Weeks: Yes. Senatcf Arms troiig: Well, the time t* roake those siiggestlons is now. Mr.^eeiks: Certa^jaly. Senator Armstrong: If we can get those forms right now, there will "bo seven months in v/hioh to propose new forms suffi- ciently &:> that you will not be ombarassed in procuring tlie business Mr .Weeks: I am afraid that you will find the clifficulty so great after you get it going that you will Biinfe tisorepeal the act and that is what I feel afraid of. I would ^te t© see any part of this legislation h^ve to be repealed next year, or the year after, or any time, because all those things dis- o^poreg e the ge ne r al mo veme nt . i Senator Armstrong: Don't let me interrupt you; go ahead. We want your views very fully. Mr .Weeks: There is one thing that you have done in this legislation which I do feel is a groat pitjr.and that is .abalishing deferred dividends. It seems t© he that there is really sure to bring around a reactionj, be cause I feel the deferred dividends I don't Imow vhether deferred dividends is a teim that people generally understand. I don't know whether it is worth while to go into a little explanation of the origin of it. Of course, what is called dividends— it is a great pity the word was ever iised in reg-ard to lifo insurance — there are not an;^ di:2fdends in life insiTraaice in the true sense of the word, not in the sense in which dividends should come from a preductive business. Life Insurance does net pay;it is an expense; it is protection jyiitiiii'ii' III vii' 227 and protection has to "be paM for. There is no more profit in llf^j iDSUrance to the inf^U-red than there is in fire insui-anoe to the man who insicires. What life insurance does is to protect, is ta fur- nish irlemnity to the wide and children against the eyent of the happening of the preme.ture death, and that has to be paid for.Thoro is a risk of that event happening eveiy year and thnt costs m^ney, and you can't help its costing money .You oan't tell in advance just how much it will of-Bt;you have tr figure your chargns,your loro- I- ft I I miiims for it on certain assumptions and thsse assumptions you have |: to mako rather more unfavorable than conditions as thoy are exist- ij L ing now, or else you won^'t be safo for the future .You havo to assume a lower rate of interest for the nesert 30 or 40 years to come than I what yoTi are really cerning now, and you have to assume a littls higher rate of mortality and possibly a little hi^^her rate of expense, so that it turns OfUt right away almost invariably that thore is some savings — that is the proper word to use;these are savings feut of the premiums that were charged for the sake of security, higher than it has turned eut was necessary. When the business was first be-gun, about 150 years ago, there wasn't anyth idea about those savings, except that if you wainted about ton years you could tell hew you were drifting at all and where you were and how much you could spare, and v/hat you c culd spare you would give at la^ to the policy holders.At the beginning that was done about once in ten years, and then once in seven years, and in this country, off inthe 60 's thej' began to do it every year. , ^uuLua that -we could take bearings every year aiid tell pretty fairly what there was available with reasonable safety and return it every year, and that is a very good plan. Of courso the annual dividend, as it is called, or anmial savings, but sooe genius hit »n the idea, I don't think it was originated here, I think it v/as ©rigi- jiated in En^v^lsnd or 5'ranoe,the idea itself .that these other savjjngs, if the payment oould be put off for ten, or fifteen, cr twenty years, could be made a means of attracting; people to insure their lives i fho etherxTise v/ould not insure, and that v;as done in that fcrni;that I Is T/hat are called deferred cividends.That is, if a man takes out a > policy on v/hich he is going to pay one iriindred a year for may bo I tliree er foxir thousand dollars insuranoe,he says : "";?ell, I will pay that hundrec dollars a yoar for twenty years, and the excess of those savin:'7:s won't amount to much anyh'5W;if I am going to pay a hundred dollars now, I might as v/ell pay a hundred next year as ta pay ninety the ne3rfc,and eirhty-five th-e next, and ninety the nezi;;I wnn't know the c^iffercnce at the time, and when I get t« the end of twenty years why I will probably hoave quite a respectable sum of money. "And tliat is the way it has turned out, and it has turned out a ve'iy beautiful foim of insurance ;it is perfectly legi- timate, it is absolutely as logitimate as endov/ment insurance is, as ajiy other kind of savings whatever; it corresponds exactly, mathemati- cally and morally it corresponds to v/hat is called the pure endowment --that is where a man insures not for the event of dying, but -Hfesxf i;2ia-j&^^rrtr-^jMiaL:^i2i5»IJ you like jroij^i^raa tskB-ajpoJLlojr-^^iioh will provide, that you mXl reaalirp five or tan thoxl^sand dolZara ten years henbQo^^ S'^'ii are -ally© thesobut nothing if you ale in tlie meantiios. WeXlR,ti5r;?,«*^. £,a;*«' tjeses i?li<3n t?tat is precisely ^lact a man wantSpS^jS. we do I&x5ti9' stt.^ a policy oceaai6aaall7*^srtal?vly -6. ■ ''■■' si- of ■6iie-'%'¥ia/^" I'^iSa'S .U^^ir. Hj5 i^ie'i-ely has a sight to ^&^-w|i| i?.© I9 saTingi — -!£ wo-olLd rathe. r not tp^:<3 them now,I^d scathe s* tsM' th^an after, with the evdYajatstga of ;i*a.t4r©^tsfit! the ©iia 0^ a period; ^^ years "sflien they amouat t.9 a ales littXo sam ©f Bi(?ney. There is a"ba(3 luteiy jisthing in it e^&lr^it morals j s^^ai-iigt ^-aetlce, against puh^.!© p«licy«Xt is really agaiiipt p^ihliis polHoy to pr^Mbit it "fceoa'as©' there is ij^to a num'bor of p3oplesin(3n vs3io cannnt h« induced to Insure en ordinary plans^ivlio are harilheaded thorough going huaines men,who haven^t nnieh regax-'l £?r snybody liiit thcaselvosjyou kaaw th saying:"! don*t give a damn -^hat bp-ppsns as long as it dcn't happen to iae",^There are a nioabsr of such msn as that and there are more of them than perhaps you would he willing to fdmit; life Insttraaoe -ag-ents meet them every now and then; th^ really donH cere what ha ripens to their families after thqy have gOTie s© long as they wen^t see it; for that man and men who are not of suoh aa extreme lype ^3 that » nany of j^vx : ■ illll» E30 ■business men can only be afcractod to a prospect .9f something i coming to themselves , and it is just as important that their families I should be protected, important from the point of view of the State ; I mean, and tliat is the way it seems to me a legislature ought to look at these (Questions .You might say tliatwe are hypocrites to ; talk tlmt way, as a gentleman in Chicago suggested to me at the j ■Chicago conference after t:/o days, I remarked t: him privately that i '■the main ouestisn fr?m the point of viev^r of the State, — and that I is by ?/hat means thie greatest number of families could be protected, :,,the greatest nuiiiber of possible widows and "xphans^-had not been discussed at all. He said: "We 11, you can't use that argument ".He said "You insurance men can never persuade the people that you are I making them do right". Well, of co-urae, he mean to say tliat t/c were ppsing as prigs because we were talking as if vie were philan- thrpists.Weli, of course, we are not philanthropists ;we are working ( for our living and for what we can make out of it and for the ' satisfaction of seeing plans accomplished and for the distinction ( I that may come from it, — just viiat other men are working for easifetly. I But fitjm the point of view of the State, it is not to be considered ; Tiftiat ©ur motives are, but it is to be considered wliat the bearing I of our actions on the welfare of the State is. low, I say that in establishing and continuing the system •f -deferred dividends, that the companies have been doing what lias been useful ti> the State and that^it would be a great pity and a great mistake te prohibit it, and I am 231 confident tiiat as it is a thing which the peeple want and ara satisfied with they are sure to find it out in two -^r three years and ask for it hack again. Senatorgs-fiLTinstrong: Soass Xn make the question plainer, Mr .Weeks, it occurs to me to ask you a question, -if an avercharge is incident t« the oollection of premiuins for insurance. Mr .Weeks: Yes. Senator Armstrong: (Cont'g) v/hy morally should not so mtich of the overcharge as is wrongfully made be ultimately re- turned t© the man frsm wh«m it is taken when it is ascertained? Mr. Weeks: You import S9m« m-orals there that don't belong there You bring ±n th© word "wrongfully" and immorally. If a man makes a contract before hand, suppose ho takes a policy en which lio is to pay $100 premium and he taltes it mx annual dividends and he at the same time says, "IT -'^w, I'd lilce to depsait |20 a yoar for 20 years and pay f-or pur« endowment vd.th it and buy whatever that will buy at the end of the 20 years", — that would be a per- fectly legitimate contract, and it is equally legitimate for him. ■t« say: "I d®n't know exactly how much those returns xr& go in^- to be, but whatever the.-^- are I want to re-invi^st tbem. with you »n those terms", s:e to hear ycu fur'uher. Mr-'/JeoIvs : Well, there is nc -wrong in a class of non agreeing: together that the^r will pay in so much money a year, each of them^and that whatever it ccmes to at tiae end of so many ''ears sliall be divided bet^'^een the survivors. Senator Armstrong: I don^t s^TlPP-is e frsm one aspect there is any wrong in the Louisiana lottery, which is a contract when it is made by aault people and a good many people think thejf ought to be made, if they v/ant it. Mr.lfYeeks: Or a game of poker. Senator Armstrong: I don't i£«an to sug3,'est that there is essentially a gambling feature, although I liave opinions about that, but tiiat I do mean is that tlie man who survives and so is fortunate , pro fits in this event .by the misf'ortuae which cc-rat-s to his less fortunate collaberator in th-3 s-cSjs me of mut vs. 1 li f e ins u ran c e . Mr.neeks: Oh, well, he c'oesn't proiit by the other man's misfar-bune; it has been a contract from the first,- any more than in the case I supposed, of a group of men joining together; 100 men oculd join together and put up $100 apiece a year ;vvhoever is living out of the hundred 20 years hence shall take the T^iole; thf^re wouldn't be anything illegitimate in 233 that it v7oald be a legitimate pr<>visi©n for an elder ace. It is a method. Tlie v;ay it apiDeals to men is that tlie' can get the Tjonefits of w:iat v;ould he sonly attainable in endowment insurance, at a lower price; that is, hy paying;: the premium of an ordinary \ life polioy .or a 20 payment life policy, they can get i^ twenty [, years a sura ^ money which is scmewheres near perhaps the : face of the policy. Senator Armstrcrng: Well, if you concede, for the sake ; erf the argument, that that is more or less connected vri.th some of the evils, or same of what appear to us t3 be evils; and the f other plan of returning annually the overchage for insurance seans to prevent "those evils, the plan tliat we propose of annual distributions at least is as ri="ht as the other. Mr.Ueeks: Well, now, I will csme to that, if you pl»*ase. I thinlc there is some fo^-ce in the objection to deferred ( ividends as it has been woi'ked; that tl-je officers of a company do not feel i I tile respcnsibilitj/ th3y ou'^-ht to feel perhais for those funds, or I I! I have not in the -iast,but I do not thlnl: there ^iilll be anj'- officer Of any life instirsnce com'-e.ny tloet-vill fail to fool responsibility for all the funds from this time on. But still that is not a good answer. Tlj.® answer is that the annual accounting such as is pro- 1 Vided for in this bill itself as rDgcrds the present deferred dividend policies will --^reduce esactly the saino responsibility for the finds, these accumulated funds, as an anntial distributien would, pre cis'el77 the seme. The funds have -^ot to be there and £34 you iJave §-ot tc state every i/ear just how mucli you are holding for each, kind f»f •poiicy anc-. each age and each year. Senator Armtrons: Unless it he cliarged as a liability, ^Hl that be so? Mr .Weeks: Have it cliarged as a liability. Senator Armstrong: But that is ,as I understand it, tlie essential ob;)cGtion that is made to doin?: away with or lorbidding deferred dividends, or the interference with it, that if it be charged as a liability of tJae compaay/ it matters not v/hether it' l?e cistributed annually or at the end of a term; it is a liability r>f the comi.-'any. IvIr.'Teelrs : "'h-;,lt is a liability of the e om-janir ,nc-t ihe pa rt icBuia r ans ur ed .. Senator Armstrong: It is the idea of liability which seems repugnant to some companies. Mr.'.Tecks: It is not repugnant to our com;_^,n37;. vie stand by that; we h^'Ve for many years, for ten years past; any of the money that v;e have set aside for those successive maturing sections, you laio\v,goin-^ to mature yoxir after year, is a simple liability- Senator Armstrong; ¥ell, then, we practically come to the point of •rt'here our freedom of contract: It seems to mo, may ke suggested to be freer than your freedom of contract , since our freedom continues year after j/ear.an' yours tins up the situation for a term. Mr .Weeks: That is precisely yo^oi- Senator Armstrong: You say to a man tliat you may iSk. 235 let y»ur distributions remain and fecctimulate.or if yau change ^'6^Xt mind, you can vithdraw tlaem. Mr. Weeks: That is precisely v/hat kills the v?hole scheme, because a man is not a perfect creature and every man knows he is not , and man is not thrifty by nature, nine times out of tan; I don't have much affection for the man that is thrifty "irj nature, but once in a while you come across him; but the average men v/ho is a good fellow naturally spends viiat comes into his hands; and v;hile he may liave sense to tie his bands once in a while; that is vAiat a man does viho tahes a deferred dividend policy; he pledges himself to j?ut away that such m»ney ©very year, and he }i£.3 absolutely com.~iiittod himself so he cannot touch it; and xt is better to let him pay that , Senator , if he is v»lllinp to. S enr t or Ann st ro n ~ : Tell, but th e ess ent ialJHy c o nn ec te d vdth this is the fact tliat he is not dealins- on e^ual terms because he is uniamili&r vdth IMo insiircjice and necessarily must be more unfamili£.r with it vhan the man v/ho is saekin^ his appl i cat i on ;tlTe man \7ho is seokim the application cannot be prevented by any lav/s that can be v/ritten from sayin-" things, representin;c thigs which, in hov/ever good faith ther^ are said, ne vert lie less are delusive and c':eceivin{r ,tind the delusions and deception vaiicL has oharscteriaed the writing of deferred dividend policies seems to be at the base of the dissatisfaction TTith them. 'IP"' I 235 ]\;Ir. Weeks: I think that has been very much overstated, Senator; I don't think there has been so much deception as there has been disappointmont, due to the chanses in the conditions. Senator Armstrong: But the ilsapxxDintment I'las occurred through a fla se promise, either by the man vrho is writin.^ the ap^'licatlon, or else presented to him by the man who is securing the writing of it . Mr^Wecks; Well, if it is a false premise to malce a guess at results tv/entj^ yoar-s hence on c':>ndit ions as yo\i see thorn no\7,and then to liave sll of the co'.iditxons ohanf?;e; oo have the rate of interest £;o do-;m,the ra 'je of taxation 30 up and the rates of livinrr go dovm and so get lovvcr results, there is no delusion there , no reascninr from, flasc pi-.miae. 5fov; the present condition is entirely different. '7e s-re nov; facinp; a future of a series of years of und-oubtedly lov.'or rates of e2r~> ens e; there isn't any due s ti on ab out th at . Senator Armstrong;: But suppc^sing that ten years from •v^^^.-r ^^^^..i^f^AQyyci hpp".en v/h 1 c h none of us can forsee snd "reat dis- appodinumeiit an-ain r e suits, vui;.' sJi'^uldn't a man be in a pc.'Piitiou.h.arln';" entered into an urc^or lunate or unsatisfactory Q on -Gra 1 ; since it (GOs':s tha oompsny not hin^r, since it is equally right to dlatribut-e Bavlngs annually, or at other periodic inter- vals, v/hy isn't it equally right to prevent that disappvini-ment if 7/e i::ay, since tiie result in the end is the sane — that Ijio man may simply a].lo\7 them to s ocurirlate if he choses,and if ho finSs that he is to be disappointed he may withdraw them? I^r.^'eeks: He never will all^w them, to accum.ulate. The £37 experience of the Northwestern Mutual shows that. The North- west ern Mutual for some years issued and sold regular deferred dividend policies, hut for somo years lately it has sold a policy with a provisien that when the first dividend was dele ared, that is, two years after the issue of the policy, at that time the man should take his option, Either to talse that dividend in cash or te leave it vrLth. the company end leavo all the subsequent dividend wi1h the company. Well, the result was that I believe, only two per cent left the dividends with the company; and that is just as natural as human nature. Senator Armstreng: Exactly. Well, new, why shouldn't the man have that freedom? Mr .Weeks: Because he is better off without and he laaows it inasS Vance. Senator Grady : Jlr-TTeeks, again ins't there the reasoning that the deferred dividend plan is based upon the idea tliat there will be the accumulations that have been forfeited, either by misfortune or desi.'rn, — isn't that a part of the plan. Do I make myself clear? Mr.Woeks: I think I understaiJd. Senator Grady: Isn't the whole scheme •f life insurance leased upon tte^idea tliat tiiere will be lapsed pelioies*? Mr.V/eeks: Ho, sir; not at all. The scheme of life IruSTiTance is based on the idea thafre will bo no lapses; the whole calculations are based «n that; there is such a provisi«n of p« lie y reserve that if there are lapses there is no loss, 238 tut it is necessary that there should be laspses that the scheme may be — 'In fact, we wculd prefer there should not be a sii^gl* lapse; every company would prefer that ©very man v&® ©nee instnred that he should pay every premium un-til the policy was up. Senator Grady: Then I Jon't see hdw insurance costs;yeu oan't get that throiogh my head. Mr .Weeks : Hew it costs.? It costs because men dilo. Senator G-racly: liIo,if the scheme of life irsurance is that !• if everybody lived they v/ould get all they paid to the compaDy : back again Mr. Weeks; Io,I dian^t say that. If eveiybndy lived, if i, ajld more back again- ■ / -■-/every one r-aid,the:7 would get the face of the insurance when the / death came. You see? Senator Gracgr: V[ell,that would be all they paid, wouldn't it? Mr .Weeks: Eot necessarily-lTo, if a nan lives to be ninety or nine'ty-fiv3 years old , he may not sat back as much as he paid. Senator Giady: We don't legislate for those who live to be 90 or 95. Mr .Weeks: You must legislate f®r them. Senator Gi-rady: The;' are so few that wo San't nstice it. Mr.V/eeks: Of cjursejthe average T/hy,it must be that oaly the average man g'ots back precisely what he has paid with interest; as many men live beyond that eiescb. as di e short of it, ®n the average/oe cause that is exactly tho basis of the calculation. You have to calculate, you liave to charge £39 enough premium, so that when you have accumElated ths© premiims vTith interest, you can pay all the death losses, assuming that tl3oy will happen at the average time; end it is all "bases »n averages. SobatorGrady: I thou.?^t there was a na rgin fsr lapsad policies. Mr. Weeks: B'o,sir; there is no margin for lapsed pelicies; there is a nargln fr«m lapsed policies; there is a margin v/hen a policy lapses; the man is suppased not t-i tal© the entire value out, but he is supp«3ed to leave a little with the company so as to replace him with another risk .because he has agreed to stay in. Senaror Armstr<>n<3: Mr .Weeks, a friend has su^ested that your statement just made, that the companies prefer that there should be no lapses, is rcltited by the fact that scma companies have had viiat is Imown as the "star system" of collecting pre- miums ^whereby risks v.'hich -were impaired for some reason had a draft issued for the collection of the premium vTith a star coupon attached which was an indication that if it was not paid ©n the minute to retxjrn it unpaid, so that the policy could bo lapsed for the purpose of ridding of an unfavorable ris^. f Mr.Ueeks: 7/ oil, I don't know of any company that practices that. Senator Armstrong: There \7as evidence before us that such a loractice had eiasted in some of the companies. 240 Mr. Weeks: It might have , yes, sir .Well , of course, that weald be trae. Senator Ariuatrong: You are not av/are , I siippose, that it has iDeen practised at soiiietiraes and that some oomxenles have soxight to set rid of infavoraljle risks "bv such practices. Mr.TToeks; Yes, "bat of course tliat is a special treat- ment anci a peculiar treatment of saoh eaai^s. Mr-Dav;son; Mr, Weeks, may I ask whBther you knoTj ar^r- thing concerninri; the ejqDerlenoe of 'che Mar.sachu setts Mutual \7liich has for a number of ;/"ears been issuing pclicjes where tlB policy holder mighc leave the di vido:Lj.ds at interest and oould TO-thdravj tiEm at the eno of eny year? Mr.r/eeks : I dJdn't knov/ tl-iey had such a system. Mr-IdV/son: Tlia^t course if the only one that is the same as tlie- bill provides. Mr.T^oeks; Yes, Thoro is a special application of the deferred dividend ^/siem practilsed by the Sow York Life and I somei^at by tlie E qui table ,\7hich is a very serious matter to i interfere with, from the point of view of the Stai.e,and that i is the insuring of poor risks, men tiiho are not insurable iindor I the old rules of the old companies. About cen per cent of the people who ap-ly for insurance to the conpc.ny, the 3' will ttirn ©ut en being esramined to have something the matter with the heart' ©r something in their past physical history, or 9lse semethin^--^ bad in the family history; may be parents Seo* 11 3S 241 have died of QonB-aiiip-clon, soncthini' vliich rules them out fron ordinary iiisurcaioe* Formally they coulci not :,et insLirance, and even if some company mi:.ht offer them insurance v'ith en e::tra premium, which is the c^^stom in England, cr 1:3:^ rating up the age, v/hich is the sane thing as an e:::tra premium, that is nnt the Icind nf^ a contract that a meji li:;es to tahe. Ho man likes to pa^?- an ei:tra premium; that is not human nature, as we find it in our husiness . lov/ the l-iew Tor!: ■^ife ten shears ago devised a scheme b;- \7iiioh \,'e would not need to chai*ge an e::tra , x/ premium for those risks* Me placed them, in a separate drridend class; we charged the same premium as if they were normally good ris2:s and put them in this special dividend class End provided in the policy that the dividend that shall Cf^me at the enc. of the fifteen or twenty years shall be based on the actual mortality as it shal"! occur in that class, end that mortality will naturally be higher than the mortalitj^ would be in the normal class, and na/curally there~ fore we e::pect the f.i'ridend T;ill be lO'.er. V,'e made our calculations assuming) we supposed that the regular dividend t^-enty years hence is one hundred anc" twenty-si;: dollars Sec. 11 33 242 nnxr on a t"-eirt;y year policy, that we could spare half of so if that to cover e;:tra mor tality ,HM.aii re foimd tnn our regular dividend should go dorm, to half of \:hat it is nor;, still these policies t. ould co'jie cut all right. Ill- , I>av:son : You o h. r ge _ the se s uh- st andard risZrs a higher preiiiium? jlT. U e el:s : IToiii sir. Senator Arras t r ong' ; But you cherge thein a premium at an advanced age? 2.!Ir.T7eGl:s : ITo , sir; that is i;he very point of it. T'-e agent vi^rites the man and he gives a pnlicy rith the same premium that he e:vrpected to pay, and he gets a policy placing him in a special dividend class vrhere the actualS-nortality will determine the future dividend. Y^e have had in fact re have something liZ:e a hundred men thousand nxliinn insured en that plan. Senator Armstrong: I am not sure thf.t I understand you and I would li::e to very much. If yeu net premium is based upon mortality rate, computed for healthy risl:s, ycur loading is an estimate tn cnrer acci- dents and contingencies not more than in the ordinary cost of healthy ris2:s, and you insure impaired risers at that same rate or equivalent; just hor can yru pay the increased mor- tality claims? 34 Sec. 11 ^^^ Mr.Y/eeks: Pay them out of the savings that we ezpect to have with very good reason, that we would normally have on normal rislzs. Assemblyman Co::: Well has your e:q?erience shown you that those savings are sufficient to cover the impaired risks? Lir..¥eelrs : Precisely; yes, the experience has heen precisely what we figured it would be. Assemblyman Coz: Have you matxured policies during that time? llr.Wealrs: He count the experience every year; we calculate every year how me-ny of those lifes ought to die by the assumption that we stafriod out with on each case. For instance, of coui'se, a mortality table shows just how many people out of a thousand will die at each successive age; at the age cf forty why there oug-ht to ten die by the American table. Well, now, if you have a class of impaired risIiE VThere you find them sc much impaired that the mor- tality is going to be 150 per cent, that v7ould mean that at the ag'en of foity, 15 would die in a year. You see you can calculate then every yest how many you ex-- pedt by those assumptions, and how many da die; and we find 35 - Seo.ll ^ 244 the actual deaths, are oust up to date abcut 95 per cent of what we counted ©n. Mr. Dawson: Why not a special annual dividend class, Mr .Weeks? Mr .Weeks: Well, Mr. Dawson, that would be a terrible risk. Mr. Dawson? Give yeur reasons; you said that you investigated it every year, you said- Mr. Weeks: Yes. Why rn account of the fluctuations of mortality from year to year. Mortality, while it is a pretty steady thing for a Icng period of yeers, is not steady at all from one year to another; and if you inader- took to divide up what ysu call your savings, or your pro- fits each year, so you W3>uld be left in the lurch very likfely the ne:n:t year; and especially in the underaverage risks where the mortality is liable to be much more fluc- tuating than it is in the normal risk. It woiad not be safe to do that business ©n an annual dividend plan. Assemblyman Cos:: That is very Irrgely due to the limited number of ricks you have in the class, I suppose, isn't it? Ito. Weeks: Well, I would not like tc advise the company to take those risks on an annual dividend plan even no matter h©vir many Tre got. 36 - Sec. 11 345 AssemlDlyman Rogers: I thrMight you said, Mr .Weeks, that yo-ur experience had. "been each year that the mortality rate was ahoxit 95 per cent of that v/hich you had estimated. lir.liveelcs : lo, sir; the total up to date; it doesn't agree at all, year hy year. Assemblyman Rogers: What ha-^eheen the fluctuations? Iir.¥eeks : ?/ell, I don 't Imou as I can tell at this moment, hut I should say probably from 2 per cent to 120 por cent; that would be a rough guess; I have no doubt they have fluctu^ated &b much as that from one year to another. Assemblymsji Rogers: An average of 95 in the ten years? jSr. Weeks: Yes, sir. l^ow you IznoYj the Senator Armstrong: The customary way of insuring what are ImoTm as sub-standard risks is by either an increase «f the premiirn or advancing the ago te cover the increased rialc is it not? ilr. Weeks: I should not say that was tliectiatomary way, becuase it is vciy seldom dono. It is done in Eogland to quite sn art en t. Senator Armstrong: Is it done in this couttty? -37 -Sec. 11 ^^^ Mr.VJeeks : lot very mucli; veiy few oompanies do it, I thinx. ijIr.Dawson: Will you e2rplalii to the comrQittee what the cuauomary T/§y is in this country? Mr„Wselis: I don't know; I don't think there is much of it done vutside of the Hew York life and Equitahle- In oin* own Mr. Dawson: That is the lien plan? Mr .Weeks: lo, that is another point; it really hasn't anything to do with the dividend (Question. That is the reason I wanted to simplify the di ecus si on by leaving out what did not directly appertain- ilr.Dawson: Each hundred thoui^and lives are imposed T5J5ilieus en Mr.I7B^]riGn~ Ho, I should say more thai half axe without liens. Assemhlyman Cor:: Do you mean then that you have put liens then en those policies in some cases, in addition to using this dividend cy sfcem? ii!r. Weeks: Yes, I t;111 qo very q.uiGkly into that subject. V/'here the case turns out on examination to te so had, to be distinctly a bad risk, that mortelity 38 - Sec. 11 with a mortality that is goini^,' to run double the tabular mortality, bo tliat a man of forty for instance is just as bad a risk as if ho was fifty-five or sixty years old, Wg still insare that man. In fact we will malie him an offer. In fact onr practice is that we will make some kind of an offer to every man who applies eitcept those whp are actually acttely sick at the time, or those men with whom there is some moral hazard; those we exclude; but any other risk we have data and statistics \>-^ which we can measure any other risk; and we will make some kind of an offer. When ycu have a risk that is very bad inddcd, you put what you call a lien on it; that is if the insurance is a thaucand dollars that ? is applied for, you issue the policy and charge him the same premium as one thousand dollars, and you put a con- ; dition in the policy that if he dies in the first year you only pay five huadred dollars; that life you put a lien of five hundred dollars on the policy; you pa^?- a little more than five hundred dollars; you -gs-j five h'caitlred dollars plus the premium, because you advance the premium. If the premium is forty dollars for instance, an the policy, and the risk two hiindred per cent as we call it, why then we probably would put a lien of five hundred dollars en that policy. If the man died the first year he would receive five huadred dollars plus the 39-Seo.ll. 24 S promitm forty dollars,' or five hundred aDd fsrty dollars. If he died the second year he would receive five hundred and eighty, and so on each year the amount of the premiuin would he added, until if he lived until the premiums added ts the first insurance, made up the face of the policy, why his family would receive the face of tho policy. So that it is a kind of an automatic ochume by which those who turn out not to have he en such had risks at all are no worse off than if they had taZ-cen the straij^ht policy. There is a lot of insurance paid every year, a lot of insurance. Senator Armstrong': Just wherein would our pro- posed plan of incurancs interfere with those sub- standard risl:s? llr.Weel'is: It would kill the huciness; you cculdn't write the huGiness. I wouldn't dare to re- commend writing it with annual dividends and you couldn't place it if you pt:cez:t?.-a premiums on. Senator Armstrong': You cculd write it with annual divideMs end your lien plan, could you not? S4S Iir.%eo]£B: lo, sir; I wouldn't reooxnmend any anniTal dividend. I would want those savings as a safety fund against fluctuations in mortality. V/e didn't go into that "business with an absolute certainty that it was 2;oi2iS "fco turn out profitahly. With that dividend we determined we had statistics to go on, but I always told the company that there was one chance in ten that it might turn ovct not quite to pay for us, and I watched it pretty carefully. We have turned the corner now, we ImoT/ where vre stand. Senator Armstrong: Tell us vh.at percentage of youi' business is sub-standard? j;.!Ir»Y?eeks : I should think probably Jierhaps £5 f per cent, of v/hat we are issuing' now. ^ Senator Annstrong* ITew business? I.tr*T7eeks: Of the new business each ye:r. Senator Armstrong; You ?,'rcte about three hundred and fifty millions last year? Ilf.Feelcs: lo, we wrote a little under three hundred, tv/o hundred and ninety five. Senator Armstrong: And fully seventy- five m-lllipn* of that was sub-standard business? 41 -See. 11 250 I& .Weeks: I should say so^ yes, about that, lo^ there is a lot of that insurance in force and there is a lot of it can be' vnTitten every year, and so there are thousands of familiee that can be protected every by that form of insurance who could n«t be protected ; and no c«inpany w«uld touch it at all if that was prohibited. lo^r itis not that we are saints,'or virtuous, or philanthsyppists at all; vire are in the business as a business; but as a giatter of fact, and from the point of view of the State it is a useful function which nobedy else is filling, which the State is n»t ready t» fill and which the state certainly uught net tc stop us from filling. Senator Armstrong: And which no other company is doing. kr. Weeks: Esoepting the Equitable; I believe they are doing it. Senator Armstrong: Iioing it to anywhere near the esrfc^nt that you are? l!r .Weeks: I thinic not. You are stilling doing it, aren't you, llr.VanCiBe: JJr.VanCise: Yes. 251 ^QH&trOT fcoart-re-ng r Wliat psrrtjeD.tage of the Eqisitalsls^s Irosiv^ssSo IIr.Ya2i.Ci3e, is siib-.ifj&ndejrd? Mr<.v.iiaSlse: Fell^ I cauldnH tsll. Just at an estimata I ssh'stdd say that prolDably tetL per cento Senator iizTiistrong: Of its annTis,! "business? Mro7anOiB-5: AriU'aal h-uuiinosa. Seiiator ArrniiStroiii:: Of the ^mcviiln iTrittfen last year what v/culd ycu ectlnate was svi"b"ti';ra>j.dfird? Mr.VoaiGlso: I should thlBit; at Leai:t 10 per cent, may he 15, h-ut I think: 10 3.3 neaxero Senator kjcnstx o'rifij : ind do yen write it Buhstrn- tially on the plGja Jlh-rHeekB has desc-y^i D3d? MroYaiiCise: We wilte it hcth wayrjg 1 think in most cases we rate the age xip„as an extra „ In some cases we create it by giving a lov/er aaoijnt as descrihed. Senator Ai-mst T®ng: You either put a lien on ens- tffimarilysOr else adyanc-e the age to cover the increased hazard? Idr.YanGise: One or the othcr,>aai we Iroep it in a separate class cal?. ed oar grcdiijitsd cases jaad governed hy the experience in that class. Mr^^eelis: Don^'t you T/rifce scmo policies w.lthout aiiy lien, or without any eartra In the saae clas.^? Ir.'VaaOiGe: lOjnot in that saaie class. "vTe have • aa -i L a J jiip r iB Mato- cl aSvS j. v/g write some that way. ^^^ Itr. Weeks: Well, that-'arao-ont s to the same thing. Well, I trust the ccramittee miderst ancls Y.'hat I haYe'heen trying to esplain ancL he:; serious we feel it is, and how certain we feell Senator, that the people are going to 7/ant the deferred dividend insiu-ahce v/ithin a year or two ^ if it is strapped; and the ohjoot is to stop it, "because the machine is running, and it is a "beautiful me> chine; v:e thini;: it is d> out the finest human organization that was ever built up, and as I didn 't do it myself I can brag a little about it; and it does seem a crying shaine to b reals it up. Mr, Dawson: Yix.XJeelts , may I ask how short a divi- dend period in your judgment would answer the purposes of this impaired life insurance? Mr.Ueelcs: Oh, I think the 20 year period is the "best by all odds. Fe" don't write any less than 15 years. I:!!r*Dawson: You don't thinl: a five year period would answer? llr.Ueeks : Oh, no; we do occasionally write a 10 year endowment for a 10 year period. That is the only other point that cccua-red to me about the legislation. Of course if anything goes through in this legislation, which is gcing to strike the people as unfair, any Email ■ matter, ,why tloat would tend to bring about reaction, and it does seem to me that take just the case of the lew York 25S life for instance, possi"b"J.y the Mutual and the 'Slqvltable also, that -co iiist3..o;:;l"y out thorn c.OT^:n to one hundrGcL ancL fifty million isduts is rather unfair ■; that if that is the ; upinion of the S'-'ute and the people v;s.nt us to stj'njp snd get down to that figiUe; tha'c nohodj^ could object to giving us three or four or fiTe yeai's to get t'lerej so that wo vrould j: not have to hrea^tv up our Agency organiaation, hut couldlet it decrease gracuallj and rLa'Jui'ally. I only p'at that as the way it striltes me. And i; then there is the case of one of the out of totm companies, the State of Indiana, which would be pretty LacUy treated "by this linitatj.on. They liave seventy- four millions insurance in force,. and they are writing at the rate of about thirty-fi-jse ' ■millions a yearo How that is a go od.vijrgrous, healthy, little P company, and they are in Mew Yorh State, and it would be l:ind I of a pity to drive them out of Ifew York State. I Shouldn't think you needod any ].i:r.it under cue hundred millions. Assembl-^raian Rogers: Wliat did yru say the name of that company was? Mr ... W e elcG : The S tat e o f Indi ana . l!x.c ,l:-?.n'Bon: Yon laio?',of course, xirJ^Jeelzs , or did you, ths^t they were writing' that mainly on the beard plan? lir. Weeks: Ic, I wasn't pcsted on that. Asse:^b3.yman Prentice: Mr,li7eeks, your e-cperience lias been even in these sub-standard risks that there is a 45-Seo.ll 254 saving of mortality iver the tatle? Mr .Weeks: Oh, yes, certainly. Senator Aimstrong : You have not yet told us much about standard policies. I-'Ir .Weeks: Fell, I don 't feel very much excited about the standard policy form. Senator Armstrong: Well, we are nov/ asking especially i/Er.TJeeks : If you v,dll let rne have a hand in drafting it I would thin!i it is all right. Senator Armstrong; Can't you tell us how we can perfect our standard form? liEr. Weeks: Why the actuaries, the coimnittee of SBven adtuaries have drafted a report containing some points, but I don't see whjr IJr. Dawson: That will be filed \..'ith the corjmittee? Mr .Weeks: Yes, that will be filed with the committee. But I don't see why, Senator, we should compel all the companies to use the same- non- forfeiture features. Some of the companies are afraid of an extended insurance. Why shouldn't we allow a companj'' to use either of the non- forfeittires, either the Australia system or the ezt ended Insurance, or the fractional paid up insurance as automatic, which everjf pleased one under tloe law, fioied that the net value must be at least four«- fifths of the reserves? ^^^ Itr. Dawson: ¥/hat would you think personally, Mr. [ Weeks, of introducing the Australian system of charging premiums when a man failed to pay? Mr.V/eeks: V/ell,I think that if we were starting \ over, and dediding as we did decide ten years ago on the ezteMed insurance, that I should favor the Australian system, tie cause the extended insurance,' when you have loans on the policies produces so msjiy oomplicatiens} and there are no complications under the. . Australian system. (There stands the loan, you know; y«u simply add the premium to ift^that is all, aaid you can just alwaj^s compare the loan on Interest with the reserve, Mr-Dawsen: There is the advantage t« the insured^ is there not, that under the Australian system the Ipolicy continues just as it was be fore, with all Its original rights, and he can go ahead and pay the premiums when he obtoses? Mr,We©ksi lesffl that is a very important advantage; j he hasn't got t(? pass a neiv ezamination; he can look at I his policy and see how many years it would run without a new : ezamination. fe ?fr. Dawson: You would personally favor the t [ Australian systom as compared with the automatic extended insurance, in your judgaent? Mr. Weeks: I say, if I was gatt^ng up a new company; I don't knov/ as I v;ant to rocommcnd it for our company. Senator Armstrong: Mr. T/eeks, if I understand you, the standard forms, you havo no objection to, providing a standard form oan be established that is satisfactory? Mr. Weeks: Well, I doubt as much \ifiiether a standard form can be established that v/ill ,^o satisfactory, and I see very little adrantage. It seems to mo a very beautiful piece of idealisjn, this standard form of policy; I thirJc tJie time v?ill come for it^ but I see sc many dis- satisfactions that might bo produced by it, and I see so little advantage in it as ccn;)arcd v;ith tho :orovisions that the sui^-'Crintondcnt should have pj\7cr to order any deceptive contract to 'jg c is continued; I sL-uld think that would cover the case, Sonajjor Armstrong: He has that ,>j-T.r for 3^oars, ha s he not? Mr. Weeks: I don't ::n.w whether ho has _r not; I don't knoT; what the lav; is. Assemblyman Cos: Well, v/h;.,- do ycu say it is coming and then you say at the same ti..io you think it is idealism uhich t/c should n:t adopt? Mr. '.Vcoks: Why there a groat many things coming in a fow years that v7o could n-t ^'ot at right ncv. Assemblyman Oox: "iThat mfikos tho situation right ao7f that ycu couldn't adopt that? Mr. Weeks: '.'/hy, because the companies do n:t agree as to what is safe to do, and T/hat is best to do in th6 way of non- forfeiture, for inctance, or in the way of what risks I 48- Seo.ll 257 Mr .Weeks: Why,- "be cause the oompanies §o not agree as to what is safe to do, and what is best*;^o do in the way of non- forfeiture, for instance, or in the way of what risks they will takesWhat restrictiens they want, sir. Some companies want certain restrictions in residence and occupation; I don't think you ought to force them to have no restrictione. Mr. Dawson: Mr. Weeks, are not rearly all the companies in lew York doing business in r/Hssouri? Ife- .Weeks: Yes, I think they are. lir. Dawson: They are compelled to graat extended insurance there. Icr.Feeks: Yes, ths-t is true. Well, of course, they may do Vi'hat they don't like sometimes. Then tikeiire is a very curious clause in the law; that is the clatLse making a policy inoonteBtS,'ble,and I cannot understand how the State, which e stablishes laws and courts can possihly compel its awn corportions to agree not to appeal to the laws and the courts/ I can understand how a corporation might agree not to do it ,"but how can the State force its ovm creatures to promise not to appeal to its own courts. (Applause. ) Senator Armstrong: You must he conscious,!i!r. Yfeeks,that that argument is more specious than practical. I ,'1 llr.Weelrs: Ho, I don 't think so; I thinlr it is g gg practical. Assera^iljn-flan Rogers: The sovereign power Tirhadfh creates can -vci-y e?sil3^ liinit the right to use that privilege, can't it? Ii!r.V,"eeks : It can, but doesn't it -throw a sort of a slur on the laws themselves? AsseitfDlyi-nan Piogers; I think not, rather upon the overuse Iillr.Ueeks: ITell, there is no danger of a company contesting here and there, a bogus concern, but a going Gompanj' don't want to contest eiiy cases; it v."ould rather pay a death loss anj:' time than contest it. Senator Armstrong: Oh, we have found eicamples in this State which ead.st^, which are going concerns, that do contest and contests them beyond reason, that it hardly seems that we cculd JiaB§ over that feature of our investi- gation. Y/e are not legislating this ,J:.Ir. Weeks , for the good; we are legislating- for the evil people that there may be, or people with perhf-ps less sane ideas than others in the life inGur-an-ce business. Mr .Weeks: Fell, that is a thearetical objection, of course. Assemblyijan Bsgers: You concede that any question or doubt tliat :-:iay eslst about that provision is in favor of the policy holders? 25D , -.'.v-'-celis : Of coarse the 3?ew York life policies are inocrLtt'3';;;?.]?lo froffl date;, cut tliya vve iriar.re a very careful inver-i -^lU^-ii-iion tefore v/e t^a^6 a man, and every company might not do that„ Senator A.rni3trong: fe make the investigation before we le^'isj.a'i;^^ . Irhnt 1.3 uho -cnly fl^ff f:xenoe, M].'."S--.eJ^c^ : Or 9fv:jr'5v,-''.:'as Gcmotimes, M■r'.T.!t^.^;.J.. : :?Ir -Vi'e ^.'.>? ; yo-^i. vv.raLirriatyL_,jjf^ say so. / * 51 - Sec. 11 Assemtlyineji Rogers: Well, I don't c^uite under- stancL yovx position, litr.Ueeks, in oojectinc,- to the stanclcrd foiTii of i3olicy and 3"et in saying as 2^0^ <3-l<3- a ^ic .. •VieJiu 'i .: ;y ':. not think that the fact that it will turn competition towards competition in rates and in values, and in dividends, and in iimii£ii'ement,and d:festroy competition between compani.es in features of polic|:es. ibii^r'^.i; ' 52 - Sed.ll 261 Mr .Weeks: But vrhy shoiild you destroy it? V/hy should there not oe competition in features of policies; why sliould you not give play to the ingenuity of man? Idr.SawBon: Your question is a good one for the committee, "but the question which I a^sked I thought perhaps you T/oiild like to answer. ilr.Treeks: Yes, ths.t is another i^oint I meant to spealr of. As I understand this whole hill it is constructed faYorahle to cpmpetitio ; that is you are tyin.f.- the hands of the hig companies in oid-er that the little companies may get fairly big s-nd compete with each other all the time and yet you are stopping them fram competing in one respect and that has heen a very important respect in the past, that is in attrative features of insurance. The instant that a man thinks of a good feature, why you are going to make him go aiid tell the superintendent of insurance, and the superintendent calls all the other companies in to discuss ?/hether they like and (Laughter) Asseml^lyman Cos: Well, now, I-lr.TTeeks, really has it been so important thattSiey sh«iad compete in the multi|)iicity of forms as it should that you should compete in the matter of v/hat you are giving: the policy holder for his money? Mr.Weelcs: Compstiti«in is the stimulaus in the profession; these life insm-ance men axe vexy keen fellor/s -53 )See.ll 2G2 you know, and they get so by t'he very force of competition itself .sjid it is a very good thine "to have a world full of ■bright men. Assemblyman Coit: Y^u thinlr Jt-^usshould be mfefentained lij wajr of education then? Mr .Weeks: Partly, yes. Senator Grady: It is fa:ir to say tlmt the standard fire insurance dif- not reduce the cost cf firs insurance to the insured. Jlr.Feeks: Well, I thinl: the case is quite differ- ent. The theory of a fire loss is a verj^ different thing,' from a life loss. There is n« question \/hether a man is dead or not; he isn't partly dead and partly alive; but there is often a great ques'uien about a fii-e, hov: much burned up. (Applaug e . ) :}(!r.Y/oodruff : Ilr. Weeks, has referred, -.Ir. Chairman, to the committee of actuaries of seven, having a brief to submit, including some recoim^iendations on the subject of staadardiz action of policies, and Hr. Welch, A. A. Welch, Yice- President and Actuary of the Phoenir of Hartford is here and is to speak on non- forfeiture and some other things, and also producing the brief,! believe, of the Actuaries. lie is Chairman of the Committee. -54~Sec.ll ■ 263 MR. 17ELCH: ]\!!r. Chairman, a v/eek ago the actuaries of the various companies weie asked to come to lew York to look into the hill as it had been presented, v/ith an idea of seein{s- what could be done in the ?;cy of harmonizing opinion on it ,and at that ineetin^j there were 26 hastily suimnoned from five different states in the east. The' work of the committee was laid before them, and I think they weie unanimous in agreeing as to the value of it to life insuran.ce,and in being in hee-rty ace era Y;/ith a greet deel that ws^s in it. These men are scientific men who have given their rhole life to life insurance , and have found that theory and practice do not always gf> together, and that v^hen they crash practice hs,s to win the daj?". The too];, up those pa,rts of the lavv that was re- com:ended on which there v;as a unanimous opinion of all 26 present. Therj was no other pait of the bill ei:cept those on v/hich everjJ' one wf the 26 v/ere agreed. There were seven appointed simpl;^ to di-aw up the views that were ezrpxess at that meeting- on the several points made, and this report of ours,\7liich Ims been gotten together all, too hastily is the result of it. I regret , sir , that we could do nothing more than call attention in the great part to places that we took e::eeptions to. Tie had an. idea that possibly we could in an informal wajr make suggestions that would be helpful later, but only in that way could we do it. ''' ,• 56- Sec. 11 264 The topics that ths acbixaries have spo!;en on this afternoon and this monring.' are briefly touched on in here, and they represent the Yiev^,as I said before, of all the 26. I have to speak myself siinply on the surrender value of lapsed and forfeited policies. Part of it as it appears in there has alread^r been talren up in the inter- state comity cuestlon, but the first-cla^Sfe of what we have to submit is calling,- to i^ovir attention the fact that if any state has, or shc-ll hereafter prescribe non-forfeitui-e laY/s at variance vith Eew ior-;, cnj^ compejaj?' holding a charter under that state will be precluded from \ orl;ing in Hew York; but aside from that the la\i/,aB it is proposed, seems to con- tain tv;o or three errors in construction as well as some that we thought were actu.arial3^'^^trrong. First, in its present form, if a policy holder borrows on his contract and then lapses his policy, the surren- der charge that is made is much less than it is if a man lapses a contract on which there is no loan.. Second, a policy holder who iiiay be ill, under the law, has the ri^'ht to get a loan on his policy close up to the limit, leaving enough simply to carry his policy for a year or two under the e:rt ended insurance option, and then by lapsing it secure the fu.ll payment of the full thousand dollars, He has a chance to get a cash vslue on his policy and the payment of the policy as a claim; or in oiMr 7/ords, he has 56- Sec. 11 a chance ts increase his insurance "by stopping payment ef premi-ums on his policy. I think these were oversights in the law. As a ¥lelatien of soimd actuarial principles I would cfeill attention tc that clause which allows the insured to aocumulato his dividends at interest anc; then at a later date by lapsing his policy secure a paid up value, not snly for the value of his contract, but for the accumu- lated dividends, which in the later years of a limited premium policy for instance, would allcw him to increase his insurance without giving any satisfacterily certificate of health. / And finally, the theory of making a surrender charge at all, is that the policy holder v/ho refuses to carry out his contract should leave somethigg with the osmpany tc re- place his risk en the books of the company with one equally as g0Q4. This proposed law allows onhj a twenty per cent char«5,'e on the reserve, a charge 'v/hich in*the early years -if ,e6mfe of the contracts is entirely insufficient to affect the result which a surrender charge is meant fcr. As a matter of fact the companies bavo gone quite far enough in the direction of givi-ng values to outgoing policy holders during- the early^^years of the contracts , and certainly no law KW?-:'. sheixld be enao^^^^W'liicJi wotLLd force a company to t etvocn tr the man whs breaks his contract a sum that ^^^ould do in- j-ustice to the body of polfccy who remain and carry out the provisions of their contracts. Senator Armstrong: I/Lr .Welch, do not many of the large companies, or some ef the large companies, already give greater surrender values than that required in our pro- posed bills? Mr.WeclE: lot in the earlier years, I think, in the ordinary life policy, I will take it jusit in one instance. Then, too, your bill would make surrender values of a ten year term policy necessary, which there is reserve enough in a ten year policy, svon if it lapses j and enough is given to replace that risk, and yet I submit that a £ per cent charge in the later years is far ahead of anything that any company now uses. Senatsr Armstrong: Well, the present law imposes a one-third, 53 1/3 per cent surrender charge, does it not, in New York? lir.YJelch: I believe it does, sir- Senator Armstrong: So that the only difference bet7/een the existing law and our proposed law is that we increase the percentage to 80. Mr.¥/-Gloh: But rrq^.^ li.T'iJ , on a one-third Americas plan, sir, at the present. Senator Armstrong: lot in recent years, are we? 58 -Sec. 11 Q^ 267 litr. Dawson: You are avirare,of course, that this 20 per cent charge, is on the selected and limited reserve and 3iot the full reserve during those five years? lir. Welch: Not miles s we adopt that sort jifc. Dawson. Mr. Dawson: I think ycu are wrong ah out that; it is the minirmim standard oif the state that counsel meant. Mr/v^elch: As I read it, it meant the one adopted hy the company snd those com.panies that give the full three per cent woul.d have to give ZO per cent of that. My suggestion was simply th-at the company be allowed to charge one full annual premium when that v/as greater than a 20 per cent charge, leaving the 20 per cent. charge as it was, but with that addition, v;hich would give the companies the right to get ^j3.ou|:ch surrender charge during the earlier years and would malco it not necessary to make any value on a term policy, which has never been done by any compr-ny of any account These reports, which embocly most briefly what has been said this afternocn,I will be glad to leave here, sir. Assemblyman Cc^::^:: Just a moment ,".tr.Y/elch. Are you going to leave us without tolling' somethings the actuaries really ^situi^cL'^ approve? Mr„Welch: \7hy,T;e have cnly attempted to take that part which is t echnicai , sir ; wc have only attempted to dis- 59 -Soc.ll ^Q3 ouss that part which was tcchnicaland leave ta the executiT© officers, the ether parts of«the hill. They to ap-prove of a great deal that is there, sir. Assomhlyman Cox: Well, we have had sc many state- ments to-day, some going as high as 95 per cent of approval here, and nohody has mentioned anything arud it is getting along well into the evening, and I wondered jUst when we were going to meet the man that was going to tell us just what you approved. Ifr .Welch: Well, v/e appreve in a great many parti- ; culars what you have done that would oeme under the head af the technioal part «f it, with certain changes in it like these: Seme of them are more errors that I cannot help but believing arc mere oversight s, and it was hastily getten together^and certain of the companies are cloing- a groat deal more than you ask in this bill, except in that one par- ticular of the sxjrrcnder charge in the earlier years; they wculd never thini: of mailing a 2 per cent charge during the latter jesxs of the policy. We approve of it hee^rtily; ^ we go ahead of any, I say that all of the companies repre- sented there go ahead of any non- forfeiture law on the statute books of any states. We have nothing to guarrcl with; it 7/as simply in details in the matter that I spealc of, and that is what wc have tried tc point out in the other points of the bill, simply technical; and on the other : ,;«*', ?69 -60~Seo.ll points where wc disagreed. (Ono •t the Aotuarics): ?Je approve of all w« don't disapprove of, T,G:.Co2:, and that is very little. Asscmhlyman Ois:: We won 't know what that is until we oomplete the list. Asiscnlilyman Rogers: Arc these all y«u have got to sparo ? (Mr. Welch produced more copies of repfrt.) lir, Woodruff: The nest subject f»r consideration, and^ene of considerable importance, ie that under thugh to provide for 02.pensGs of two dollars per annum en each th'iiusancl dollars of insurance after the premiums have all been paid. Computing the present values of the premiums thus obtains I find that the difference between the life poMoy and the ten premium life policy whore the difference is greatest is only $31.43 en the basis of our present 14,'adings, while nn the method proposed in this bill the difference is §42.53. I have put in there as I said, a proYisicn for ciq^enses of two dollars; one dollar would be ample, and if I had computed the rates on that basis, and if I had taken a younger -fege than forty, the difference would have been still greater. Senator Armstrong: What term did you compute it Ilr.Roso: A ten year premium life policy, sir, and an ordinary life policy. I havo also the figures here for twenty preml-om life pelicies and fifteen premiums life policies if you care to havo them as a matter of interest. Mr, Dawson: V/ill you leave your figures "'ith the committee? l5r.Ro3c: I v/ill be glad to. Senator Anastrong: I assum that the difference was less with the longer prcmiim payment term? Mr. Rase: Yes, but the,t same disparity holds good. Our present methods of leadings shows a smaller diffcromie on any form of limited premium lifo policy than en the m method proposed in tho'bill. Tour committoo tt. its report states that it would uot be wise to adopt a limitation v/hich in an.y case might result in an increase in premi-ainB. 0?ho adoption of the pro- posed method of leadings hcwevor would' have precisely this 63- S^o.ll 2^2 effect, and th4 increase would occur on the premiums fcr wh«le life policies •f every form,t333Salo of whioh your (fonEaittee doslres t» oiacauragc. The r^s ' t-^i i '^^^i^Tr scale cf loadings adopted by the company with which I am ©annectod is lower I think than any other conpe-ny has ever devised and adopted. We believe that witli ec«nomio management our present loadings are sufficient for 9ur needs, but we would view Vvith the greatest disapprobatien the prepition t© reduce our present leadings. If this bill should b^jcome a law and we continue te do business in your state, in order to retain our present loading on the ten ^a^cMTim life policy at age 35, we woxild liavc to increase our rats on its whole life policy for the same age from t52S,35 to §29.94, which is higher than any ether company is now charging. The curious effect of section 97 ic that it operates most seriously against the companies which already has the smallest loadings « Your attention has already been oalled to the fact that the principle is wrong in that it takes no a^coimt of the question of taxation and the cost df collections, and it is not necessary for me to dwell upon that point. I thinl: it has been made entirely clear to the cominittce that with the earao loading on the other 64 " SoG.ll gyg forms of policies ao "vve have on tho ordina.try life polioics, that after paying tluso fircecL charges of commiBsion, of tascos and of the cost cf collection which are "based upon full contract yi-vini/ujiis , we have loss avyllahle foi* expenses on the ether f^-rnia of policies than m; have en the, life polioy- Again your Committee states that in seeking' to secure economical auiiiixiiatrationj the legislature sh'juld net -overstep the J.iiie wiiic.h. di'vides sultahlo ste-te super~ visa on from an 'uttc./jy Ilix-uc i;icahlc cffcrt to prescriho details; and ;, gent xcm.n , :;hc questions of loadings and of commissions would seem to oomo peculiarly v.'lthin tho pro- viEG c of the actu.arie5 of the so'veral comxxinics, and they should not he rolic-\;ed of their rcsponsihiiity for the scientific and honora'ole conduct of tho 'buBinoss, Speaking for the ■tutaal Benefit Life Insurance Ccmimny, I am compelled to say. that although onc-tcnth of the total amount of cur outstanding insurance of four hundred millions cf dollars is on the lives of your citizens, if this law shall bo placed upon your statute hGoks 7/0 v/ould ho constrained to vithdrar/ from vour state, not ■because wc don't -ivant t?. do as well by cin: policy holders as youx law prc;^crihes, but because wc arc to-day doing bettor., and because wc Y/ant to continue to do bettor, bocause wa are net prepared to increase -C'Ui- premium!, rates, 65~Scc,ll 274 iDocause wo arc not prepared to taJso out of our policy cMn-- tract advanta^'os to the policy holders which it nov con- tains, he cause WG arc not prepared to pay the price of giving- up our systom of paying- renewal coraniissionB, hecauso upon us h^s been placed the responsibility of keeping that company in such a position that it shall he ahlc to weather every storm that shall beset it. We do not believe wc withhold from our policy holders unnecessary surplus funds, but. Wo do believe that if we arc to bo cither responsible managers of that cempany tliat -v. g sho-uld not be tied do^vn and our lands ftttcred so that if occasion should arise x:q could not make the company stronger than it is ta-day. Jor 51 year s, gentlemen, wc have endeavored to give your citiscns a dollars worth of insxiranoc for every dollar of premiums they havo paid. \.o seek the strietcst aocouating and the fullest publicity; bUt wc do not believe that the interests of our policj^ holders would bo conserved by di Boarding' the plans and the c:rperieucc v^ich have made us what wc arc to-day, and adopting new and untried theories which run contrary thereto and which do not therefore oom- lacnd thrniBclves to our judgimnt. fAp'olause.) 66-S0C.ll 275 The folloT^djig paper was handed t/) the committee ^ "SUP.REHDER VALUE OF LAPSED OR FORFEITED POLICIES." Sccticn lO of the proposed law nn the 'Surrender Value of Lapsed or Forfeited Policies' reflects the de- sire of your committee to insure equity tr tliose policy holders who failed ^^ for any reason, to carry cut the con- tract as originally issued, and has a provisions, whidi in principle is carried out by the laws of other states , and In practice is recognized by tho companies themselves to an ertcnt not required by the law. While hccrtily approv- ing of the principle I desire to call attention to serious errors in construction and to requircnscnts v/hich ^rc not in acc)ills by the Nev/ York companies and those of other states it still seems necessary or essential to you that these laws should he passed, that they should not he made applicable ■ to companies from other states but should follow the practice of Connecticut, Massachusetts and other states. Any other course would be wrong in operation to say nothing of its effect upon New York companies tl^rough the reciprocal laws of other states. Since I am here I will make a few comments upon two or three other bills. Here is section 39 about examinations. The specific objection to section 39, requiring your Superintendent of Insurance to examine all companies once in three years, is that other states may have similar laws with the result that the companies will be under the expense of continued examination. The Connecticut law provides for the examination of all the Connecticut companies once in four years, but this is not renuired of other state companies. Some pro- 285 vision might lae roade "by your Superintendent of New York and perhaps two or three other states v;ho ife&uld think it proper to join the Connecticut coamiissioner in his examination. This is a supirestion. ITow, regarding dividends, section 83, upon the distribution of surplv.s. I wish to say that after pursu- ing the annuaj dividend system for some forty years the Aetna life Insurance companj;- some fivei years ago adopted the Quinquenial system, that is the system of distributing surplus at the end of periods of five years. A distri- bution that has oeen generally practiced for many years by the sound and conservative companies. We have re- garded this as a distinct advance upon the previous system, the annual system, and one calculated to give to each insured his proper share of the earnings. To he required to abandon this system everjAA/'here or to quit the state of Hew York would be a great hardship, and it seems to us that to go from a deferred system of twenty years, to which the principal objection has been raised, to the annual dividend system is to go to the other ex- treme and to invite evils of a different nature quite as goad 286 as those fron which you are fleeing. Assernbl^Tnan Cox: Can you tell us right there what those evils are? Mr. En.f^lish: . One of the evils is to divide surplus before it can fairly "be determined how much sur- plus has been earned, or certainly how Eiuch applies to each individual policyholder. Senator Armstrong: How so? Kr. English: Because the period has net been long enough to get a fair average of your investment and mortality experience. You have losses or depressions in values within a certain j^ear and at the end of that year the surplus may be comparatively small and you malce a small dividend, or the contrary'- may be true, there may be appreciations in investments and the mortality may have run unusually siiia,ll and you have a large surplus, so that a surplus allotted at the end of these short periods does not give a fair share of the surplixs to each policy- holder because they have insured-This is what the partici' pating plan means, as I understand it: That during the whole period for which a person is insured he shall share for the whole period in the surplus earnings, but he is 287 liable to get laore or less if the dividends are made at shorter periods than will enahle the company to determine what his share is. AssemlDlyman Cox: You have heard it argued here today "by the actuaries who appeared in the matter of determining dividends they made calculations from year to year even on an annual dividend declaration. Mr. English: How can they make calculations after a maa has lapsed his policy, after he has received a large dividend or a small dividend. Senator Armstrong: Mr. Cox means in determining the amount distributable I assume. AssemhlvTuan Cox: If they find out the savings are very great in a year in proportion they pay that much and carry them over to what may be a poorer year, the year follovz-ing. Mr. Knglish: I should not undertake to dispute with the actuaries, hut how are they to know how large or how small they ouf^lit to he. I contend it can not he done. Senator Armstrong: At the end of the calendar or soon thereafter the gains of the year can he computed 288 with great accTiracy, can they not, the gains of the calendar year? Mr. English: Well, the norainal gains can, those that are shown by the values of the assets at their present value. Senatrr Arris trorg: V/liat gain is there that can not ■foe with tolerable accuracy shovri at the end of the calendar year for that calendar yeEir. Mr» English: You can determine the gains as they appear at thr.t time, but I contend that that is not such a gain a,s is very ^.esirable. Senator Armstrong: Having ascertained that gain of cour'se no one practicaaly ar?:u3s that tha, b could be distributed on other- -Lhan pol.'cy years, and why, t}:ose gains being with reasfn:r.ble accuracy ascertained within sixty or ninety days nf'cer the end of the calendar year, could the;^ not be distr ibvited sjinually 'vith as much ultimate justice as by the quinquenial or any other period? Mr. English: Well, it seems to me I covered that a moment ago by saying if a policy lapses a man in that case may get more or less. If he should continue his policy during the whole period for which it was originally taken that might prove to be true. I am not arguing especially against the annual system, but simply to say we thought that this was a little better. Assemblyman Cox: Is all your business now on the quinquenial basis? Mr. English: Yes, at least it has been quite recently. 289 Asseiriblyman Rogers:. If you contend that the annual dlTidend is too frequent, what would you say of a shorter period than a quinquennial dividend, as for instance a "biannual? Mr. English: It seemed to us that the quinquen- nial period was a reasonable and proper variation or medium "between the o'':g ecti enable deferred dividend and what some have regarded at least as an o"bJectiona"ble annual dividend. Senator Armstrong: Is not the great merit then, lir. English, of frequent distrihution its effective check upon evils of administration "by requiring demon- stration of actual results? Mr. English: I see no ol^jection in the quinquen- nial dividend system and an annual accounting "but not an annual allotment, not an annual distri"bution. If you had an annual accounting I do not see that there is any more check to extravagance tha,n there would be on the annual diyidend. Senator Armstrong: If the annual accounting be acc6mpanies "by charging the distri'butions and lia'bilities wherein is the difference if it is done annually, or quinquennially? Mr. English: I don't quite get your meaning. Senator Armstrong: I say if the annual accounting charges the amount distri"bu ta"ble as to liat)ilities of the company and so impounds it, what difference does it make if it is done annually or quinquennially, since the quantity is already determined and set aside? 290 I'r, Enf?:lish: Siraply loecause the armual accoimting system you are not allotting tc each individual policy- holder his share. Theit is the point that v'e have con- sidered some whr.t objecticna'^le . Senator Arnstrong: Then you mean by annual accounting ascertaining the correct aaount? I'Ir. English: That is it, ascertaining the correct amount. Senator Armstr-ong: rlov; does that operate as a Ciieck i^pcn tl.ie evils of administration unless it T/as brought home to each policyholder hj'- an alligation or a]- lotment as the result of the administration to him? ilr. English; It must he accounted for anmially a.nd put into t-ie co'.apanj^' 3 liabilities just like any other liahility. It does'nt r-emain there a.s a surplus to be used for pny expenses that accximulate. Assembl^Tinan Cox: You made a surrestion a moment ago of some very recent c}-:anp;e I tliought in talking of the quinquennisJ. matter. May I ask v-^h-^.t that is? I.:r. English: Since there has been so much condemna- tion GO vfidely pu'-!lished regarding anything except an annual dividend system the pressure from our agents has be- come SO strong, that we could not resits it so vce have commenced to issue some annual dividends again. ITot because we think as well of them as we do of the quin- 291 quennial dividends, 'hut siinply because v^e want to do "business and vire want to pi'ease our agents, ^r^'e have got to please then, in order to go on and do lousiness. They are the principal factor in our 'lusiness, and v/e want to dc what we can to help them. That is tlie reason. Asseririlyiiian P.ceters: You reccpnise the fact then that the pu'^^lic mind generally is Yery strongly in fa.vor of the annual dividend? l'.r . Enr-lish: It undouhtedly is, sir, at the present tine. The puhlic mind, ho':-ever, is an extremelir un- reliahle index of what is proper and best in the "business. ( Applause ) Asseiablyman Cox: That is ifiiat a great raany people thought, v;hat the puljlio thought a nunioer of years ago ■'■/hen the objection existed to the tv'enty yea.r deferred dividend and tontine policies. I'^r. English: That is a class of policy'- that our company never issued. As senb] 3^11311 Cox: But there mas a great deiaajid for thera, and they were ver;/ genera?. l;/ ;=rritten for a good vdiile. Mr. English: As an indication of the trutii of the statenent that I have just made let me say that I have been in the business a good many years and have seen various phases of t'.'is popular sentiment and I can remember 292 when tlie greater surpliis a com-pany had the hetter an advertisement it was able to present for that reason to the public througji its agents. The larger the percentage of surplus to liabilities the safer and better the company v^ras supposed to be, and agents went out armed with that kind of statistics upon which to secure business, but within the past 3rear we are told that the -more surplus a c-oiapany has the more dangerous it is.. (Applause ) Asse^b3^^Jlan Rogers: That statenent is one that seems to be borne of experience, isn't it? Mr. English: It is borne of observation at least on iLTj part . Senator Arrastrong: Go a^iead Mr. English, unless you are through. Allow .ne to suggest to the people present that while we are glad to have them enjoy themselves, this hearing is for the inforrar-tion of the committee and the members of the legislature and not for the entertainm.ent of those present, and we trust you v:ill restrain your- selves within reasonable limits in indicating your joys. Assembl}T:aan Rogers: I do not think it does any of the rest of the cc/miittee any harm. Senator Armstrong: Well, it does not do the chairman any particular harm that I know of, but inasmuch as some laembers of the coivsiittee have been working sixteen or eif^hteen Jiours a day vie want simply to economize time and get the max-ii.Tam information, as I stated at the outset. Mr. English: I might say a few words on this paragraph 98, if it had'nt been so fully covered by others. 293 Hon. Timothjr i,. Woodruff: We have present one of the most distinguished lue-ubers of the ^oar of this state, and probably the attorney best informed on life in.^uranoe of any man practicinr: law in the state or in the country who has been sitting here since half past ten this mcrninf waiting; to be henrd, but I must call upon t-.--o gentlemen before I do upon him '-.ecpupe they are on the prc^-ranme to be called upon before him, p.nd I hope they win. be very brief. I will call on !>. Joseph Ashvorth, the vice-r)resident of the Provident life and Trust Company of Philadelphia. Mr. Josepli Ashv/crth: I'.r . Chai:-iaan and Gentlemen, I speak un-'-er ve:'y great e^-ibarrr.ssn^nt . I can appreciate the p-reat fati.rrue '■^^i.ich ^--ou £:entlemen are suffering after listeninr for so ma.ny hours durin.'? the day to a technical discussion perhaps not interesting in itself. You have listened to very eminent actiiaries today. I knew I have listened to than with ver}^ ^reat delight and instruction. There are a great siany inatters more or less actuarial which I had intended to speak about but the subj ect has been so full;/ covered ^y the.u it v/ould be a.n injustice to you to take up --cur tine. T s:peak from the standi)oi:-";t of p,n erq^e-'ience of nearly forty yea,r3 in tb.e ap:enc-" raanareLient of the Provident life and Trust Company of "Philadelphia, and disavowing utterly any thought of claiminr credit for ourselves in regard to our manage-'nent, I think it is generally recognized that 294 that company has been snccessfu3,ly and econcnically iiic.naged, that they have hrou^h-t dorn the cost of insurance to as lo\./- a point as any ooiapany in the United States. They not only have a Yerz^ low rate of racrtality, a rate of nort£i.lity s^.cwing only a^jout 6i:'; of the derth increase fo.- the whole period of their experience of fofty years and a rate of expense as lo\v' or perhaps slightly lo^rrer t'^an that of p.ny ot'ier conrjany. 'Cy apclor:^', ftentlenen, for referring: to these facts, I appreciate t^'.e indelioac-- of it, "nit iny apolory in doing it is tlir.t I fiU'.y lead up to ti^-Lat I am ahout to say. Any self -respecting laan, no i-na.n v/hc h?.s -served this great ::;u:i:iess fait'ifully and ccnscientiousl:'- for a long period of tiiae can fail to be in perfect and hearty sympathy with the p.re-',t v-'ork that has "been accomplished by the Armstrong coiTiiiiittee. T'l.eir report excites t'le admiration of every intelligent man in the "■msiness, and I should be pained exceedingly if I should be understood this evening to stand in opposition to anything that laight purge this great system of erery evil that has afflicted it in the past. I grieve to say that great evils 2ia,ve been iTiade manifest. -'ith reference to the limitation of loading, -v^ith reference to .the provisions of the "■■ill respecting surplus, \vith reference to the limitation of the number of renewals, I want to scy to you, as a practical ::ian, thr-t I do not see how it wi.ll be possible to conduct my company success- 295 fully under these provisions. Boiaething has been said here today a'DOut another systeiu w-;ich stands opposed to the renewal system. That has heen on trial for a period of a nuiiioer of years hy one of the most prominent companies of this country, and without discourtesy to that company I think that they have failed to show in their general rate of expenses that that is more economical than the general arency system. (Applause ) Pro.:- IT" observation and experience, as conditions exist todaj^, it is dcui-^tf-..:! -"h-ether anjr system can success- fully supercede tJiat. If the^e gentleinen see fit to experinent t';e experixiient is ver^/ interesting to all life insurance companies, a-d if it should he demonstrated to be raore effective and more econcmical it •■•rill be promptly adopted. But the gre.-t mass of evidence, the great weight of opinion at the present time is against it, and it seems to me it would be very unjust to enact into a law a limita- tion '/rhich v/ould naice the conduct of the l.^usiness as it is now condiicted impossi'-le. This limitation upon the loading on endowment policies I apprehend would v;ipe out that very desirable form of insurance. Th.e endov/ment policy, if I ma.y be permitted for the moment to speak of a thing elementary, the endowment policry serves tv/o rre'-^.t ends, both of great importance, perhaps almost of equal importance. It p'^ovides needed 296 protection to a fr.mily during the period in which they are dependant upon the hreadwinner, and -it the end of that time provides for the uncertainties of his own old age and the old age of his v;ife.. Takinf^ a thousand raen starting the race of life v/ith equal advantages and v^ith equal ability, sad to say the record at the end of thirty years of t":Ose w)!.o h^ive attained or have acctumUated a cori-etence shews that it is a rery s: lall nuia>er indeed. The endovn-ieiit insu::-;-.nce is founded u-">cn the ^me principles upon liich lij^e i'n-v.rrnce is fciinded. It is a Yery smccessful pi sn to pursue. It cc.iiends itself heartily-- to t--\e needs of tlie ijisurers, and the gre'/.t p^i:y.cse of life insuro,nce coi^ipa:ites is net only to make life insurance secure and to i i^ke it cheap "ut to adapt it raore perfectl;-' in VL-...ric\zs v/avs to t'^ie needs of the insurer. Eridciiient , after its lonr- ami successful trial of ""lalf a cent''/:ry in this countr;"-' has demonstrated how perfectly-' it laeets the necessities of a large numher of people. If ycu increase the loading upon your life insur- ance policies so tliat it would he still possihle to pay such a compens.'-tion to agents as v/ill induce them to ohtoan en- dovrnent policies no hawia perhaps "v7culd he accomplishedj 297 except that the rtite for life insurance ^■.■rill ne made, if not prohibitive, at least oppressive. The advance in the price of it would he entirely u:inecessary rnd unjustifi- able. A gre-- t deal has been said here ahout the value of ne',- insiirance ano ahout tjie services of the afrent. Re- newinf; jay apollo^y for referrini^; to matters not personal, "but which relate to ny company, the lov-; rate of mortality which we show d\j.ring a period of forty ^.'eprs is due to a selection, if I iiajr use that word, a rjelecticn of risks made hy the agent. The medical selection is supplernented, or rather preceded "-rj this selection of th.e af;ent, a selec- tion tha.t can only he made "•"'y thorouphlj'' competent men, thoroughly trained men and men of the highest order of integrity. Wnen sua agent hrings a risk into oixr office he is re- quired, not perfunctorily, "'Ut in such a wa-/ that he realizes the significance of v/hot he is doin^, he is requir- ed to sign a certificate of the sa;ie importance as the certificate that is sirned >y the medical exa.uner accept- ing the risk. He says to us on honor that in the light of his trained intellirence he coinmends that risk heartily to us for its acceptance. We do not ask him to recommend it upon medical grounds, hut there are ^ great many reasons 29R other than medical vraich determine vrhet.-^er a risk is acceptable or not. If I may refer to another fact. IXiring a period of forty year^ , in vfhich we have collected millions of dollars all over the country, I v^ould hesitr,te to s'-eak of the vast accreg-ate, and I speak of t'ds net hastily and on the spur of the mcraent, hut as the result of inve'^tiga- tion, ciuri:ir t'^at vviole period not five t:":ctJ.3and c^ollars has he en lost in the collection cf t^'c't vast aracunt of mon- ey all over the United fltates. This con'Tn;" has surrounded itself vit?! a ''Ody of men cf the frertest, ol' the nost unspeakahle value to it. If under the opej-ations of this Sill, that a.pency system should he discnraniced the loss to t/ie company could only "be repaired, if repc.ired at all, )y an e:;'rpenditu.--e of hundreds of t.^.cusands of dollars. This is net an occasion for me to pay trihute to the life insurance agent. If there is any man in the whole realm of life insura^noe entitled to respect it is that man, that hody of men vho by their faith and courage have crec-:,ted this vju.st husiness. ( Applciuse . ) I heg you, ^aailemen, not to appla\id. I had the pleasure of " speaking some years ago on an occasion when Dr. Stanley Hall, tlie Preoident of Clarke University was a speaker. I v/as discv.ssing the progress of life insuranc during the le.st forty years. Practically this whole vast I ! 299 system h£is had its l:)irt'i and development since the year a 1B60, I speak from a;iy ovn e>::ierience in sa,yinr that in 1860 scarcel:'^ anyone hfid any fr.ith in the scientific l')asis on "A^iioh our ^isi'iess rests. Dcv.ht prevailed every- v/here. The first step in in i.icinr a n^n to ^ive' attention to insurance wo.s to de; ■'.ens trate tc him t?'.at it n'as not a v/ild speculation, th.:;t the payment of a policy/ fallinf: dvie forty years froii no; i.v'-as just as certain as the pay- ment of a policy ■'- ich mi.-^'it f 11 due in t'^.e next hour. It was, at that time, rare to find a sinrle nan who responded tc t'le suf^festicn that t':is :.iode of pr'ovisicn for his fazaily •.■ra.s a moral d;\ty inGura."':'e'iit upon him. He looked upon it as a ^rery ■':-ild e::.cess, the vrildest excess of prudence. I called Dr. Stanley Kail's attention to the fact that at the tliiie I spoke, goinr over the entire land, it would he difficult to find a man an^^^^rl^ere vrh" ::ad not the fullest faith in the solvency, in tjie strength, I mean to sa:^- the scientific oasis of f'is business, and e-;iually difficult would it he to find a man anj^/rhere ^'hc failed to ackncvledge promptly that it was an impei-ative duty for a man having dependents upon hi .i tc insure. iSuch a revolution in puhiic sent. hue -.t anc; pivilic tV.ouf-ht in the brief period of half a century is due to v;hat? V.rhy it is due to the faithful -.vorh cf these life in- surance agents. 300. Gentlemen, they are entitled to consideration at this jnoaent. It is not tliat discrimination shou;Ld lie mad'e in favor of ttLem at the expense of others. It is not that their employment shoialc". be continued at a pay out of proportion t© the services that they render, but v/e should pausE. and think ahead lest by any rash step we deal a blow at such a worthj^ bodt of men. And in that conijection I want to say to ycu, and I saj' it deliberately, I have been reflecting upon it not only during this day but during all the time since the , publicatien of these receommendations of the committee. I do not see hov»' it is possible to conduct the business successfully v;ithout putting a -aralysis upon it, a paral- ysis hov7 Ion;; it v.'ill continue no one knows under the pro- visions af this bill. 'Vith very great, with consximmate wisdom, you gentlemen who have seen fit in your recommendations to say that if the companies had stodc investments th^\7 shell be allowed a per- iod, I for.f^et how Ion::', perl.aps tAvo or three j'ears, in which to dispose of thorn, "'h:-? Because tlie sudden sale of those stocks would not only involve great distress and destroy millions 301. upon millions of dollars to tlie policyaolclers, but the effect tipon ,..lie :reneral public mirht be e. tremely serious bjr the sudden force o. sale of such an enormous amount of stock. r su^^-rest to you ^-entlemen that tlie effect upon the agency management of a companj/-, the effect upon the rights ard interests of the aone into the deferred dividend plan. The; Lave a Iv; ays ^jursiier ■ the annual cd vis ion surplus, tnd I l:now, not as a matter of speculation or inference, but I kncTS' it as a niatter of fact'; that competition betwc-.-n these coinanies reuse about wligtt? A comparison of the net cost in those companies of dividends simply because premiums vary the net cost 305 If ole of tlie rei'roscntatives of m^7 company meets one of these e2:oellent companies that has alv/tys co;c.ucted its business on tli£.t plan uho com-.-srison is, as indicatin.-'; the degree End fidelity ^;ith ^iiich tho business affairs of that comp£-Jiy tevc -.g en managed. Tho indication of it is very plain. Our last Sivicl end vvo.s so much. Our c= i vie' end last year 'iyas so much. Oair dividends for so any years have been so much. Our divicenS. s throughout tho whole yecrs of the con tinuftion of your policy iiave been so much, and there is brou<^ht in co";-/_^£-ri son V7ith it a similar histoid? of the div- idends on ttje policy/ in the other ccmpfny- If it is a\Com- •oe tit ion betv/con compsnios ^^/hcrc there is no such c"' ivision, no sudh distribution nobocy knorrs, 1hcre is a mere bond assert io n : t v/entj? 7-'e ar s will r cveal . I sry this as I sm conscious that I avi standi'-:.'-; in the rrescnce of rentleaon for rhom I ::.,. vc ^jrodt .;g rsonal re- spect, 7;ho re;;_:)resent the '"cfcrred dividend system and ^:ho have spoken in acvanco of it to-day, and I be^^ the-' ■'\ill not nn^c-uit me of an;- discourtesy in the allusions v-hich I }&vc maS e. I do not brin'-{ it-; tljit subject for discussion, but if the ?;tf e of y.c- Yorr: determines th ct iieroafter there sliall be an ac tiial rivif, end, r::x'.ici'.l as the assertion muy be, you may tear uo ^'O-'or bill, as i: r as it relates to tbc re^:ula- tion of iirst anc. subsequent o -enses. (Ap,lause). ■'ill they im odii-toly become cheaper 9 304 Till -'he -assa.^e of this bill ;■• ork an instant reform? ','"e will become .-.■radui.lljr and I iio)e b- ra-oid, incredoSinj^lj'- rapid decree, \,e v;ill tscome more anc!. more econoinicrl. ll&YQ we reached the limit of economy? •^s you suj the ^'enerPl conditions vhich li£:ve ezisted in life insurence, the possibility on the part of otlier com- panies to pay such hih rs-tes of commission h£ve made it difficult for us to be as economic rl as ;•■ e v/oulf like to be, but \.l th those conditions removed, f^entlemcn - I am neitlier a i"rophet nor tlie son of a pro;?het, bivc I boldly make the ^5STE01TCT: Does your company issue de- ferred dividend policies? JUDGE lOYSS: Ho. SEMTOS ^J^fSTROETG: Did it at one time. JUDGE lOYES: It did. SSMTOR ARMSTROlirG: ^nd has it abandoned that practice? JUDGE IsrOYES: Yes sir it has, I hope I may be permitted to file my brief so that your counsel may consider what limitations you have a right to put upon your legislation as against foreign corporations. SENATOR .iffil^STROSTG: We will be glad to have you file a brief with us. Judge, and please furnish us twenty copies so that each member of the committee and the counsel may have a copy; and do it, if you please, before one week from tomorrow. HOI. TIMOTHY WOODRUiY: We will now hear from Patience personified — Judge William H. Hornblower. JUDGE HORlIBLOTinSR : Mr. Chairman and Gentlemen, 309 the ph^rBxoal,.,fa4d.gu© ^hich is the necessarj^ result of this .inl5: it ^ll 139- ti) tt^ ocxM^t^ebj ..to :fi,::|^; t^l;:®^fej^^i2^t^d .. with -tl^e- _Bi;ag.l2 s:^c.ep1.-^'o:|L Qt ih.^ doferre^^- 41yif*ead ■^estioii- -^ ' tlier^ "hn.Q ?iot "been a 2iot4 of d^.p'san*. -: .'^4 :^sji3;iii _ / companies jstand witli t^lie largor companies; tlie'^oi^e..!^ oompenies stand T.itix the domoBtio oompanieB; and tie y "have- ' pointed oat to you what all these companies, foreign and doraestiOj, large an-d small ^ believe to b© dangers liixking in these oille. I shall speak only of those matters which vv'e directors tvre more capable of speaking of; and first I shall s^.,eak of the matters of investments. I can speak on that subject with the more freedomg be- cause as far as the company I am a director of is concern- ed, v.'e several years ago substantially enticipated the recommendations of the committee. We do not to-day own a single share of stock in any corporation, large or small. We have no loans upon shares of stock. t)ur assets to-day cdinsist of bonds, principally first-class gilt-edge, railroad, four per cent -SShioh there shall now be an annual apportionment Liade on the bochs of the ooinpany to each policy holder of the eimount due him that year on each share of the deferred dividend policies held; and that will obviite at once nine-tenths of the difficul- ties of the system as it now pertains. to I.IR. :i.'.7£uil: Does thc.t apply/ those already in esistenoe — their v/illin^rness? JUDG:^ HCKiTEI-0V3B : I cannot ssy that. That is for the actuaries. I would not w^nt mj' clients to be com- mitted on that. loT, the next subject is one Thich is, I thinl-:, of extreme importance, and th. t is the contingency reserve. That i£ e- siibject to vh.ich I ht^ve had occasion to rive considerable professional attantion and it has been my duty on more than one accasion to present to the coiirts the question of whether a surplus maintained by a life section IS/ 15 319 Insurance company was so fLx in excess of X'/hat was reasonable or prudent tliat the courts sliould intervene and decree distribution. Hot; this bill provides that no company shall be allov/ed to 'gold more than two per cent aB a contingency reserve over and above the mimmum reserve reoiiired liy lav/. I need not remind you Gentlemen of the comn:ittee, who have gone so thoroughly through this investigation into the details of actuarial matters connected v/ith life insurance, that the re- serve re(iuired by law in the state of ilew Yorl: from a life Insui-ance Company is a mathematical fixed :aiantity. It is that amount of money which a compc-~ny is bound to have in ha-nd^ which compounded at the fixed rate of inter- eat which the lav/ 'specifies during the period of the mortality shown by the American eiroerience table of Ba mortality, together v/ith the premiums which will be re- ceived during the life of the policy holder will when compounded pay evexy dollar of insurance on the books of the company as a ma.thematical certc-inty. That amoujit I say is fixed by law. If the company falls one collar below that the company is technically insolvent. It is the dut-^ of the attorney general to take procee5ings section 15/ 16 320 to wind it up. Kcw y^e suppose you hoVe a contingencj;" reserve of two per cent over and above — SIJiJATOS iKLIoj^EOHG: Tlie imp&rnlent of the comps.ny^s ressrye fund doos not indicc^te action by the Attorney-Gener£.l . as I understand it. JUDG3 HOHEBT^O:;]]]!^: v/hy not? SHili^TOIl ..-EilLirOiyG-: 7hen its reserve is impaired as you su{;;-:^^;est^ belo:.' the nininum or the L:£.zi~ mum required by law, then a nyv/ valuation is made of the assets of the ccmpenyj it.B gross ijoome age-inst its grt-ss expenses and n-a-V.thor anothar ttand^rd is required or insolvency prooeedirgs must be instituted. Do I mis- understand the condition of the la'./? J'ODGI IIOKhBI^C"":!:: I do not understand it that xvay Srii-:.TOh iSh'SiDhOhG: I am veiy sure that is the lav/, JUDG3 H0K];IBIC7,Z]E: It may be there is some provision for leav/ay that comes to the se.:me things The moment you ;^;et belov/ your reserve the company is precluded from doinf,' ne\. busiudoS. and v.hether or not 'che ^.ttorney C-eneral is oblip-ed to immedittely proceed to v/ind up the seotion 13/l7 321 oompany, the oompany is obliged to make good its imparment or stop securing new business, wlaich comes to the same thing. How assume you have only tv/o per cent, ..nd that your assets are all invested in first-class, gilt-edge mortgage bonds. First-class gilt-edge mortgage bond-S have fluctuated more than two per cent dm the last two months, notably the B. & 0. 4s. ASSSl^IYj\LllT COZ: But this fluctuating value does not take any month or day; it is extended over a year, the average for the year and therein lies a good deal of safety. JUDGE H0F.1TEL0":'ER: It is lihely to fluctuate more in a year In hard times, '.'e hv.ve had times when stock and bonds went down four points, gilt-edge stocks and bonds r Of course, when you come to stocks the difference in the market value of the stocks on the i:lst of December, 1904, and the value of those same stocks on the Slst of December, 1905^ may be five, sis, seven, eight or nine or ten points. ASSEIilBL'K/LUr COZ: But they are not valued on the Slst day of December. BGEtion 1E/ 18 322 JUDGE EOEiTBLOMlE: I thinl; tliey ere. ^im I coirect I^Ir. VanCise: IHR. Y^ai CIEE: Tlu.t is our prs.ctice. I thinli there is a provision in the law to that effect, requiring tiiS.t • ^SSSIiBIYHilir 002: lin^t it possible for the de- partment to tc.lve into oonsi deration the ftct that there is £ depression in the Liarhet. IE. V.xIT CI£3: I thinh that is so. ASSELIBlYi:^ COi:: I thought there v&s some ex- ageration of these slight Sim^ie fluctuations as they affect the Questions here. JUJ)G'2 H0HIi3L0V;T;E : It mE.j t)e I have overlooked some provisions of the hill tending- to minimize that. I;'H. IiAWSOil: 'l''he Scuittible has carried from five millions to nine millions as a general sm^plus. Do you know any case where fluctuations even to the extent we had them in 1893, have wiped out that surplus. JUDGS HOEIBLO'.VER : I should say from recollection that in 1893 stcc!rs went down on an aver^-ge more than ten points during the year. A great deal more than that. I thinlc if you take Pennsylvania railroad stock, ilew York section 13/ 20 32S Central's stock, those stocks move more than ten points in a year. I'ffi, DA;"'SOH: My impression is that even in 1893 the surplus of the Er^uitable was not disturbed. I think the general surplus of ths Equitable even in 1893 was not v/iped out. MR. ViJT CISZ. It was not wiped out. SSiUTCE ARLIS'IECmp Isn^t that impertinent to the sugg*estion thet the companies ouii^jht not to invest in a class of securities which have such wide fluctuations? JUDGE HOFJIBIOV.ER: I think that ha& an important bearing on it; but even in the case of first-class mort- ge^e bonds the fluctuations are more than t^' o percent in the course of a year. There have been more than two": per cent fluctuations in the course of a year although . times have been good and the market generally in good con- dition. low if yovi take a bank with a capital of $500,000 and you keep a surplus of ^50,000, you would not consider that a very extravagant surplus. That is ten per cent of the five hundred thousand dollars. We are mislead somewhat by the enormous figures section 13/20 32^ with which insiirance deals, and the forty million surplus seems shocking; but v/hen we compare it with the four hundred million assets we see it is only ten per cent, and that twenty million would be only five per cent. S^ilATOR .^:.PJ,IS1T:01JG: Is that exactly fair to this argument? I merely suggest this in all kindness. It seems that the liability to sudden demand on a life in- surance company is so small compared with anj^ other kind of buisness, particularly much less a bank. JUDGE H0RIFBI07/:aE: As to the demand for immediate payment that is true; but when yoii consider the company must keep its reserve unimpaired and that must be for all time, then the shrinke,ge of ten per cent in the value of the compsmy^s assets becomes a momentus fact. In the case I argued in the Court of Appeals some years ago I pointed oxit the ratio of surplus to a.ssets and of surplus to amount of insurance in force; and the court of appeals took the view that four and one-half per cent of the amount of insurance in force was not sn excessive amount for insurance companies to keep. However, that is a matter on which director and experts can differ o section ls/21 all I neee. to .say here is tlis^t it seems to me that the margin of safety the coiijuittee's bills provide for is too SEiall; and I hc.ve no doubt they v/ill recognize that fact cheerfully, unless they ere satisfied vith the viev/s of those who criticise ei?OH erroneotisly . ArS3IvIBiri.;!;iXl EOG"HS: T/hat do you think is a safe amount? FJDGS E0RI}IBI0^7.E: I do not see how less than ten *Ter cent \7oiild bs safe. ASSSMBIH.L.II COZ: There has been a suggestion thc.t there should be no difference betv/een the large and small companies ?/ith reference to that continp:ency fe serve. JUDC-E EGFiirLLOlTiEr I do not see how it cfc.n be othervfise. The proportion is the same. Ten per cent of foTir hundred millions is the sanie thing to £. big company as ten per cent of forty millions is to a little company. ^t is a question of mathematical per centage, HOI. TIMOTHY !•. WOOI)R"J?F: That is as far as the matter of shrinliage is corooerned. section 17:^122/ 326 -<.i5SZiM3LY;,LJJ COZ: But it is to tcilre ce-re of the fluctuations in the iii&,tter of mortality. The variation in the matter of mortality is much greater in the small than in the largter conv;oc-nies. JULG::: HOEIBIO'.SE: UnclouistecLly. They may need more than ten. ;^7;r:ATCr? AEHSTEOEG: That leads me to call attentio: to another erroneous statement and the.t is that two per cent -'.as ou.r limit. V/e began with twenty per cent, limiting on the smaller companies and decreased it to t';70 x^er cent on the larger con:penies. jTjT)Q- ttqpj;bt,o7;]3Pc ; I ao not mean to make it so general as to aj^ply to the larger companies. Lly re- mains were directed more particiilarly to the subject matte: of the three ls:,rger companies. The only other ruestion I shall discuss is the important one of the limitation of business and the expenses of nev; biisiness. Those two subjects dove-tail one into the other. They have been discussed by the actuaries and the officers of these companies and I shall not take the time of the committee in recapitulating. So far as the larger companies are concerned I think they are ready to asouiesce in any section ls/23 327 measure wliioh will properly regulate tMs. I knov/ it is the ¥iew of many ;.;en connected with these larf;e com-ianies, on this question of the expense of business v/hich seem to go on interminahiy and T.hich did involve some elements of fang,'er to the community. The only riuestion now is as to the method of getting at it and the time in v/hich it shall be accom- plished. It seems to us self-evident that if you are at one single bio?/ to cut off the amount of nev7 business one of these companies csn do in the nest year or two years, you will produce as said by one of the speakers, a state of partial paralysis in the insurance business. You will produce a state of confusion v/hich vdll result in great loss to all concerned. I shall not repeat what has been said about these agency forces. I have had a great deal to ,iSo with agents in the course of mj?" insurance business; and I echo what has been said in regard to them to-day. They are a most deserving class of men and they have done a great work in this countyyj and I think it would be a great misfortune if a sudden change were made these . ^ . which would throw a vas vast number of /men ^^"^ o- business section 13/E4 5SS or if a chG'.nge shotild be mc.de \7iiicli Y.onld ■oreyeii'G -criem from in£;Jr.iiig a liTing for c, period of timej or from earning an inuome . Eat v/e of ■■^iiw iie\7 Yoit: Life scv ve are per- fectly wjjli-ag :}0'a sIioiLJ.d r&dace our buaineGS in the future; arid plaoe a lim:'t on our business and even on cur ezponrjfciC J but v/e mr.st \irotetit agt.inst its being done in this fa&hion. V. e subiait there should be a period of yee.rs during which this deciease should tahe place in order thc't our agency force may adjust itself to the situation, end in order th:.t the officials of the com- pany char;;e6. \/ith the duties of managing its affairs may be able to regulate its affairs in view of the situation - \7e submit also that in vie\/ of this matter of es-^ense the theory upon which the bill is fi-amed, as pointed out by ^'-r. LicClJ.ntoGii, is vn>;orli;able. ^■,GSEISI.YIL--II GOI: '.'.'ill you criticise the figure of the ore hundred end fifty mdllion limitation. JU;DG1 ZCR1TEI0'".F:R: I am not prepared to do that; that is mor of an actuarial question. AS3EIiu}3LTMivEi ROGERS: Vhat period of time ffo you think should be alloFed? J'JDGE HORIBIOV.'EE. At least five years. But ^hen seotion 13/25 320 we come to the matter of agency expenses and have a hard and fast rule to "be applied to the companies in this dra^;- tdic fashion, then. we find ourselves confronted with a situation which has heen pointed out by Mr. McClintook as unworkable. The officers and agents of the company cannot predict how much business can be done in 1907, nor how much the expenses are to be connected with that business; nor can they draw a hard and fast line be- tween the question of rents and salaries and other fixed expenses of the officers of the company, and the com- missions of the agents, which are fluctuating. As Mr/ McClintook said: It is unworkable. Uot only that but we have had testimony from the smaller oompaaiies and from the foreign oompanieB that they cannot do Ijusiness on Buoh a "basis. Im that brings me to the final consideration to which I shall oall your attention. The inrestigation of this committee has brought to public attention in the business of life insurance certain facts which hare aroused public interest and to which these bills are in the main directed. The abuses which have siezed hold most prominently in the public mincL are the extravagances in the life insurance companies, and the large oompensatio:a section 13/26 33C paid to many of the agents especially in the early years of life insf-rance v/hen the companies were ■building up this great huslnesB. The amoiirt of money flowing into the coffers of the company has u-ndouhtedly to some extent made the officers a little li^beraSi in their disposition of it; and this cormidttee has wisely addressed itself to the pro- blem of limiting the expen3aG of the company in such a way 8.S to correct these aouces. But, Gentlemen J let me call your attention to this; — Ard v^e not in danger in our effort to remedy these alsuses^ to got at the root of the evil, are we not in danger of cuttin up "by the rootc the very system itself. low suppose you cut off from the New York life Insurance Company one hundred and fifty million dollars of new insurance nest year. It would not hurt the ilew York Life Insurance Company very much, nor would it hurt the policy holders of that company particularly; but sow.Q^jo'lj is going unprotected by insurance in this country. Do we realize, what it means to this great country of ours that a Mmdred and fifty million dollars less in- section 13 - 27 331 suranoe shall be v/ritten next year than is written next year? - that the wives and children of the men whose lives would have been insured should be left unprotected? If it v/ere true that tho cutting off of that one hundred and fifty raillion dollars of insurance was simply to re~distribute it among other companies no one could complain. If it were to anable the ana smaller companies to step in anS. fill the gap and do the work which would have been done by the lar'";er companies, well and good. But what has been the testi- mony here to-day? Have you not heard from all these gentlemen that under these provisions of this bill they would not be able to step in and do this ?/ork; that that one hundred and fifty million dollars would practically go unwritten. Several of the companies doing business in this state, foreign companies, have told you they must with- draw from this state. Several of the smaller companies told you it would probably stop their business. How I Ivnow the committee does not wish any such result, does not wish to acoom.plish that result. Huoh as they may feel the necessity of restrlctmr the section ls/28 „^^ business of life indiirance as far as the compan;fres are concerned themselves; much as they may wish to place pro- per checks upon tht.t business; they certstinly do not want to pass a bill so drastic in its provisions that the net result will be that hundreds of millions of dollars of insurance will go unwritten in this country, and that the families of men earning wages, that are supporting their families to-day, will not be persxiaded to leave that money out of life insurance and have their families unprotected or unj'i'rovided for in the event of their death. low, lir. Chairman, This is a very serious question. It is not a question of this company or that company; it is not a question of directors or officers or agents even; but it is a question of whether the business of life in- surance shall "be checked. And after all is said about the matter do we ^eod- not all concede that the business is one that should not be chocked; that it does protect the widov/ and the orphan. SEH^^TOE ARMSTROIG: Kindly say something on the eEonomic question of the aggregation under one manage- ment of such large assets. JUDGE HOHlBLOV/'JffiS I think it is a very serious seotion 13/29 333 question, Mr. Chairman, and have always thought p.c. I have for years heen of the opliiio'.-i the^t the groat massing of capital in the harads of these corporations , if it kept on infinfinitelyj way a nia'tter of very sorioiis coueiclera' ticn and for one I am qui.te T/1115TLgj and I think it is the gensral e^f th se:ri;luie::j.t of th.o officers and direotors of these companies that there shtnild bo a limita- tion. I hope it can he acsoinpllshed by distributing « among tlie smaller oorqi-ianies and build :1ng them np. But I obje.cc cn-\ prorcct on behalf of the larger and the smaller oojrj.Tnles f.^^V'-'^--"- ^ roeaf-uxes which eeem to us to result in roc'nc:ir:g the bi.;£in8 30 written^ A£crii\'.5bA'M:^W GO.K: If we oan mtl^e our peace with the smaller ocivparjies you T/ill rot objoct to the limitation? JUTjGS H0K:!'E10'.7M: Hot at all, provided the limita- tion is done gradiially. SEIATOR ASKSTEOEG: Soraewhat of the theory on T/hich this was bp.Lldfod up >/ao f:h::E:— that the determina- tionc las-j year in thn life i:o'^!uranco companaes which ha4 written the la-^s^t a:Tj3un<: of business I think of any of the three companies ^as in port one hundred and sixty-two BeGtion IS/'SO 334 million dollars; thtit some proportion of those terminations was properly al3 normal, beoa^ise of the hight pressure methoa-s that had oharacterized the method.s of securing ■business; and so it might reasonably be said that one hundred and fifby million of those terminations would amply eorer the normal terminations of the ^^ev^ York Life; that by permitting it to T;/rite one hundred and fifty mil- lions in the future it would be th le by careful seleoticn of its rising to guspd grow ssmethat larger than it is now. ihat its assets would increase neoessarilyj al- though it yearly writings of business were limited by the aoc-umulation of reserves to say two billions if rislis in the aggregate and the reserves necessary to sustain them; and that one hundred and fifty million was arrirsd ' at by the committee for the purpose of curbing the largest and fastest growing of these cAmpan:^es practically within its present limits or the limits to V7hich it could grow. • JUDGE EOElTBLOl'vER: It still remains true, i^r/ Chairman, That there were three hundred million dollars of new insurt'.nce written last year by the Hew York Life Insurance company and if you prohibit them from writ- ing new insurance to an amount more th&n one hundred and section IS/Sl SS3 fiifuy wllltoko tyiQXB will 1)0 039 hunared and fifty ailliop. r.e7/ InduraiiCQ written laut yoex which will not be wr.ltt^^ji ne'jcb 3/sa3?'i, ajid -oiilasB that l\ao strayed aao2\g' othe-a: ccrapaMG; the partios whoso liTcra wotdd haT3,hscB. seoTiTGd and their families protldoa, fO;'?j will nr^t be* SHilAlpE ABMS-IBCJilG;: Wg hare secured that alBG azi^ hays a larger pe'i:ceT-.tag9 of bufsice^es in the smaller t comparLie-Sa ASSEI>ib^;yMM ROSSF.S With all duo reop^ot" to tha ge--;- tlemea wh6 say ^hat "iihe 0Ompa:iiies will withiraTr, it ii^? CTLT .e-jqierienoQ- that- psople are mora api^ te CrOELteiii-la'to a TathAraw. from IqW Xprk iii --Mairoh thaji phey are in a^'tiG-/ JJotatsl^y t.hp ^^ew Joi-k ^toolr" S^cohar-ga^/throat ta do so ia h'bG -itlio ladt twelve inqr.th®« J-0DGB.H0R:SJBX-0W:E;E? I am ^ot called ^k to 5.Qfeml tlip statements of these ger.tXecier.o- Thev made thoae- starfcBK^-ca-Jr- and you aro the ,ori^s to juclg& whether they will "oe terified h- nst* ST^ATOR. 4=J5S:i:Ro!^&: if wo iial^e these ^rG0-^icfeL«^.fc^- reasonabls they will not withdraw Bolely heoaiiseVtiieF ar^^. reasonable rostrictione? and S9 if wo atriTe at the ri;--:v result I do XiO-t thlrOr wc need fear the withdrawal of er^r oompany that is tr^^lng to arrive at the right thrnp. section 13 — 32 JUDGE HOMBLOY/EE: I do not think sc. I think they will so recast these hills that they will pro- duoe benefit and not injury to all of the companies. And V7hat I want to eniphasiae upon this conmittee is that we are to-day on the part of the IJew York Life sippearing not as ohstructionists , biit merely to present ohjections which occurred to us. If those objections are overruled v/e have done our duty. We believe the business of life insurance should be conservative, and I believe no one would regret its curtailment more than the committee; and we believe the members of this committee will again address themselves to the task to which they have als'eda ready addressed themselves, v/ith such knowledge , and ability, and v.'ork out a scheme which will produce harm to no one . ?U5TH"S HEiJ-niG ADJOULir.D to Thursday liarch 16th, 1906, at 2 p.m. in the ^^ssembly Chamber, Albany.