Industrious Hen Co.

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. . . . No. 9.


Insurance Commissioner

C0mm0nkixaItlj of Hfessarljusi^tts.

January 1, 1903

FART 11.




18 Post Office Squakk.


Approved by
The State Board of Publication.


[For Index to Companies, Bee end of volume.]



Introductory, '^

The Atlantic Mutual Life Insurance Company, vi

The Treatment of Liens in Valuation of Policies, .... vii

The Attempt to change the Law for the Valuation of Life Policies, xii

Statement of the Massachusetts position, xiii

A less secure basis advised, xiv

Discrimination the result of the scheme xvi

How it affects surrender values xvii

Plan would give no special advantages, xvili

The Control of Life Insurance Companies, xx

What such control would mean, xxii

The Prudential merger case, xxiii

The attitude of the department, xxiv

Others who registered objections, xxvii

The Prudential's profits xxviii

The case in the New Jersey court, xxix

Position of the defendants, xxxi

The court's view of it, xxxiii

An appeal taken on one issue involved, xxxix

If the courts enjoin, why is more law necessary, xxxix

A Commendable Step for Reform, xliv

Fraternal Insurance, xlvi

Abstract of Reports of Receivers of Insolvknt Assessment and Fra-
ternal Insurance Companies of this Commonwealth, . . . xlix
Supreme Court Opinion — Porter v. American Legion of Honor, . Ivii
Statistical Tables, Ratios, etc. (Regular Life) : —

Table A. — Summary of income, expenditures, assets, liabilities, etc., . Ixii

Table B. — Ratio of real estate and other investments to gross assets, . Ixiv

Table C — Disbursements in detail, Ixviii

Table D. — Mean amount insured and death claims for the year, . . Ixxii

Table E. — Policies issued, terminated and gained in 1902, . . . Ixxiv

Table F. — Classification of policies and insurance in force, . . . Ixxvi

Table G.— Policies ceased in 1902, with mode of termination, . . Ixxviii

Table H. — Massachusetts business, 1902, Ixxx

Table I. — Miscellaneous insurance corporations, — accident, fidelity,

etc., Ixxxii




Massachusetts Life Insurance Companies, 1

Life Insubance Companies of Otheb States, 46

Miscellaneous Insurance Companies, la

Assessment Insurance Companies 113 a

Detailed statements 115 a

Table 1. — Income, expenditures, assets and liabilities, .... 126 a

Table 2. — Exhibit of policies, 126 a

Fraternal Beneficiary Corporations 127 a

Record of changes, 129 a

Corporations exempt, 130 a

Detailed statements : —

Massachusetts corporations, 131 a

Corporations of other states, 161 a

Table 1. — Name, date of incorporation, location and officers, . . 200 a

Table 2. — Income, expenditures, membership, etc., .... 206 a

Tables. — Assets and liabilities, , . 212 a

(H^ommottto^dtl^ 0f P^assarl^usetts.

Insueance Department, Boston, June 15, 1903.
To the Oetieral Court of Massachusetts.

Part II. of the forty-eighth annual report of the Insurance
Commissioner is herewith respectfully submitted. It embraces,
as heretofore, reports of all insurance companies except fire and
marine which have authority to do business in this Common-
wealth. It has three principal divisions, one setting forth the
condition of old-line life insurance companies, the second cover-
ing the miscellaneous companies, and the third assessment
companies and fraternals.

Aside from the list of fraternal companies, Avhose changes
for the year are recorded on pages 129« and 130a, only a very
few changes have taken place since Jan. 1, 1902. The Masonic
Mutual Accident Company of Springfield was authorized on
January 16, and the Protective Disability Company of Boston
on February 28, both under chapter 120, Revised Laws, to do
an assessment casualty business. The Philadelphia Casualty
Company, with a capital of $300,000, was admitted May 8 to
do credit insurance. The Germania Life of New York was
readmitted August 20, after a voluntary absence of three years.
The Columbian National Life, a new old-line Massachusetts
company with a special charter, began business September 10,
with a paid-up capital of $200,000. The Bankers Surety of
Cleveland, with a capital of $500,000, and the Empire State
Surety of New York, with a capital of $250,000, were authorized
on November 25. The Industrial Casualty Company of Boston
was authorized March 9 of the present year, under chapter 120,
Revised Laws.

The only withdrawal during the year was the Frankfort
American, which retired voluntarily July 1, 1902.

vi eeport of the

The Atlantic Mutual Life Insurance Company.

In the last report of this department it was stated that the
Atlantic Mutual Life Insurance Company had reinsured all of its
business in the Boston Mutual Life. This company was one of
the former assessment companies whose future, even though fa-
vored with the much-sought-for advantage accorded by chapter
229, Acts of 1899, to this class of companies, seemed too uncer-
tain for business prudence to sanction its further continuance
under the load existing at the time of reinsurance. The reinsur-
ance deal, however, did not operate to dissolve the charter of
the reinsured company, and it has been a cause of considerable
anxiety to the department. It is deemed best, therefore, in
place of publishing its meagre report in the usual place, to make
a plain statement of the facts.

Some time after the reinsurance contract noted above went
into efiect, it came to the attention of the Insurance Commis-
sioner that the managers, instead of moving to dissolve the
compan}^, had, on the contrary, purposely taken steps to con-
tinue the charter in force, by issuing 5 new policies for $250
each, thus seeking to prevent the operation of that provision
of the insurance law by virtue of which the corporate powers
of a domestic insurance company expire if it shall cease for a
period of one year to make new insurance. He deemed it to
be his duty to protest against this act of the company, for the
following reasons : —

The total assets of the company, Dec. 31, 1902, amounted
to $51.55, and the issuing of policies on such a basis was
purely speculative insurance, as no average mortality can be
predicated on 5 lives or any such number. A foreign com-
pany cannot be admitted unless it has policies outstanding
covering not less than 1,000 separate lives, and aggregating
not less than $1,000,000 of insurance in force. In this case
there are only 5 lives, with assets enough to pay only about
20 per cent, of the face of a single policy. The Massachusetts
Legislature never chartered a life insurance company on such a
speculative basis, but has required either a stock or guaranty
capital to protect its early contracts. Even a fraternal on the
lodge system cannot issue a policy until it has at least 500


applicants, each of whom has paid in one full mortuary assess-
ment. A purely mutual fire insurance company may not, when
beginning business, bind risks until not less than $1,000,000
of insurance upon not less than 400 separate risks on property
located in Massachusetts has been subscribed for and entered
on its books. The purpose of these provisions is to lessen
speculative, uncertain and experimental features, by requiring
sufiicient risks to secure the operation of the law of average.

The fact of the issuing of these 5 policies to interested par-
ties would not be so serious, were it not for the fact that it
might be considered to be the privilege of the company to set
agents at work, enticing the public to take out policies, which,
at the present time, could be only purely experimental, specu-
lative and hazardous.

The attention of the company was called to these things,
through the Attorney-General, and its counsel asked if the de-
partment would be willing that the company continue in exist-
ence if it should secure (1) a guaranty capital of $100,000, and
(2) also secure applications for insurance upon at least 1,000
lives, covering not less than $1,000,000 of insurance, the com-
pany to be enjoined from issuing any further policies until
these conditions had been complied with. The conclusion of
the department was that these terms would be ample, the
second part of the proposition being deemed the equivalent of
another $100,000 of capital, which, with a guaranty capital
of $100,000, w^ould equal the amount the Legislature required
of the last company to which it granted a special charter.

What will be the final outcome is not yet certain; but the
department is clear that the company should not be allowed to
issue policies of life insurance under present conditions.

The Treatment of Liens in Valuation of Policies.

In the forty-sixth life insurance report there was published
an opinion of the Attorney-General relative to the treatment
of lions in the accounts of life insurance companies. That
opinion, when applied to a certain class of cases, led to dis-
turbances, as the department applied it, and, as a consequence,
a request for a review of the legal issues involved was made by


the commissioner. Following is a copy of the opinion received,
which is now the guide in the treatment of the lien question by
the department : —

Boston, Feb. 10, 1903.
Hon. Frederick L. Cutting, Insurance Commissioner.

Dear Sir : — You have asked the advice of this department upon
a further question arising in the valuation of the class of policies
discussed in my opinion to you of June 24, 1902. The following
example will serve to illustrate the class of policies in question : A
term policy for $1,000 was issued Jan. 1, 1892, to a man forty years
old, who exchanged it before its expiration Jan. 1, 1902, for an
ordinary life policy at age forty, dated Jan. 1, 1892. At the date
of the exchange he signed a " certificate of loan," so called, in which
he agreed that a certain sum, " being a partjof the^premiums on said
policy," which the company would have received if the new policy
had been really in force since its date, should be a lieu on the policy,
bearing interest at 5 per cent. The policy provided that all rights
thereunder against the company should be subject to the lien.

Is this to be valued on Dec. 31, 1902, as a policy dated 1892, at
age forty, with the lien credited among the assets, or as a policy dated
1902, at age fifty, with the lien deducted from the face, according to
the method indicated in the opinion of the Attorney-General, Feb. 1,
1901, as lawful in the different class of policies therein discussed?

In my opinion of June 24, 1902, concerning the allowance for
interest upon such liens, I assumed, for the purpose of that discus-
sion, that the Attorney-General's opinion was applicable to this situa-
tion. It now becomes material to determine whether you may properly
govern your treatment of all policies to which liens are attached, by
his opinion, or whether you shall confine its application to the class
of liens upon which it was based.

This was the situation which called it forth : One of the assessment
companies, changing over to "old-line" methods under St. 1899,
chapter 229, issued in exchange for an assessment certificate a level
premium policy at a rate fixed as of the age when the certificate had
been issued, taking a lien upon the new policy for the amount of
reserve which the company would have had on hand if the new policy
had been taken out at the time the assessment certificate was issued.
Though the blank form of policy submitted did not indicate its date,
it seemed to be a new contract of insurance rather than a modification
of an already existing one ; the policy contained a provision for pre-
liminary term insurance during the first year which would have been
ineffective under section 5 of St. 1899, chapter 229, unless made after
July 1, 1899.


The lien was unsecured, except so far as the company was charged
with an amount equal to the value of the policy. But its value, since
it was issued subsequent to July 1, 1899, and was to be valued as a
preliminary term policy for one year, was slight. Therefore, the lien
was almost entirely unsecured. In case the holder died, the company
would, it is true, deduct it from the face ; but if he should let it lapse,
the lien would disappear from the assets, while only the slight reserve
would be taken from liabilities, unless a larger amount were arbi-
trarily charged against the policy to offset the lien. Hence, the
Attorney-General held that the lien was not an asset, and said that
the true liability of the company at the moment of valuation, with
regard to that policy, might be shown on its balance sheet by deduct-
ing the lien from the face and valuing it as a policy for the balance.

In the case before us, on the other hand, the exchange policy is
dated back to the time when the original policy was issued. The
logical method of treating it is to charge it with the reserve computed
by the proper mortality table at the legal rate of interest from the
three factors, — amount of face, age of holder at the date of the
policy, his age at the date of valuation. In the policy, the terms of
which I have stated, this reserve Dec. 31, 1902, is $162.97, To
offset this liability, there is a lien upon the policy, carrying interest
at 5 per cent. To the extent that the lien with interest does not
exceed the reserve, it may be regarded as an asset. If the policy is
paid, the lien is deducted from the company's obligation. If the
policy lapses, the whole reserve falls out of the company's liabilities.
In no case is it possible for the company to lose the lien. The situa-
tion, assuming that such exchange of policies is made under such
circumstances as to be unobjectionable, is not to be distinguished
from a case wherein the insured pays the amount of his obligation to
the company in cash, and immediately receives it back in the form
of a loan, signing an agreement securing the loan by the value of the

For this reason, the Attorney-General's opinion of Feb. 1, 1901,
is not applicable to this question. Besides, that opinion is based
upon an exchange policy with a lien which equaled the reserve wiiich
the policy would have carried if taken at the earlier age. It did not
consider the effect of that method upon a lien which, as in many of
these policies, does not equal the amount of that reserve. Such con-
sideration was not invited by your request for the opinion. I quote from
your letter of Jan. 4, 1901 : "Each policy holder who is persuaded
that it would be best for him to hold a level premium in place of his
assessment policy is asked to sign a lien obligation for the amount
that the company ought to have in hand as reserve, said lien to bear


interest at 5 per cent., and to be deducted from the face of the policy
when the policy matures. In this way, the company in question has
created several millions of paper assets, which constitute about four-
fifths of all its possessions. . . . Now, what I desire to do in com-
puting the reserve of this company, is to consider that the amount of
insurance in force in the case of all lien policies is the face of the policy
minus the lien, and to value the policy for that reduced amount."

The situation before me being in these respects different from that
before the Attorney-General in 1901, I will consider whether your
present method of valuation, adopted in view of that opinion, arrives
in all cases at a just result.

Taking your figures, which you have furnished at my request, it is
apparent that, while your method applied to an ordinary life policy,
of which the lien at the time of exchange exactly equals the reserve
which would have accumulated upon the exchange policy had it been
in existence from its date, reaches a correct result, allowance being
made on account of interest and for mean valuation, as suggested in
my letter to you of June 24, under some other circumstances it

Treating the policy as it is written, the reserve on Dec. 31, 1902,
is $181.06. Deducting the lieu, which equals the reserve charged
against the new policy at the date of the exchange, $162.97, the
debit against the company on account of the policy is $18.09.

In order to avoid allowing for interest throughout these calcula-
tions, I have taken a terminal instead of a mean valuation, and have
assumed that the interest on the lieu is paid in cash. Now, treating
the policy as you do, I subtract from the face of the policy the amount
of the lien, and value it as a policy for $837.03, taken by a man fifty
years old one year ago. The value of such a policy for $1,000 would
be $21.62. The value of this policy, therefore, is (1,000 : 837.03 : :
21.62:0;) $18.09, and there is no credit to offset it. This method
is more complicated, but in this exact situation the result is the

Now, suppose the insured paid a part of his exchange obligation to
the company in cash, giving a lien for a sum less than such reserve,
for example, $125. The debit against the company with regard to
the transaction ought to be the same as before. Applying the former
method, the value of the policy is $181.06. To offset this liability,
the lien, $125, appears on the other side of the account, leaving the
net liability $56.06. But the assets of the company have been
swelled by $37.97, the cash paid in, so that the result of the transac-
tion to the company is a debit of $18.09.


But according to your method, the policy is to be valued as one for
$875, one year old. Its value, then, is (1,000 : 875 :: 21.62 : a;)
$18.92. Comparing this with the net liability under the former
method, $56.06, it is apparent that this method produces a paper
gain to the company, in its annual statement, of $37.14 ; that is, the
result of the transaction to the company, instead of a debit of $18.09,
is a credit of $19.05 (37.97-18.92 = 19.05) (18.09 + 19.05 =

Evidently something is wrong. This method, adopted as a book-
keeping device to avoid swelling both sides of the poUcy account,
gives the company an apparent surplus $37.14 too large on this one

Now, suppose the insured gave a lien for more than such reserve,
for example, $200. Applying the former method, the value of the
policy is $181.06. To offset this liability, so much of the lien as
does not exceed the reserve may be allowed as an asset, leaving the
resulting charge, on account of that policy, zero. If, however, you
treat it as a policy for $800 one year old, you will arrive at a value
of (1,000: 800: : 21.62 :.r) $17.30, with nothing in the assets to
balance it. This is as inaccurate a statement of the balance caused
by the transaction as was the one in which the result came in favor
of the company. If it is your opinion that the company ought to be
content with a lien no larger than such reserve, a matter upon which
you have not asked my views, that of course has no influence upon
your calculation of the company's liabilities.

I advise you, therefore, that, in valuing the class of policies to
which you have directed my attention, you may lawfully compute the
reserve upon each policy from its date, and that you may allow as an
asset in each case the amount of the lieu, not exceeding, however,
the reserve on the policy to which it belongs.

Since the method which I have indicated reaches a just result in all
situations, while that sanctioned in the opinion of the Attorney-Gen-
eral, above discussed, is of limited application, I advise you further,
with the Attorney-General's approval, that you may apply this method
to all dul}'^ exchanged policies. This will save the trouble of operat-
ing diverse systems, as well as making corrections for interest, and
for cases in which the duration of the policy is not co- extensive with
the duration of the premium payments.

Yours respectfully, Frederick H. Nash,

Assistant Attorney- General.

xu report of the

The Attempt to Change the Law for the Valuation of

Life Policies.
The Legislature was petitioned tiie present year to extend
the term of the concession made by chapter 229, Acts of 1899,
regarding the valuation of the policies of companies which
formerly did business on the assessment plan. By that original
concession this class of companies was given the advantage of
being required to carry a smaller reserve than regular companies
on policies thereafter issued, the law remitting substantially the
reserve for the first year which was to be considered term insur-
ance. The reason for this concession was that these assessment
companies had been allowed to do business here for a long term
of years, — in fact, until experience had demonstrated the
futility of the plan, and it was felt that to cut them off would
be a hardship to some of their members. Moreover, as the
Legislature had sanctioned this class of insurance, and by
sanctioning it had led people to believe that it was sound,
something was owed to these members by the State in the way
of concessions to such companies as had acquired standing and
members here for what was to be taken away. It was, at most,
an expedient to help companies with a membership in Massa-
chusetts, which membership had been lawfully acquired. There
was no intention to establish it as a settled policy of valuation.
It was to run to Jan. 1, 1903, at the end of which time it had
not proved efficacious enough so that the companies benefited
by it were read}'^, if indeed any of them were able, to surrender
its advantages. The result was, as has been said, a petition
for an extension of the concession to these companies. This
there was no settled disposition anywhere to deny, but a marked
protest did become manifest when a proposition to amend the
bill of the petitioners was introduced by the representative of
a group of companies not admitted here, and having acquired
no rights in this Commonwealth. That proposition was that
all life companies be given the privilege of having their con-
tracts valued for the first year as term insurance, if they so
desired, thus changing the standard that has been maintained
in Massachusetts for nearly fifty years.


Statement of the Massachusetts Position.

As this is a most important and vital issue, perhaps not
settled yet, it is well to state what has been and is the attitude
of the insurance department, and, as far as revealed by its acts,
the disposition of the Legislature regarding this question. A
statement of the principles involved, and the Massachusetts posi-
tion and the reasons therefor, seem, therefore, to be in order.

Ke vised Laws, chapter 118, section 11, provides that each
insurance company doing business in this Commonwealth shall
hold a reserve for the protection of its contracts, and establishes
a basis for computing such reserve. For fire insurance com-
panies the reserve is computed in one way and for life insurance
companies by quite a diiferent method, on account of the
difference in the character of the risks. A premium that is
adequate for fire risk this year may be adequate for the same
risk twenty-five years hence ; but not so with the life risk, as
the liability of death increases with advancing years. In order,
therefore, to maintain an equitable level rate on a life insurance
policy for the term of life, enough more must be paid in the
younger years, when the death rate is smaller, to neutralize the
loss of the older years, when the mortality is greater. This
excess paid in the younger years must be kept and improved
by interest to take care of the loss occasioned by the failure to
pay the cost of insurance in the older years of the policy.

It follows that a new company doing business on the level
premium plan collects from its insured an amount largely in
excess of its present needs to pay mortality claims ; and, if it
does a large business, the aggregate may easily run into mil-
lions, and the company be apparently rich and prosperous. If,
however, this excess were expended, a day would surely come
when mortality claims could not be met, and the company would
be bankrupt and its members bereft of the insurance for which

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