Testimony of John F. Dryden
prevails in every kind of business, a man who can go to the rail-
road station and buy a fifty-trip ticket gets his ticket for less
money than the man who has only enough to buy a single ticket
one way ; it costs him more in every phase of life, unfortunately,
but how can it be prevented?
MR. COX : The question is raised as to whether the business
is worth doing if such a large percentage of it has to be con-
sumed in getting it and doing it.
MR. HUGHES: And so many, if I may add, through their
lapses, get nothing from it.
THE WITNESS : Well, looking at it from a theoretical stand-
point, I am well aware that it has been criticised, and that there
are very excellent persons who have raised that question, and I
suppose will continue to raise it, but look at it from the stand-
pobt of the workingman himself. That is the point of view, Mr.
Hughes, that we should consider it from. Isn't it worth some-
thing to him that the facilities for getting this insurance, even
at the cost involved, to him are laid before him at his very door?
Isn't it of some consequence to the public that we can offer this
insurance to these people, and inculcate in them, as I said this
morning, a feeling of self respect, and enable them to protect
themselves from a pauper's grave? That is the public's point of
view, from which I think we should look at this question.
BY MR. COX:
Q. But such a small percentage of them are protected in that
way? A. Through the lapses?
Q. The records show that the most of them do lapse? A.
Manv of them do lapse. The lapses are large ; that is unfortunate,
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Testimony of John F. Dryden
but we avail ourselves of every agency that we can conceive of to
keep down the lapses, and I am glad to say that the lapses are
steadily decreasing in percentage from year to year. I believe the
time will come when our country becomes somewhat older and
settled, when the people of our country understand more fully
the nature of this industrial insurance, when the percentage of
lapses will be very materially decreased. They have had the same
experience on the other side. The Prudential of London was
the first company that was ever able to get upon a permanent
and sound foundation in the establishment of this business. Hun-
dreds of its predecessors have gone to the wall ; but the Prudential
of London, through its consummate ability, through its persistence,
established that great company, now in size the greatest institution
in the world — life insurance institution ; and they are finding that
their lapses are growing less and less year by year, the persistency
of the business is becoming greater and greater, we are demon-
strating that in this country, yet this business is comparatively
new; while we have been doing business here for thirty years,
the great bulk of this business has been done certainly within
the last ten years, and perhaps it is not too much to say within the
last five years. Our own company for four years after it was
organized confined its business entirely to the State of New Jersey,
and doing business in a very limited way, trying to be sure of its
foundations. Now, we believe that we have arrived at a point
where we are getting pretty safely on a strong and permanent
foiindation, and we think that in the lapse of time these lapses
will decrease in volume, and the policyholders will become more
persistent, and what seems so startling to gentlemen making an
original investigation on this subject, what seems so stanllng
Lo them will grow less and less, and the people will be, of course,
correspondingly benefited.
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Testimony of John F. Dryden
BY MR. HUGHES:
Q. Do you know what the rate of lapses is with the English
Prudential ?
THE WITNESS: Mr. Hoffman, do you know what this is?
I have not looked at those figures lately — the rate of lapses of
the English Prudential.
The Secretary of the company informs me that in the last ten
years the persistency of the business of the Prudential of London
has increased from six years to ten years.
Q. How do their rates compare with yours? A. I think their
rates are somewhat higher than ours — ^is that so, Mr. Fiske?
MR. FISKE: I think their rates are somewhat higher.
Q. Mr. Lindabury wants me to ask you how many of the
people that went down in the Slocum were insured in your com-
pany?
MR. LINDABURY: Not in his company — ^how many held
industrial policies?
A. I have forgotten ; the percentage was very large ; I have for-
gotten the exact number.
MR. LINDABURY: Sixty per cent, were with live and not
lapsed policies.
MR. HOFFMAN: We paid insurance on two hundred and
twelve persons whose lives were lost in the Slocum, who were
insured in three hundred and thirty-six policies, for the sum of
$8,330.56, and who had paid us net premiums, $38,146.73.
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^ Testimony of John F. Dryden
BY THE CHAIRMAN:
Q. Mr. Dryden, if an agent started out in your territory with
no business in that territory, if he should write ten policies in the
first week, his premium collections would be a dollar and his
commissions upon that business fifteen dollars, wouldn't it? A.
Yes.
Q. If the second week he added twenty more policies, two
dollars of premiums, he would, of course, double his compensa-
tion and get thirty dollars of commissions the next week, in ad-
dition to the fifteen per cent, for collection? A. Yes.
Q. If the third week he increased it by another ten, so that
lie wrote thirty policies, three dollars premiums, he would get
forty-five dollars commissions ? A. Perhaps, I don't understand
you.
Q. If this business all persisted so that it represented gain in
â– each instance, ten policies the first week, twenty the second and
thirty the third? A. Do I understand you to mean twenty new
policies the second week, and thirty new ones the third week?
Q. Yes. A. Yes, sir, then your assumption is correct.
Q. Now, then, the only difficulty the agent would experience
in obtaining these results would be from lapses of business ob-
tained? A. Yes, sir.
Q. And the premiums on those policies being so small, isn't
that a constant inducement to agents to themselves pay the
weekly premiums for the sake of reaping the commissions with
all new business when, in fact, it is concealed lapse business?
A. It would be.
Q. Well, isn't it? A. In some instances I presume it is done,
but we guard ourselves as much as possible against that, as I
think I have already explained, by having the Assistant Super-
intendent go with the agent around among the policyholders, ex-
amine their premium receipt books and compare the payments
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Testimony of John F. Dryden
with the agents' collecting books and thus check the matter,
bringing the agent and the policyholder face to face.
Q. Do you impose any punishment when you discover that
condition of things? A. We generally dismiss the man; yes, sir.
Q. Just dismissal ? A. Yes, sir.
MR. HUGHES: I understand that the figures with regard to
the Slocum were incorrect.
MR. H0F;FMAN: I want to say that the amount paid in
claims upon the loss of the Slocum was $38,146.73, and the
premiums paid upon those claims by the insured was $8,330.56.
THE CHAIRMAN : Now, which one does he want to stick
by?
MR. HUGHES: Is that right, that last statement?
MR. COX: I suppose you have no statistics of premiums paid
by people who went down on the Slocum whose policies had
lapsed?
MR. HUGHES: I suppose people were going on other ex-
cursions at that time whose policies had lapsed.
MR. COX: It is a great compliment to the efficiency of the
New York man who gets the compensation of over five hundred
dollars a week.
MR. LINDABURY: They were not all in this company—
the three companies, John Hancock and the Metropolitan.
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Testimony of John F. Dryden
BY MR. HUGHES:
Q. If your solicitor averages about fourteen dollars a week,
including the ordinary business which he may take, it would
seem to follow from the average premium paid to the company
upon the business that the first year's cost practically absorbs the
first year's premiums. A. It is very high.
Q. Is that true? A. I think so.
Q. You were asked with regard to what punishment, if any,
would be inflicted upon the agent in case a lapse was not re-
ported and he was paying the amount himself. Now, when do
you insist upon a report of a lapse? A. We allow policies to be
in arrears four weeks before it must be lapsed.
Q. And what is the consequence of the failure to report in
case the arrears exceed four weeks? A. If we put no other pen-
alty upon him, we compel an agent to pay these arrears himself
in excess of four weeks, or we may discharge him if the circum-
stances justify it.
Q. And if he does report the lapse at the end of four weeks,
then the consequence is, as you have already stated, being a
charge against his collectible debits. A. He is relieved; he re-
ceives a credit for the amount of those four weeks' premiums.
Q. I have received from the Prudential the following state-
ment with regard to the first policy year expenses, which I will
put upon the record.
(The paper is marked Exhibit No. 692.)
Q. This statement, I understand, includes all your business
and is not separated with reference to industrial and ordinary?
A. Yes, sir, I so understand it.
Q. Does that include renewal commissions, or only commis-
sions — original commissions ? A. This is a statement prepared
by the actuary. I think this includes — Mr. Gore ?
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Testimony of John F. Dryden
MR. GORE: That includes the first commissions and the first
year collection commissions in the industrial.
MR. HUGHES: (Reading) Total loading on first three year
policy premiums received in 1903, $6,410,444. In 1904, $7,418,-
396.
Loading on first policy year's premiums in 1903, $2,642,383.
In 1904, $2,820,579.
Total first policy year's expenses, showing in 1903 a total of
$6,481,920; in 1904, $6,916,848.
Total expected losses on policies less than one year old in
^903, $1,147,975.
Total actual losses on policies less than one year old in 1903,
$1,119,465.
Total expected losses on policies less than one year old in
1904, $1,224,080.
Total actual losses on policies less than one year old, $953,301.
Q. Now, can you answer that so that the amount can be com-
pared with the first policy year's expenses, the premiums re-
ceived in 1903 and 1904 on the first year's business?
MR, GORE: For the year 1903, $7,869,452.62. For the year
1904, $8y475»757.39.
Q. What was the amount of the loading on the premiums re-
ceived on new business in 1903?
MR. GORE: You have read that.
MR. HUGHES: That is the item that appears in the state-
ment, as follows: In 1903, $2,642,383, and in 1904, $2,820,579.
I have also received a statement showing the amount of in-
surance in force December 31, 1904.
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Testimony of John F. Dryden
Q. This is complete? A. Yes, sir. This is also prepared by
the actuary.
MR. HUGHES: I offer that in evidence.
(Paper marked Exhibit 693 and read in evidence by Mr.
Hughes.)
Q. Have you an agent by the name of James Perry. A. Yes,
sir.
Q. What is his district? A. New Jersey.
Q. Newark? A. Yes, sir.
Q. What is his compensation ? A. Well, I don't recollect.
Q. Or his rate of compensation? A. I don't recollect what
his contract calls for; I have not the particulars here.
Q. Do you know what amount he received from the business
that he writes for the company? A. I don't know what he re-
ceives. I know he writes a very large amount of business.
Q. Is he a relative of any officer of the company. A. He is
a distant relative, I think, of the vice-president and of the sec-
ond vice-president.
Q. Has he any better rates of commission than other agents?
A. I do not so understand it.
Q. You don't know that he has any preference? A. No, sir,
not to my knowledge.
Q. Does he have any advantage in the turning to him of in-
surance from advertising? A. No, not at all; that is carried on
on a regular system, and the invariable rule is to send insurance
under advertisements to the nearest and most available agent,
whoever he may be or wherever he may be located.
Q. Does your company own any real estate other than the of-
fice building that it occupies ? A. In Newark ?
Q. Yes. A. We have some surrounding property that we
bought for the ultimate purpose of home office building.
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Testimony of John F. Drydcn
Q. Your real estate is stated in your annual report to the
New York Department at a book value of $12,494,957.86. How
much of that represents your office building? A. My impres-
sion is, something like eight millions. I thought I had a state-
ment showing that, Mr. Hughes, but I do not find it. The cost
of the Prudential building as of December 31st, 1904, $8,378,-
125.50.
Q. And is it carried at net cost on the books? A. Yes, sir^
it is carried at that cost on the books.
Q. What is the income of the company from that building?
A. The rate of interest earned on cost of building based on
gross receipts less expenses and taxes, 3.1 13 per cent. — a little
over 3.1 1 per cent.
Q. What charge is made to the Prudential Company for the
premises it occupies. A. We charge the Prudential Company
the same rate that we charge our tenants — just the gross
amount I have not here, but it is figured on the same basis.
Q. What rent does the Fidelity Trust Company pay? A. The
Fidelity Trust Company has a twenty-year lease upon that prop-
erty; for the first five years their rental is twenty-five thousand
dollars per annum ; for the second five years, forty-two thousand
five hundred dollars per annum ; for the third five years fifty-two
thousand five hundred dollars per annum, and for the fourth five
years, sixty thousand dollars per annum.
Q. What is the present rental value of the premises the Fidel-
ity Trust Company occupies? A. Well, I think we are getting
a fair rental value for it now, perhaps two and one-half to three
per cent. — three per cent. ; I do not know that I can answer that
accurately. I anticipated in making that lease with the Fidelity
the future increase in the value of the property. I think they are
paying fair rental for it now.
Q. Who were the contractors that built the Prudential Build-
ing? A. E. J. Haddon & Son.
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Testimony of John F. Dryden
Q. Did you meet them through your relation with the Metro-
politan? A. No, sir.
Q. Has any officer in your compatiy any interest in that firm,
or received any payments or interest in connection with con-
tracts for construction? A. No, sir.
MR. HUGHES: I will read upon the record, subject to cor-
rection, what I understand is a complete list of the Directors of
the Prudential Insurance Company. If I am wrong you will
correct me.
DIRECTORS PRUDENTIAL INSURANCE COMPANY
OF AMERICA, NEWARK, N. J.
John F. Dryden,
Leslie D. Ward,
Edgar B. Ward,
Theo. C. E. Blanchard,
Seth A. Kenney,
Fred C. Blanchard,
Edward Kanouse,
Forrest F. Dryden,
Jerome Taylor,
William T. Carter,
Jacob E. Ward,
Anthony R. Kuser,
Uzal H. McCarter
Wilbur S. Johnson,
Thomas N. McCarter,
MR. LINDABURY: That is right. Are they fifteen in num-
ber ? The correct number is fifteen.
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Testimony of John F. Dryden
MR. HUGHES: I will read upon the record, subject to cor-
rection, the following is a complete list of the Directors of the
Fidelity Trust Company:
DIRECTORS FIDELITY TRUST CO., NEWARK, N. J.
John F. Dryden,
James W. Alexander
THE WITNESS: Mr. Alexander has resigned.
MR. HUGHES:
James H. Hyde,
Leslie D. Ward,
Thomas N. McCarter,
Edgar B. Ward,
William Scheerer,
Schuyler B. Jackson,
Uzal H. McCarter,
Jerome Taylor,
William N. Coler, Jr. ,
William H. Staake ,
THE WITNESS: Mr. Staake has resigned.
MR. HUGHES:
Forrest F. Dryden,
Henry S. Redmond,
Charles A. Freick,
Bernard Strauss,
John C. Eisele,
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Testimony of John F. Dryden
William H. Mclntyre,
Anthony R. Kuser,
Henry Rogers Winthrop,
• Mark T. Cox,
Henry M. Doremus,
Otto H. Kahn,
Jacob E. Ward,
Robert H. McCarter,
THE WITNESS: I think that is correct.
Q. Has anyone been elected to take the place of Mr. Alex-
ander? A. No.
Q. Or of Mr. Staake? A. No, sir.
MR. HUGHES: I will read upon the record the list of direc-
tors of the Public Service Corporation
MR. LINDABURY: This gentleman says that there has been
an election to take the place of Mr. Staake, Mr. Wilbur Johnson.
THE WITNESS: I beg pardon, that is true.
MR. HUGHES:
DIRECTORS PUBLIC SERVICE CORPORATION.
David Baird ,
THE WITNESS: David Baird has resigned.
MR. HUGHES:
Thomas C. Barr,
Samuel T. Bodine,
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Testimony of John F, Dryden
John J. Burleigh,
A. B. Carlton,
Walton Clark,
Mark T. Cox,
Thomas Dolan,
John F. Dryden,
George R. Gray,
Hugh H. HamiU,
W. C. Heppenheimer,
A. R. Kuser,
Lewis Lillie,
Thomas N. McCarter,
U. H. McCarter,
Randal Morgan,
F. W. Roebling,
John F. Shanley,
Charles A. Sterling,
P. F. Wanser,
Leslie D. Ward,
John L Waterbury,
E. F. C. Young.
Q. Has anyone been elected in the place of Mr. Baird? A.
No, sir, not to my knowledge.
Q. Has the Prudential Company ever placed on deposit with
the Fidelity Company moneys to enable the latter to assist in
the acquisition of securities? A. No, sir.
Q. Take for example the acquisition by the Prudential of five
hundred thousand dollars of the Newark Consolidated Gas Com-
pany bonds, can you recall why it was that the Prudential took
those from the Fidelity? A. Only that the Fidelity had them
for sale.
Q. Did not the Fidelity acquire a large amount of the bonds
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Testimony of John F. Dryden
on the understanding that the Prudential would take part of
them ? A. No, sir, not to my knowledge.
Q. Was there not an issue of stock so that certain shares of
stock or one share of stock went with each bond? A. The
Newark Gas Company?
Q. Yes. The Newark Consolidated Gas Company. A. Not
to my knowledge, no. I know nothing of that kind.
Q. Did not the officers or certain of them of the Prudential
receive certain of the stock of the Newark Consolidated Gas
Company which went with the bonds that were issued? A. No,
sir, I do not know anything about that, not to my knowledge.
Q. You did not receive any of the stock of the Newark Con-
solidated Gas Company ? A. Not with any bonds that I bought.
Q. What is that? A. No, sir, not with any bonds that I
bought.
Q. No, but what I am getting at is this, did not the Prudential
buy bonds, which if it had taken direct it would have received to-
gether with stock ? A. No, sir.
Q. And were not the bonds bought through the Fidelity, and
did not certain officers of the Prudential acquire the stock which
would otherwise have gone with the bonds? A. There is no
connection whatever in the transaction of our buying those
bonds with any other transaction. We have never been con-
nected in any instance with any transaction connected with any
enterprise in which stock was involved, and which went for a
part of the consideration. Our purchase of bonds has been dis-
tinct and clear and separate from any transaction of that kind or
any other transaction similar.
Q. In other words, no officer of the Prudential had ever re-
ceived any stock as bonus? A. No, sir.
Q. Stock for which the officers did not themselves pay? A.
No, sir.
Q. In connection with a subscription for bonds made either
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Testimony of John F. Dryden
directly or through the Fidelity Trust Company ? A. I have no
knowledge of any such.
Q. No knowledge of anything of that kind? A. No, sir.
Q. Do you know whether the Fidelity took a large block of
the bonds I have mentioned of the Newark Consolidated Gas
Company at about 90 and then sold to the Prudential? A. I
think they took a large block of the bonds.
Q. About three million dollars ? A. I could not recall that.
Q. Did not the Fidelity obtain a bonus of stock in connection
with those bonds ? A. Very likely it did, but that was an opera-
lion of the Fidelity Company
Q. But the Prudential A. Entirely distinct and separate
from the Prudential.
Q. But the Prudential, that paid five hundred thousand dollars
for some of these bonds, did not get any of the stock ? A. No,
and we had no connection with any transaction involving the
stock.
Q. But that was because you bought the bonds simply from
the Fidelity? A. Precisely, as
Q. Paying the Fidelity the same price as the Fidelity paid?
A. I don't recollect what we paid. I do not remember, but we
bought the bonds as a clear-cut, separate transaction.
Q. But as a result of the transaction the Fidelity got stock
with the bonds, and the Prudential did not? A. And the Fidelity
did things, probably, which the Prudential did not do. That is
to say, it would not undertake to finance anything of that kind.
We have never gone into transactions of that kind. Our pur-
chases have all been independent, separate and distinct from any
transaction involving stock whatever. I want to make that as
emphatic as I can, because we have kept absolutely clear from
anything of that kind.
Q. When bonds have been issued, and offered to public sub-
scription in connection with which stock has also been offered as
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Testimony of John F. Dryden
a bonus, is it not a fact that the Prudential has through the Fi-
delity taken bonds, and the Fidelity has obtained all the stock
bonuses or officers of the Fidelity or Prudential have had some
of the stock bonuses? A. It is probably true that we have
bought bonds from the Fidelity, and from others when originally
those bonds may have been sold the company putting them out
together with stock ; but it has been our invariable policy to keep
entirely clear from any transactions of that nature.
Q. But the result has been to give to the Fidelity the profit
in stock which on a pro rata basis the Prudential would have
shared? A. The Prudential would have shared if we had per-
mitted the Prudential to share in enterprises of that kind.
Q. That is to make a direct subscription for the bonds? A.
Yes. I may say that in the decision of the Vice-Chancellor of
New Jersey in the Roebottom case the Vice-Chancellor held that
under our power — ^under the power of our law we had no right
to subscribe for stock.
Q. Or to take stock as a bonus in case you subscribed for
bonds ? A. He held we had no right to subscribe for bonds.
Q. To subscribe for bonds? A. Yes, sir, and that our only
way of getting bonds was to buy them in the market after they
had been sold by the company putting out the bonds. We have
since obtained an amendment to that law. We thought it was
bad policy to be in that position, but still that was his decision.
Q. And the result of that would be that if, for example, in such
a case as I have put, five hundred thousand dollars in stock
would go with five hundred thousand in bonds, the Prudential
would pay for the bonds and not get the stock? A. The Pruden-
tial, in the first place in the case you have cited, never had the
opportunity.
Q. Could it not have had it ? A. It never had the opportunity
to subscribe for those bonds or stocks. We were — ^they were not
offered to the Prudential. If they had been offered to the Pru-
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Testimony of John F. Dryden
dential, the Prudential would not have taken them, because we
do not engage in transactions of that kind.
Q. But why should not the Fidelity have given the Prudential
the same advantage which it enjoyed pro rata in the stock which
went with the bonds ?
MR. LINDABURY : The Prudential underwrote that trans-
action.
Q. I would be glad to have that brought out. That is the ex-
planation ? A. Yes, sir.
Q. Then the Fidelity got the stock for the underwriting of it?
A. Yes, sir.
Q. Then the Prudential does not engage in underwriting? A.
No.
Q. And hence did not share in the profits of the underwriting ;
that is the point ? A. Yes.
Q. At last we have got
MR. LINDABURY: The Fidelity sold the Prudential the
same as it did the public generally.
Q. Then the Prudential appears on the scene as a purchaser
from the Fidelity. A. Precisely.
Q. In entering into its underwriting engagements, the Fidelity