$5,000. A. That policy must have been a very old life.
Q. That policy must have been a very old life, you say? A.
Yes.
Q. (Handing paper.) Looking at this policy, which I under-
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Testimony of Henry Moir
stand was issued on the surrender of the original policy and dated
back, would you find the age at which the assured originally took
his policy? A. He was aged 59 in 1889.
Q. And the policy which is in your hands was dated back to
1889 and issued in exchange? A. Yes.
Q. For $5,000? A. Yes.
Q. Now I have here what I understand is a schedule of rates
which you gave per $1,000, which would be the rates paid by
Shipira under his old policy had he continued it (handing paper).
These are the maximum rates which could have been charged.
Q. These are the maximum rates which could have been
charged? A. Yes.
MR. HUGHES : I offer this in evidence.
(Paper marked Exhibit 726.)
Mr. Hughes then read Exhibit No. 726.
THE WITNESS: I cannot swear to the accuracy of those
figures.
Q. I understand that this came from your company. You can
make any correction if on looking at it you find there is any in-
accuracy? A. Yes.
Q. Now, this was an insurance taken in 1889, ^^ policy was in
amount $5,000, and in 1903 was $488.60 or $122.15 a thousand?
A. $5,000 policy — ^$97.72 per thousand.
Q. On a five thousand dollar policy. Now, what was the age
of entry — 59? A. 59 in 1889.
Q. And the maximum amount that could be charged at age 73
was how much? A. By this table $145.20.
Q. Now, it was actually possible under that form of policy that
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Mr. Shapira, had he retained it and reached age 80, would have
been compelled to pay in the neighborhood of $1,300 a year?
A. That is so.
Q. And your explanation of that situation is what? A. That
the mortality rates at age 80 are very high.
Q. Now, this was started as a policy upon which it was not ex-
pected that premiums would be increased at all? A. Oh, yes, they
were certainly expected to be increased.
Q. It was expected that the surplus g^ins would be sufficient to
meet any extra cost of insurance as age progressed ? A. No ; the
most favorable statement I have ever seen is that the surplus gains
were expected to maintain the premiums level during the ex-
pectation of life, a man at age 50 would not be expected to
reach 80.
Q. What would be his expectation? A. 14.7 by the American
table.
Q. That would bring him up to about 73 ? A. Yes, nearly 74.
Q. And he starts in with the payment on $5,000 of $19^.50, and
at 73 the maximum payment which he could be compelled to make
was about $700? A. Yes.
Q. So that although he might be expected to pay these pre-
miums charged in the policy through his expectation of life ac-
cording to the provisions of the policy on which you rely you
would have been, entitled at any time to increase the rates during
his expectation, and on the expiration of his expectation of life
he would have been paying something over seven hundred dollars
a year, which in the next few years would have run up to an
amount as high as thirteen hundred dollars? A. Yes, and those
are the maximum rates and that table, as I say, I cannot swear to.
Q. You can have that, and if there is any correction to be made
in it I would be glad to have it.
Q. But you know that he did get insurance at the orig^al rates
for nine years out of the fourteen?
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Testimony of Henry Moir
Q. Now, when you gave him this insurance in exchange for the
policy that you had, you took the face of the policy and scaled it
to what amount — I am referring to 1903? A. By the reserve
value of this policy there was a division.
Q. What amotmt was that? A. That I cannot say, I am afraid
I have not the table here necessary to show it.
Q. About thirteen hundred dollars, wasn't it? A. That would
seem a reasonable figure. Was the exchange made April, 1903?
Q. Yes. A. Then the reserve should have been — at that time
— $2,142.
Q. And the face of his policy would have been what amount-— I
mean the net amount of his new policy would be what amount?
A. The difference between $5,000 and $2,142.
Q. In the neighborhood of three thousand dollars ? A. Yes.
Q. And the difference you have mentioned as the amount of the
reserve constitutes a lien upon the policy ? A. Yes.
Q. Does that run with interest? A. Yes, that runs with in-
terest.
Q. Interest at what rate? A. 5 per cent.
Q. Down to 1903 the insured had paid $3,852, had he not, un-
der the old policy ? A. I presume that this statement is correct.
Q. And under the new policy he has paid amounts to bring the
total payments, exclusive of interest, up to about $4,500? A.
That is about correct.
Q. About $4,500 he has paid to date, and he says he has got
insurance of about $3,700, and that is figuring the lien of $1,300.
If you are right in the amount of the lien it would only be three
thousand dollars? A. That is so.
Q. And he has got to pay to maintain the insurance $312 a year
from now on ? A. Yes, sir.
Q. That is an illustration of the way that insurance of that class
results? A. This is a most unusual exchange — it is such a case
as I have never seen before. I personally have not seen that case.
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Testimony of Henry Moir
Q. Why IS it unusual? A. First the age of the life is older
than the usual ages of entry and the exchange is made to a non-
participating form dated back, and a form which does not provide
for the additional benefits which most of the exchange policies do.
MR. HUGHES : You had better look up the history of that
policy, and let me have any facts which should be taken in con-
nection with it by way of explanation.
Q. Were you ever eng^ed as an actuary in Great Britain?
A. I was.
Q. For how long a time? A. Well, as an actuary about ten or
twelve years. In life insurance for fifteen or sixteen years.
Q. With what company were you' eng^ed as actuary? A. The
Scottish life Insurance Company of Edinburgh.
Q. What is the practice of the English companies with regard
to the payment of dividends? A. The system there is entirely
different from what it is here.
Q. In what respect? A. The surplus is ascertained at periodi-
cal intervals, most commonly five years. When the surplus is
ascertained at a five-year period, the greater part of it, sometimes
every dollar of it, is distributed, and distributed by fixed rules
amongst the policyholders according to the amotmt of their poli-
cies and the ntmiber of premiums they have paid.
Q. Explain this a little more fully. You say it is distributed by
fixed rules. How are the fixed rules? A. The rules are gener-
ally incorporated in the charter of a company. For example, (Wie
company may have a statement that the surplus may be distributed
as an addition to the sum assured, payable in the event of death.
Another company may have a similar provision which is called the
compounding. That is that the surplus calculations made not
only on the sums assured, but on the sum assured and previous
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Testimony of Henry Moir
additions. Other companies again have a provision for allocaticm
in cash ; but that is more unusual and less popular.
Q. Do the companies ascertain exactly the amount of their
gains for the periods in question ? A. They are under no obliga-
tion to put up any specific reserve. The fixing of the reserve is,
therefore, left in their own discretion, and when that is fixed the
difference between that amount and the assets in hand represent
the surplus.
Q. They then set aside what they think is a sufficient guarantee
fund, and they rely upon tlie publicity that is given to their opera-
tions as the safeguard — as a sufficient safeguard ? A. That is so.
Q. Now, having determined what they think is a sufficient re-
serve, do they take their actual assets and figure the actual surplus
over and above that reserve ? A. They do.
Q. And actually distribute that surplus ? A. They do.
Q. The whole of it? A. Generally the whole of it. Some com-
panies have provisions for distributing, say, ninety-five per cent, to
the policyholders and five per cent, to the shareholders, or ninety
per cent, to the policyholders and ten per cent, to the shareholders.
Q. And they distribute this either by allowing insurance, or in
some cases by cash distribution ? A. In some cases, comparatively
few, by cash distribution. The common way is to distribute it as
paid-up life insurance as an addition to the face value of the
policy.
Q. Which they notify the policyholder at the time? A. Yes,
sir. Of course, in these cases the notification to the policyholder
is received some six months after the actual date of allocation, be-
cause the distribution is made at the end of the year, the 31st of
December, and the notification to policyholders probably won't
come out for several months after.
Q. Are there distributions in less period than five years? A.
Some companies — I think there is only one company that makes
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Testimony of Henry Moir
an annual distribution — some three annually, and some quinquen-
nially, and some seven years only.
Q. What is the company that makes an annual distribution?
A. The Prudential of London, I remember, is one, and that is the
only one I remember.
Q. Is the business of the Prudential of London largely non-
participating? A. No, sir; it is largely industrial.
Q. And participating? A. And participating.
Q. Have many companies failed abroad, in Great Britain ? A.
In the last thirty years I think there have been none.
Q. They have failed? A. Yes. In 1870 or 1871 there were
one or two very bad failures, and that caused the passing of the
Life Assurance Companies' Act at the time.
Q. How do the premiums abroad compare with those here?
A. The participating premiums are a trifle higher, I think. I
have statistics of that elsewhere, but I have not got those with
me. The non-participating premiums in this country are lower,
I think.
Q. Is there any difference with regard to the part that divi-
dends play in the operations of the company ? A. I think there is.
Companies there are judged more largely by their dividends than
they are here.
Q. Is it true that in Great Britain the company figures out
about what dividend it wants to pay, and makes ita rates and man-
ages its business in order to reach the results desired? A. Yes,
sir. That is one of the main differences between the actuarial sys-
tem in this country and in Great Britain.
Q. Indeed, it is the goal there, and here it is the accident, or in-
cident. A. I would not call it an accident here.
Q. It is not accident insurance — incident, it is an incident. A.
There the custom is to make the premiums equitable as between
the policyholders of different ages, and so forth, and have the
distribution by fixed rules. Here there is not the same trouble
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Testimony of Henry Moir
taken to make the premiums equitable as between policyholders,
but the equity is introduced in the distribution of the surplus.
Q. What do they do over there to make premiums equitable
between policyholders — what do you mean by that? A. They
usually add a loading to the net premium for expenses, and there-
after add a certain amount to provide the class of bonus which
the charter of the company provides for.
Q. That is the class of dividend ? A. Qass of dividend.
Q. So after paying the loading for expenses they add an-
other amount on the calculation of what they will want to
pay in dividends. A. That is so. Usually they pay more than
they calculate upon in that way.
Q. What are the agency methods in Great Britain? A. En-
tirely different from the methods here. Most companies have
some hundred agents who possibly write one or two policies
each year, and possibly write none. They are not professional
agents.
Q. They must be engaged in some other lines of business?
A. They are engaged in other lines of business, bankers, soli-
citors, even little grocers in little country stores have agencies
for life insurance companies. They write very few policies
personally; many of them know little about the way to write
business ; and they are assisted by an inspector of agents from
the home office, an official, or branch official, who goes about
and gets introductions from these men to various policyholders
and help them write their business.
Q. Does the business increase very much from year to year?
A. Not in anything like the volume that it has increased in
this country.
Q. What is the proportion of the number of policyholders
to the population of Great Britain as compared with the State
of New York for example? A. That is an economic question
I have not refreshed my memory on.
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Testimony of Henry Moir "^
V
Q. How are agents compensated? A. Commissions only.
Q. What are the usual commissions paid? A. From one
per cent, on the face value of the policy to i\ per cent, for the
first year's commissions ; thereafter 2^ per cent, of the premi-
ums they collect. Occasionally, but very occasionally, they
get five per cent, on the premiums they collect.
Q. How would they compare with the first year's commis-
sions in this country? A. Well, that is from ten to fifteen
dollars a thousand, which would be about from 50 to 60 per
cent. I think on the first premiums on smaller forms of policies.
But the great difference is when they write endowment policies
which carry higher premium rates they get the same fixed
commission based upon the sum assured. They therefore
don't get anything like 60 per cent, on premiums on the policy
forms which carry large rates.
Q. Is it a fact that most of the companies pay $10 a thou-
sand? A. Most companies do.
Q. And that would be about 50 to 35 per cent, of the first
year's premiums? A. That would be about 50 per cent, of the
first year's premiums on life policy at a young age and decreas-
ing percentage as the policyholder gets older.
Q. I mean on the average premiums? A. On the average
premiums I think roughly 30 to 35 per cent, of the average
premium would be about right when you include the higher
form of participating policy.
Q. What about endowment. I did not understand what you
said about endowment? A. If an endowment requires a pre-
mium of $50 a thousand, $10 a thousand is only 20 per cent.
And here the custom would be to pay about 50 or 60 per cent,
of it.
Q. Is that same plan used in Australia? A. I understand
it is.
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Testimony of William E. Stevens
ivWiLLIAM E. STEVENS, called as a witness, being duly
^rn, testified as follows:
^Y MR. HUGHES:
Q. You are the Secretary of the Provident Savings Life As-
surance Society? A. Yes, sir.
Q. How long have you been secretary of the company? A.
Twenty-eight years.
Q. What are your duties as secretary? A. Do you want
me to detail them all?
Q. Briefly. A. I have so many matters in detail I have
charge of.
Q. Briefly. A. I look more or less after the investments;
I pass on all applications for insurance after being approved
by the medical department. I sign policies, checks and vari-
ous matters of that kind ; attend all meetings of the committee
and directors.
Q. Have you been for some years concerned with the prepar-
ation of the annual statements of your company to the Insur-
ance Department? A. Not of late years, no, sir.
Q. Well, who prepares the statements now? . A. They are
prepared by the bookkeeper with the help of the comptroller
and I believe under the direction and general oversight of the
President.
Q. Don't you have anything to do with it? A. Nothing to do
except to sign statements.
Q. You sign statements? A. Yes, sir.
Q. Are you familiar with the real estate portion of your
company? A. Not closely, no, sir.
MR. HUGHES : Will you withdraw, Mr. Stevens, please.
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Testimony of William N. Elbert
WILLIAM N. ELBERT, resumed:
BY MR. HUGHES:
Q. Mr. Elbert, it appears that in 1897 your company wacs
the owner of the following properties: Six story brick and
stone building 80 by 150 feet and part of lots i, 2 and 3 in
block No. II in the City of Waco, Texas, recorded May i8th,
1889, McLellan County, Book 65, pages 6x8, 619 and 620.
That is referring to the record of the deed. When did your
company acquire that property? A. Which property is that?
What year did you say? That was acquired by building in
1889.
Q. Have you a statement of that property (witness pro-
duces paper). That building was an office building which you
erected in 1889? A. Yes, sir.
Q. And it' cost your company $145,448.53? A. Yes, sir.
Q. You hav'e added to that betterment value cut stone $50,-
000. When did you make that addition? A. The cut stone
was given at the time the building was erected and was apn
praised and valued $50,000 and therefore it was added to the
cost of the property.
Q. That is what you referred to the other day? A. Mr.
Scott.
Q. Is that entered in your books as a part of the cost? A.
That is entered in the books as a betterment of the property.
Q. Now that was carried in your report of 1897 at a book
value of $200,000. It appears from your statement of that
year that you booked in income and profit on Waco, Texas,
real estate of $56,527.97. A. Income?
Q. Under the head of income profit and loss you say Waco
real estate $56,527.97. What is that? A. That is a better-
ment of the property in accordance with the terms of an offi-
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Testimony of William N. Elbert
cial appraisal — it really amounts to a little more than that.
That is properties — I was not employed by the company at
that time and am not particularly familiar with the transac-
tion, but as I have it that was added and warranted by the
official appraisal which was made at that time.
Q. In other words, in your statement for that year you en-
hanced your profits for that year by adding to the value of the
Waco real estate over what it had previously been carried on
your books, the sum of $56,527.97? A. That appears to be
correct.
Q. Now in your report of 1898 you added another $25,000
to your income of that year by reason of profits on Waco, Tex-
as, real estate. That was the same real estate, wasn't it? A.
That one year I have just testified. The next year because of
the $253,000 — if you will notice that statement that covers all
years prior to 1900, that statement which I showed you.
Q. Pardon me a minute; let us get this definite. In 1897
you marked up the Waco real estate, this property you have
mentioned and increased your profits to the extent of $56,-
527.97. In 1898 in your statement to the Department you
marked up the same real estate and increased your profits an
additional $25,000? A. I am not sure o( that
Q. Look at the report. A. I cannot say from these reports.
I never saw them.
Q. You see them now? A. Yes, sir; but I could not say
what that is for.
MR. GILBERT: That is so, Mr. Hughes; that is so.
MR. HUGHES: Of course it is, why doesn't the witness
say so, it is before him in black and white.
THE WITNESS : Because I was not in charge of the prop-
erty at that time.
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Testimony of William N, Elbert
Q. I ask you to look at the sworn report of your company
and tell me if that was not the fact according to that? A. I
see, sir.
Q. The next year in 1899 the income or profits rather of
your company were increased by the further marking up of
this same property in Waco, Texas, $26,980.50? A. It ap-
pears to be the same^ sir.
Q. Now by that time you had got the property up to the full
appraised value of $253406? A. That is right.
Q. And that is making the book value equal $243406? A.
That is right.
Q. The amount actually spent by your company upon the
property was $145448.53 and the residue of this increase was
for the cut stone betterment and for the enhanced value re-
flected by your appraisal ? A. Of course the value of the cut
stone was actually $50,000 ; if we bought it we would have had
to pay that for it. Therefore the property really cost $195,000.
Q. It did not require an outlay by your company to that
extent? A. That is right.
Q. The outlay was $145,000, but the point of the enhance-
ment which you took credit for I have stated was due to the
cut stone, and the rest was due to the bringing of the property
up to appraisal that you had obtained. Is that right? A.
That appears to be so, sir.
Q. Now, that was carried the same in 1900 as in 1899. Now
in your report for 1901 I find that while the book value of this
property remains $253,957, the value of it is put at $225,000.
Was the difference taken account of as a loss in your statement?
A. It must have been, sir; I don't know.
Q. Did you dispose of that property in 1902? A. Yes, sir.
Q. How did you dispose of it ? A. In exchange for property
at No. 532 and 534 Broadway, and for 80 and 82 Wooster Street,
of this city.
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Testimony of William N. Elbert
Q. Then did you get it back again, I mean the Waco proper-
ty ? A. Yes, sir.
Q. How did you get it back? A. I believe it came back by
an amicable foreclosure ; I was not familiar with the details of it.
Q. Let us get at the details of it. You exchanged the Waco
property for 532 and 534 Broadway, in 1902. What were the
terms of that exchange? A. The terms of that exchange were
that the property was sold at a valuation of $100,000, so far as I
know.
Q. That is, the Waco property was treated at that value ? A.
Yes, showing a profit of six thousand dollars.
Q. What was the Broadway property taken at? A. The
Broadway property was calculated at $215,000.
Q. How was the difference made up ? A. The Wooster Street
property, $45,000.
Q. Then did you get any mortgage in the transaction ? A. I
believe there was. The mortgages are not under my charge and
I cannot testify.
Q. How did you get a mortgage in that transaction ? A. The
money must have been loaned back.
Q. Loaned to whom? A. To the person who exchanged, I
presume.
Q. If you took equal value, where- does the mortgage come
in ; do you know anything about it ? A. No, sir.
MR. GILBERT: They made a loan on the property.
MR. HUGHES: Made a loan upon the Waco property?
MR. GILBERT: Yes.
Q. To whom was the loan made on the Waco property ?
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Testimony of William T. Gilbert
MR. GILBERT: What date?
THE WITNESS: 1902.
MR. HUGHES: This year, when it was sold or exchanged,
1902.
MR. GILBERT: I think it was to a man by the name of
Henry H. Peters.
Q. Who is Henry H. Peters, do you know anything about him ?
A. No.
MR. HUGHES: Withdraw for a moment; Mr. Gilbert, will
you take the stand ?
WILLIAM T. GILBERT, called as a witness, being duly
sworn, testified as follows :
BY MR. HUGHES:
Q. You are counsel of the Provident Savings Life Assurance
Sociely? A. I am.
Q. Have been so for ten years ? A. Nine years.
Q. Are you familiar with the transactions relating to the Waco
property referred to in the reports of 1897 to 1900 inclusive, as a
six-story, brick, stone building, in the City of Waco, Texas? A.
I am.
Q. What was the loan made upon that property in 1902? A.
I think it was $125,000, but I can verify my memory. (Referring
to report.) $125,000.
Q. When was the loan made? A. Made at the time of the
exchange of the properties.
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Testimony of William T. Gilbert
Q. Was the person who borrowed the money concerned with
the exchange ? A. He was the owner who made the exchange.
In other words, he was a dummy that represented the real
owners, as I understand. I do not know Peters.
Q. There was an encumbrance on the Waco property at the
time of the exchange ? A. None whatever.
Q. And you took full value in the Broadway property for the
Waco property, and then made a loan on the Waco property
to the one from whom you had received the Broadway property,
or someone representing him ? A. That is a fact.
Q. How long was it after you made the loan when you fore-
closed it ? A. I do not think there was any foreclosure of that.
Q. How, did you get the Waco property back? A. It was con-
veyed back.
Q. By whom ? A. By Peters.
Q. And how long after the loan was made by the company?
A. I think on the first default of interest.
Q. Was interest in default on the first instalment? A. On
the first instalment, to my recollection.