irregularity or an abuse which should be corrected. Now, what
was your practice in regard to reports that came in, did you
look them over yourself, the annual reports? A. Well, not all
of them. If there was anything that the statistician, he
would bring it to me.
Q. Then the reports went, as you have already said, I think,
to the statistician in the first instance ? A. In the first instance.
Q. What was his duty with reference to such report ? A. Why,
he examined all the reports and, I guess I did the securities
part of the time myself, as to the value of the securities.
Q. Did you look through the collateral loans? A. I did not.
Q. Did you take up the statements to make a personal examina-
tion of them with reference to the securities, or did you simply
take such matters as were referred to you by the statistician ? A.
Well, in some cases I took up myself as to the securities, not in all
cases, but in some years.
Q. Here, for example, is the list of collateral loans of the
Equitable. Did you examine the sheets of collateral loans prior
to the examination you made this year ? A. I think the collateral
loans were examined by our department.
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Q. Who has charge of that matter? A. Mr. Vanderpoel.
Q. Was it his duty apart from the conducting of an examina-
tion to go over the collateral loans? A. Oh, I suppose.
Q. Did you, in examining the collateral loans or other state-
ments submitted by the companies, endeavor to ascertain whether
the companies were getting the best of you in what is called win-
dow dressing. A. Well, I presume not.
Q. Did anyone in the department endeavor to ascertain whether
there had been any shifting of securities or temporary arrange-
ments made which would indicate that the department report was
not true ? A. No, we took the report that was made to us.
Q. Pardon me? A. We accepted the report.
Q. When you got the report at the end of one year and got
another at the end of another year, you took those as of respec-
tive dates without inquiring for transactions in the course of the
year to see whether they modified the results ? A. That is right.
Q. Unless, then, you had an examination you would not detect
whether the securities reported at the end of a given year were
changed in the beginning of the next year? A. I think not, with-
out an examination.
Q. Don't you think it was important from time to time to make
a test examination to see whether anything of that sort was
going on ? A. It did not occur to me.
Q. As far as you know the practice of the department, had it
been the custom to make such examinations? A. I think not.
Q. When was it first that you learned that Kuhn, Loeb & Com-
pany, for example, were taking alleged collateral loans at the end
of the year either in their own name or in the names of their
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clerks without any real loans being in existence or intended to be?
A. I have seen such a statement in the newspapers. I learned it.
Q. Did not you learn that in the course of your examination this
year ? A. I do not think so.
Q. Who conducted the examination this year? A. Mr. Van-
derpoel. Now we may have learned it, but I do not think they had
those loans at that time.
Q. Well, now, let us see, here, for example, on December 30
and 31, 1901, we find collateral loans to Kuhn, Loeb & Company
by the Equitable Life of a half-million dollars? A. Yes.
Q. At the end of 1902 we have collateral loans to J. J. Hanauer,
S. Siegman, E. S. Steiner and S. Siegman, of about nine million
dollars. At the end of 1903 we have collateral loans to Kuhn,
Loeb & Company of about nine million dollars. At the end of
1904 we have collateral loans to Simon Siegman, Herman Wooj§^,
Siegfried Heimann, Eugene H. Pall, of about the same amount.
Now, on looking over the collateral sheet, didn't that attract your
attention ? A. I have never seen it.
Q. That was not brought to your notice? A. No.
Q. And so far as you know the inquiry was not made to ascer-
tain who Messrs. Hanauer, Siegman and Steiner were? A. No.
Q. And whether they were employees of Kuhn, Loeb & Com-
pany? A. So far as I know, no. Were those repaid on the ist
of January ?
Q. I don't know whether we should use the word "repaid;"
the transaction was disposed of the ist or 2d of January. The
loans had a popular designation, I understand, as "End of the
Year Loans," and their obvious purpose was to reduce the cash
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balances on hand, substituting in the report collateral loans. Now,
has that wholly escaped the attention of the department, so far
as you are aware? A. Yes, sir.
Q. It would seem that the Equitable was examined in 1902,
referring to the examination prior to the one of this year. Who had
charge of that examination? A. Mr. Vanderpoel.
Q. He has charge of all your examinations, has he? A. All
the important ones.
Q. All the important examinations? You yourself have con-
ducted the examination of the Equitable in 1905 to a considerable
extent, have you not? A. Only as to its management.
Q. In making these examinations, is testimony taken quite fre-
quently? A. I think so.
Q. Had you not, prior to the time of making your examination
in 1905, discovered any of the facts alluded to in your report of
that examination ? A. I had not.
Q. Take, for example, the leases made to the Mercantile Safe
Deposit Company and their extraordinary terms, to which you
called deserved attention in your report. Had you not learned of
that in any way prior to that time? A. No.
Q. How is it that that was not disclosed in the examination of
1902? A. I could not tell you; I don't think those leases were in
the possession of the company at that time, I think we found the
leases in the possession of — well — a private safe. I have for-
gotten now.
Q. You, of course, had the books showing the income and the
outlays? A. Yes.
Q. And the large amounts disbursed for maintenance and re-
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pairs and the small relative returns, and you were in a position to
ascertain from the examination of the officers the terms of the
leases? A. I don't know whether anyone could have got that out
of the officers or not, at that time. Somebody made a suggestion
to me that there were such leases, and when I inquired of the
officers of the company they said they didn't know where they
were, and it was some time before I could get track of where the
leases were or what they were. I know it was several days before
we could find the leases, and then they came out of somebody's
private safe.
Q. We will take the transactions with regard to the increase
of stock of the Equitable Trust Company — had you known those
prior to the examination of this year? A. I think not.
Q. They had not been brought to your attention by any one in
or out of the department? A. No.
Q. Of course the existence of accounts that were not kept on
the books of the company did not have your attention directed to
in any way? A. No, sir.
Q. It has been mentioned here by one of the witnesses that for a
considerable period of time the cashier kept a memorandum of a
very large sum carried on a cash or memorandum ticket or in a
book that corresponded to it in lieu of cash in possession, and
balanced his cash by treating this ticket as the equivalent. Did
you ever know of that ? A. I did not.
Q. Well, now, what examination was made under your instruc-
tions to verify the cash returns of the cashier as to cash on hand?
A. Why, Mr. Vanderpoel made it ; I did not give any instructions.
Q. How could a cashier for a long period carry over a
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memorandum for a very large amount of money in cash without
the department's knowing* it ? A. I cannot answer that question.
Q. You are in the position of a superintendent who relied upon
your subordinates? A. Yes.
Q. But in looking over your reports or the reports furnished
you from time to time, was not your attention attracted to the very
large amounts expended by the Equitable, by the Mutual, by the
New York Life for legal disbursements? A. I thought they
were large ; I did not know what they had hid away in them.
Q. Did you suspect that those men or those companies were in-
terested in maintaining a Legislative watchg^ard?
THE CHAIRMAN : I think we had better suspend until con-
versation in the room shall cease. We have extreme difficulty in
hearing you, Mr. Hendricks, and we want to hear your testimony,
and we would be obliged to those in the room if they would assist
in maintaining silence. Mr. Hendricks does not customarily
speak very loud, and we are anxious to hear his testimony.
Q. Did you ever have any suspicion, to repeat the question,
that those companies were disbursing large amounts in connec-
tion with matters of legislation? A. Xo, not large amounts. I
had supposed, as I had always known, that they had some men
retained up there to look after their legislation. I never knew
that they disbursed any money.
Q. Well, why didn't you look into the matter of their disburse-
ments in that connection, to find out how they did and, if possible,
to the end that any legislation that could be recommended which
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Testimony of Francis Hendricks
would prevent that sort of thing, could be proposed by you. A.
Why, I did not know that they had expended money up there. I
knew that they had always had some people come up to represent
them.
Q. Has your department ever thought it advisable to compel
the companies to submit something which show exactly how their
business resulted in gains or losses for the year ? A. I think that
question has been taken up by the Insurance Commissioners sev-
eral times.
Q. The Board of Insurance Commissioners ? A. Yes, sir.
Q. The Wisconsin department has for many years required
what is called a gain and loss exhibit. Has the New York depart-
ment ever required that or any gain and loss statement? A. I do
not think so.
Q. Has that matter been brought to your attention during your
term of office? A. No.
Q. Have you thought yourself of the wisdom of requiring such
a statement? A. I have heard the statement made by those whom
I think are better qualified to speak on that that it was a pretty
difficult statement to make.
Q. To make up — ^were you advised that the insurance com-
panies opposed making such a statement? A. No.
Q. Isn't it a fact that they have opposed? A. If they have I
don't know.
Q. You don't know anything about that? A. No, sir.
Q. Don't you think that it is important that they should be
compelled to exhibit just what they had gained on mortality and
what they had gained on investments, and how their expenses
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compare with the loadings on their premiums, to the end that the
department would know whether they were running ahead or be-
hind on their insurance business A. I am not prepared to answer
that question any further than this, as an oflf-hand opinion, I say
yes. After making an examination I might change it.
Q. The gain and loss exhibit has been of a good deal of
service to the committee and counsel, as we find it in the data
taken from the Wisconsin reports, and the inquiry is necessarily
suggested as to the attitude of the New York Department
toward that, and whether you as Superintendent do not think
it is a good thing to have it. A. Well, I am inclined to say yes,
offhand.
Q. Have you asked during your incumbency for any informa-
tion from insurance companies additional to that which was
previously required ? A. I don't think so.
Q. Haven't you amended your form of report — I mean of re-
quired report from the companies ? I was under the impression
that a new form had been introduced about 1900 or 1901.
MR. APPLETON : At the Columbus Convention, about four
years ago.
Q. Mr. Appleton suggests that the Columbus Convention — I
suppose he refers to the convention of Insurance Commissioners
— made some recommendation. Do you recall that ? A. Yes.
Q. And did that result in the adoption of a new form? A.
Of a uniform blank.
Q. What is this organization of Insurance Commissioners —
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IS it a regular organization which holds stated meetings? A.
They hold annual meetings.
Q. And do they compare notes as to the operations of the
various departments? A. Well, yes, I think so.
Q. Mr. Dawson suggests that it is not as to actual opera-
tions, but as to methods of operation that they compare notes.
Do they make suggestions with reference to reforming legisla-
tion from time to time? A. I have only attended one of those
meetings.
Q. What reforms, if any, in the insurance law have you pro-
posed? A. That is quite a problem.
Q. You have made recommendations from time to time, have
you not? A. Oh, yes.
Q. Have you made recommendations at the request of any
of the companies ? A. I think not.
Q. Have you made recommendations against their opposi-
tion? A. I do not think so.
Q. Well, do you recall any particular line of legislation that
you have requested in the direction of reforming conditions?
For example, have you made recommendations with regard to
assessment corporations? A. Yes.
Q. What have they been? A. I made a recommendation, I
think, to prohibit their further incorporation.
Q. To prohibit assessment incorporation? A. Hereafter.
Q. Hereafter being organized under the laws of this State?
A. Yes, I think I did.
Q. And that would carry with it the prohibition of others
from other States coming in? A. Yes.
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Q. Which are not already here? A. Yes.
Q. That is, that was a part of your claim ? A. Yes.
Q. What happened to that legislation? A. The Legislature
did not look favorably on it.
Q. The Legislature did not act on it? A. I say they did
not look favorably on it.
Q. When was the bill introduced? A. We have had two
bills there, last year and the year before.
Q. 1905 and 1904? A. That is my impression; I am not
sure.
Q. And were those department bills? A. Yes.
Q. Were they introduced at the suggestion of any insurance
company? A. No.
Q. Were they opposed by any insurance companies? A.
They were opposed by the assessment companies.
Q. You draw a distinction, or rather the law draws a distinc
tion, between what is called an assessment corporation and a
fraternal organization? A. Yes.
Q. Roughly, in the latter case, there is an organization some-
what on the lodge system? A. Yes.
Q. Which is not so in the case of an assessment corporation?
A. No.
BY THE CHAIRMAN :
Q. Mr. Hendricks, I would like to ask you whether within
your recollection the Insurance Committee of either house of
the Legislature passed a bill against the department's recom-
mendation? A. I cannot recall of any now.
(Recess until 2.30 P. M.)
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AFTER RECESS.
FRANCIS HENDRICKS resumed.
BY MR. HUGHES :
Q. We were speaking at the close of the morning session of the
powers of the department and its attitude with reference to assess-
ment corporations. What does the department do with reference
to the supervision of such companies? A. They cannot do a great
deal except inquire on the making of their annual report.
Q. Is there any test of solvency or insolvency \inder the law
with reference to assessment corporations? A. There is none.
Q. Has the superintendent any power to prevent an assessment
company from continuing its business? A. I think under the law
that we got passed last Winter which was a compromise that
wherever a company exceeded 35 per cent, of the cost of manage-
ment it was referred to the Attorney General.
Q. Is that of any real value? A. Yes, I think that would be
helpful.
Q. In what way would it be helpful? A. Well, if they were
to continue business they would be likely not to expend as much
money — would be a little more careful in the expenditure of money.
Q. The provision to which you refer is found in Article 207 of
the Insurance Law as follows : "Whenever it shall appear to the
superintendent of insurance on investigation or examination that
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Testimony of Francis Hendricks
the actual expenses of management of any corporation, association
or society to which this article is applicable, whether heretofore or
hereafter authorized or permitted to do business within this State,
for the year preceding the year in which such investigation or
examination is made, were more than thirty-five per centum of
the cash income actually received from premiums, assessments
and membership fees, the authority or renewal of authority, if it
be a foreign corporation, association or society shall be revoked,
and the superintendent shall cause notice of such revocation to be
published for four weeks in the State newspaper published in the
County of Albany, and no new insurance shall thereafter be written
by such corporation, association or society within this State ; and
if it be a domestic corporation, association or society, it shall be the
duty of the superintendent of insurance to cause to be served on
the president or other officer of such corporation, association or
society, a notice in writing to immediately cease the transaction of
new business and in the event of their failure so to do, he shall
report the facts of such investigation and examination and his pro-
ceedings thereunder, which shall be prima facie evidence of the
facts therein stated, to the attorney general,*' etc. You really
think that that is of some importance? A. I think it is of some
importance.
Q. Now we have had before us the case of the Empire Life
Insurance Company. It appears that its total income receipts for
1904 were about a thousand dollars less than its disbursements;
that its balance of ledger assets brought over from 1903 were
about $11,000. That it had unpaid mortuary liabilities, including
•contested claims of about $45,000, and yet its income from
premiums or assessments was in the neighborhood of $78,000 and
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Testimony of Francis Hendricks
its expenses were ccMnparatively small. This provision of law did
not affect that company, did it? A. Not under that statement.
Q. No. Have you had the facts in relation to that company
brought to your attention (handing witness letter). Let us see
whether that company has not come within the provision of the
law. I find it appears from the Blue Book here that it received
in 1904 in premiums $78,043 ; that its total income was $78,335 ;
that it paid to agents and medical examiners $4,323 and expenses
of management $18,034, making a total of $22,356, so that it was
a little under, according to those figures, 35 per cent. To recur to
my question again, have you had that brought to your attention?
A. Yes.
Q. Now, has the Superintendent of Insurance under the law as
it now stands any way of dealing with that company on those
facts ? A. I don't think that it has.
Q. It would appear from that that a provision limiting expenses
to 35 per cent, of the premium income is practically a mockery
as to the control of assessment companies? A. I think you will
find that there are a number of assessment companies that will
have to, in my opinion, go out under this law.
Q. Is that so ? A. I think so.
Q. Then there are a number of other assessment companies
operating on the same unsatisfactory basis than the Empire?
A. I think so, some small ones.
Q. Is it your judgment that a company should be tolerated to do
a business of assessment insurance under such conditions as are
indicated by the facts stated in my question? A. I am very sure
they ought not to.
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Q. And yet the law of the State is such that the superintendent
IS powerless to prohibit it? A. It is.
Q. Are you familiar with the circulars that have been sent out
by that company? A. No, I am not.
Q. Have you taken supervision of that company to the extent
of requiring them to submit to the department specimens of the
circulars they were issuing? A. We have not.
Q. Now, in one of the circulars which this company has issued^ *
produced here in evidence we find the statement : *lt furnishes
life insurance at cost with a sufiicient reserve fund to guarantee
the payment of its claims," and when we inquired as to this reserve
fund we found that it resided in the capacity to assess its members.
That has not been called to the attention of the department?
A. No.
Q. The issuance of such circulars ? A. No.
Q. Now, in a case where you are not able to prevent a company
from doing business because of the limitation of the law, do you
not think it would be advisable for the department so far to super-
vise their business as to prevent the issuance of misleading circu-
lars ? A. Yes, sir, that is right, probably.
Q. I asked you a moment ago as to whether there was any test
of solvency or insolvency provided by law in such cases. In the
concluding clause of Section 207 of the Insurance Law we find the
following: "When the superintendent on investigation shall be
satisfied that any corporation organized under the laws of this
State doing business in this State of the character defined in this
article is insolvent because of matured death claims or obligations
due and unpaid exceeding its assets and death or disability assess-
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ments or periodical calls made or in process of collection at the
date of such investigation, or has exceeded its powers, failed to com-
ply with any provision of the law, or is conducting business fraudu-
lently, he shall report the facts to the attorney general, who, if he
shall be of the opinion that the facts require such action must there-
upon apply to the Supreme Court at a special term thereof within
the judicial district in which the principal office of such corpora-
tion or association or society within the State is located, for an
order requiring the officer of said corporation or society to show
cause," etc. The test of solvency under that provision is whether
its matured death claims or obligations at the time or unpaid ex-
ceed its assets and death or disability assessments or periodical calls
made or in process of collection at the date of such investigation ?
A. Yes.
Q. Now, before you have a chance to complete the report upon
such a company the company can make another assessment, can't
it? A. Yes.
Q. Upon its members for any amount that it is necessary to
provide the moneys to meet the matured claims ? A. I think so.
Q. So that as a practical matter that is not any aid to the depart-
men, is it? A. I don't think so.
Q. That part of it. But there is another part of it where the
Superintendent finds on its investigation that the company is con-
ducting its business fraudulently, that then it may report the
matter to the Attorney General. Now, what is conducting busi-
ness fraudulently in the case of an assessment company, according
to your idea? A. Well, possibly a misstatement might be that.
Q. Misleading statement ? A. I say they might be.
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Q. Deceptive circulars ? A. It might be possible, sir.
Q. The practice of agents in deluding policyholders into the
idea that they are dealing with substantially level premium policies.
All that would come under that head? A. Yes.
Q. So that really this provision with regard to conducting busi-
ness fraudulently puts it within the power of the Superintendent to
elicit facts showing such conduct for the purpose of reporting to
the Attorney General? A. I think that is true, but what the
Attorney General would decide, I don't know.
Q. The duty of the Superintendent would be discharged in
ascertaining the facts, and reporting to the Attorney General ? A.
Yes.
Q. Now, has the Superintendent referred any matters of assess-
ment companies to the Attorney General during your incumbency ?
A. I am not sure about that.
Q. Have you taken steps to close up any assessment companies,
or to prevent their continuance in business by the use of this
power? A. I don't think so. I supposed that we were helpless.
Q. I understand that that provision about conducting business
fraudulently has been in the law for some time ? A. Yes.