Chapter 11

_Table Exhibiting Ratio of Expense, Determined by the New Mode, of Companies Doing Business in Massachusetts during the Year 1883._ ___________________________________________________________________________________________________________________ | | | | | | | | | | | | | | |Expense | | |Net Rate | | | | | |per $100 | | | of | | | | | |of claims| | |interest | | Death |Estimated |Difference |Expense |paid. | Interest | Expense | earned. Name of Company. |Loca-| claims |Premiums. | or Net | on the |---------| Receipts. | on the |-------- |tion.| paid. | Reserve |Insurance |score of | R | R | | score of | R | R | | | thereon. |furnished. |Insurance. | a | a | |investment.| a | a | | | | | | t | n | | | t | n | | | | | | e. | k.| | | e. | k. -------------------+-----+-----------+----------+-----------+-----------+-----+---+-----------+-----------|----|--- Berkshire |Mass.| $208,147| $46,605| $161,524| $122,779| 75.4| 14| $194,067| $15,809|5.25| 16 [1]John Hancock | " | 169,604| 25,117| 144,487| [8]228,566|158.2| 24| 135,597| 11,686|3.65| 26 Mass. Mutual | " | 426,995| 86,215| 340,780| 232,400| 68.2| 10| 428,255| 33,176|6.03| 7 N. England Mutual | " | 1,039,694| 235,630| 804,064| 311,879| 38.8| 3| 995,883| 69,908|6.40| 4 State Mutual | " | 121,969| 22,493| 99,476| 98,839| 99.4| 19| 143,751| 13,057|4.51| 24 Ætna |Conn.| 1,302,807| 364,510| 938,297| 460,014| 49.0| 6| 1,760,372| 118,962|6.22| 5 Connecticut General| " | 87,639| 15,624| 72,015| 46,113| 64.0| 9| 95,580| 5,407|7.03| 1 " Mutual | " | 2,867,489| 881,600| 1,985,889| 622,941| 31.4| 1| 3,041,125| 238,944|5.70| 10 Equitable | N.Y.| 3,072,232| 483,950| 2,588,282| 1,884,108| 72.8| 12| 2,743,024| 216,725|5.42| 12 Germania | " | 606,072| 149,950| 456,122| 325,662| 71.4| 11| 508,702| 47,193|4.85| 22 Home | " | 205,921| 48,603| 157,318| 155,192| 98.6| 18| 260,506| 19,917|4.86| 21 Homoeopathic | " | 35,610| 6,340| 29,270| 48,734|166.5| 25| 42,814| 2,935|6.20| 6 Manhattan | " | 687,171| 183,450| 503,721| 266,305| 44.9| 5| 627,628| 44,081|5.82| 8 [7]Metropolitan | " | 638,639| 18,322| 620,317| 1,161,893|187.3| 26| 106,916| 9,098|4.90| 20 Mutual Life | " | 5,172,275| 1,407,700| 3,764,575| 1,480,198| 39.3| 4| 5,042,964| 466,739|5.01| 19 Mutual Benefit | N.J.| 2,160,991| 550,890| 1,610,101| 521,829| 32.4| 2| 2,072,629| 169,913|5.61| 11 National | Vt. | 174,767| 29,127| 145,640| 77,861| 53.5| 7| 149,010| 10,100|5.26| 15 New York Life | N.Y.| 2,408,636| 574,150| 1,834,484| 1,995,102|108.8| 21| 2,676,592| 236,884|5.03| 18 Northwest'n Mutual | Wis.| 990,692| 190,500| 800,192| 630,582| 78.8| 15| 1,200,001| 88,527|5.80| 9 Penn. Mutual |Penn.| 601,625| 107,600| 494,025| 309,858| 62.7| 8| 463,567| 37,131|5.38| 13 Provident Life and | | | | | | | | | | | Trust | " | 280,817| 49,865| 230,952| 222,665| 96.4| 17| 340,115| 33,294|4.26| 25 Provident Savings | N.Y.| 24,875| 1,828| 23,047| 51,608|233.9| 27| 4,955| 2,579|1.70| 27 Travelers' |Conn.| 235,001| 42,243| 192,758| 144,621| 75.0| 13| 331,623| 22,476|6.42| 3 Union Mutual |Maine| 377,547| 88,520| 289,027| 237,913| 82.3| 16| 301,499| 28,754|4.66| 23 United States | N.Y.| 283,304| 69,245| 214,059| 277,919|129.8| 23| 271,594| 23,460|5.09| 17 Vermont | Vt. | 13,000| 1,542| 11,458| 13,613|118.8| 22| 12,917| 822|5.33| 14 Washington | N.Y.| 356,289| 71,820| 284,469| 289,461|101.8| 20| 446,998| 32,249|6.78| 2 | | | | | | | | | | | +-----+-----------+----------+-----------+-----------+-----+---+-----------+-----------+----+--- Totals | |$24,549,808|$5,753,439|$18,796,369|$12,177,655| 64.8| |$24,398,684| $1,999,826|5.42|

_Collective Business of Assessment Societies Doing Business in the State (excepting Secret Societies_).

46 Societies | | $735,383| | | $237,770| 32.3| | | | | -------------------------------------------------------------------------------------------------------------------

[Footnote 7: Including industrial business.]

[Footnote 8: Includes $18.867 depreciation.]

The figures given in this table are drawn from the last annual report of the Insurance Commissioner of Massachusetts, excepting the premium reserve on death claims, which, as well as the division of the total expenses of each company into insurance and investment expenses, I have estimated on a uniform rule. This was for lack of the actual data in these particulars, which the report did not give, as it is desirable that future ones may.

This, however, does not injure the value of the table for illustrating the mode of procedure, for which purpose mainly it is presented. The companies whose figures I have used, moreover, have no occasion to complain of this, as my estimate certainly gives all ratios of insurance expense lower than they would appear if I had known, and used, the exact actual premium reserve on death claims, and all probably bear nearly the same ratio to each other as they would in that case.

As the object of this statement is to explain the new method, and not to defend my particular estimates in applying it, I forbear to state on what rules I have made them. Expense which is not ascribed to insurance must be ascribed to investment, and as in comparing any two companies, their two ratios of one kind or the other must be equated, to decide the question of economy between them, it may well be left to any company to say what the fair division of its own expenses is.

Moreover, there can be but little motive to make a false division; for to successfully compete for business, a company having large investments has as much need to show a high net rate of interest earned as a low rate of insurance expense. Again, it is not my purpose to pass judgment on the economy or extravagance of any ratio of expense shown in the table. It is not a fact exhibited for the first time by my figures, that the ratios of some companies are more than double those of others. The same fact would be displayed in about as high a degree by ratios based on premium income, or any other incorrect basis. Custom, the balance of opinions, and competition may well be left to decide what ratios of expense are high, and what are average, or low. And their decision is to be gathered only from _statistics_.

What I do claim is that the mode of determining ratios herein explained is the only intelligible and scientific one, and the only one proper to employ in _statistical tabulations_ and _investigations_.

As such, it calls attention to the fact that the amount of insurance claims met, and of interest receipts, _are limits_ which the corresponding expenses cannot exceed, certainly for a series of years together, without making the _expense_ more than the _advantage_ of the business. To keep this fact in view, _as a preventive of extravagance_, is not the least valuable service the new mode may render. It may be seen that there are eight cases in the table, in which the ratio of insurance expense points to expenses exceeding the insurance claims met in the same time, yet the reader need not hasten to conclude that the same companies will permanently show similar ratios, or have no good reasons to give for the ones which now appear. I may remark, however, that it is an evidence of the scientific mode in which the figures are presented, that it facilitates such explanations as are pertinent of any of the ratios.

For instance, some of the ratios are undoubtedly affected by the fact that the claims for the year of the company in question have been exceptionally high or low, or that the company (being of recent organization perhaps) has just incurred exceptional expense to increase its business, the advantage of which will appear later, etc. But I leave to the companies themselves to show to what extent such circumstances have affected their ratios; except that, in regard to the several net rates of interest earned, it is proper to say that in all cases in which they considerably exceed the average of 5.42 per cent. it will be found, by referring to the details of interest receipts reported to the Commissioner, that the excess is owing to the fact of exceptional profits by the sale of stocks, or recovery on investments previously reckoned as loss.

WALTER C. WRIGHT.

Medford, Mass., Sept., 1884.

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