To these riches must be added the following interesting objects: the Dey
of Algiers' watch; the Elephant of Denmark; the decorations, etc., of
foreign orders; crowns and diadems of sapphire; rubies; pearls that afford
curious specimens of French art at the beginning of our century; one of
the Mazarins bequeathed by the celebrated Cardinal; and lots of colored
stones destined for our national museums.
The same exhibition alluded to above contains a number of other
collections of great interest that it would be unjust to pass over in
silence, such as the exhibit of the French diamond mines of the Cape,
where one may see all the details of this prosperous exploitation by means
of photographs and specimens. The art bronzes, the objects of jewelry, of
goldsmith's work, and of morocco work, the music boxes, Trouve's and
Aboilard's electric jewelry, and the retrospective art collections
especially attracted the attention of the public.--_La Nature._
* * * * *
A NEW MODE OF TESTING THE ECONOMY OF THE EXPENSES OF MANAGEMENT IN
LIFE INSURANCE.
How to determine the general ratios of the expenses of management of life
insurance companies has hitherto been an unsettled question, and I think
no serious attempt has been made before my own to study this question
exhaustively, and reach a scientific conclusion.
Believing that, one is contained in the following statement, I
respectfully submit it to the criticism of others.
It has generally been taken for granted that the measure of economy of
life insurance expenses may be expressed by the single ratio of expenses
to one feature of the business, such as the premium income, or the total
income (premium and interest), or the mean amount of all policies
outstanding. But this is not the case. No exhaustive reason has been shown
for preferring one of these bases of ratio to another, and, indeed, no
reason well supported by argument has been shown for employing either. On
the other hand, no better evidence is needed of the importance of
establishing a uniform and demonstrably sound basis, than the fact that it
is common for companies to refute one another's claims to superior
economy, and totally confuse the public, by opposing ratios found in one
way by ratios found in another--that one of two companies which appears
the most economical according to one test being apparently the least so
according to another.
The economy of the expense of any transaction, or work, can only be
intelligently judged by the value of the _result_. This truth is too well
recognized to need illustration, and it only needs to be called to mind,
to perceive both the error of ratios of expense based on premium, which is
not the result but the _raw material_, so to speak, of insurance
transactions; and what, on the contrary, the true basis is.
It is thus clear that in insurance the economy of expense must be judged,
not by comparison with the premiums paid, but by comparison specifically
with the resulting advantages in fact secured by such payments. Now these
are of two kinds: which may be called the _insurance advantage_ and the
_investment advantage_.
(1) Each death claim paid is an insurance advantage, though it is so only
to the extent of the excess of the amount of the policy which has become a
claim over its premium reserve, or value, for the latter being the balance
(with interest) of the policy holder's own premium money, could have been
left or secured to his representatives without the intervention of the
policy and company.
It is true that the advantage or benefit of insurance does not consist in
adding anything to the wealth of a company, but only consists in drawing
from the premiums paid into its treasury by the policy holders generally,
to meet each death claim which arises; or can only be called an _advantage
of distribution_, or process of collecting aid from the living members, to
assist the representatives or dependents of the deceased ones; but it is
not the less on this account an advantage worth _same expense_ in
securing.
(2) Interest realized by the investment of premium while it is in the
keeping of a company is an advantage; in every sense so, since it comes
wholly from outside sources, and accrues proportionally to all members; it
may be called, as above, the investment advantage, and of course justifies
some _expense_ to secure it.
Hence the expenses incurred by any company in a given; time must be
divided into two parts, one being the expense incidental to insurance, and
the other that incidental to investment, which parts are to be compared
respectively with the insurance claims met, and interest receipts of the
company for the same time; or what is equivalent in the latter case, the
net rate of interest earned after deducting the incidental investment
expense may be found.
When this process shows that one company has earned a higher rate of
interest than another, at the same time that its insurance expenses bear a
lower ratio to its insurance claims paid, _there is no escape from the
conclusion that during the period under observation it has served its
policy-holders more economically_, and the test is therefore scientific.
Though, if one company shows a higher rate of interest, while the other
shows a lower ratio of insurance expense, it will still be necessary, to
complete the test, to equate either the rates of interest or the ratios of
insurance expense (it does not practically matter which), and note how
this affects the relation of the duly corrected ratios on the other score.
To be exact, if the average vitality of the members of the two companies
differ (other things being equal, it is always cheapest to belong to that
company which has the lowest death rate), the ratios of insurance expense
to expected, as well as actual, claims of each must be found, and equated.
The science of this procedure, or mode of testing expenses, and also its
practical simplicity, may be more clearly perceived by reference to its
practical application in the following table:
_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.