knowledge the insured or the beneficiary had of such a lien was obtained at the time that the policy was surrendered or matured as a death claim. In such cases it is necessary to carefully determine the legality of the by-law and make certain that the policyholder is acquainted with the exact condition of affairs. The same limitation as to their admissibility as an asset applies to policy liens as to policy loans, viz.: they are good only when equal to or less than the reserve.

A premium note is a note signed by the insured for his temporary accommodation in order that he may be enabled to pay the premiums called for by his policy contract. As a usual thing they run for short terms (within a year) and bear interest, for if they are given without an interest requirement, it will be apparent to you that a discrimination is being worked against the policyholder who pays his premium in cash when it becomes due. It is not necessary for the policy to be deposited with the company when a premium note is given by the insured. These remarks apply to the premium notes given by holders of life insurance contracts; as a usual thing, premium notes on other forms of insurance contracts are admitted as assets without reference to the reserve which is being maintained upon that particular policy. This treatment is consonant with the treatment of the uncollected premiums, which will be referred to more at length to

morrow.

CHAPTER VII

Miscellaneous Assets - Bills Receivable- - Furniture and Fixtures - Accrued Interest-Rent Paid in Advance-Reinsurance Due-Agents' Balances Deferred Premiums Uncollected Premiums "Paid for " and "Written" Bases - Uncollected Assessments of Fraternals.

You may find some bills receivable among the assets of a company which you are examining; these are nothing more or less than notes, and being loans on personal security are disallowed as assets. An insurance company is not supposed to invest its funds in commercial paper. To attempt to appraise an asset of this kind would require the examiner to pass upon the financial responsibility of the maker of each note, and this is manifestly impossible.

Furniture and fixtures are sometimes included by companies among their ledger assets, and if so are disallowed, it being impossible to properly appraise an asset of this kind. It is proper that at this point I should call your attention to the fact that it is the general practice of Insurance Departments to regard assets as valueless unless they are marketable so they may be used in the settlement of policy claims, if necessary.

The accrued interest on the various kinds of securities and the accrued rents on the property which the, company owns, are items which require no explanation from me; their treatment is obvious. In some cases

you may be met by the claim of a company that it should be given credit for the rents which it has paid in advance. If, for instance, on December 31st, a company should have sent its cheque for the January rent of an office which it is occupying it might properly claim credit for that payment; there is no question but that the claim is logical. We charge the company with a liability for any rents (when it is the tenant) which are past due or accrued, and as this is simply the reverse of that situation, the company should be given credit for any rents which it has paid in advance. The same reasoning applies to fire insurance premiums which have been paid in advance, the company being entitled to credit for the unearned portion of the premium, although it is not very usual for this claim to be made.

In the course of your work you may find that a credit is claimed for reinsurance on losses due from other companies. These are cases where other companies have reinsured some part of the risk; a loss has been sustained and the company which you are examining has not had the opportunity to receive from the reinsuring company its share of the loss. In consequence, it is entitled to credit for any reinsurance due from solvent admitted companies, for either you are charging the full liability on any losses which have occurred or the company which you are examining has paid the claim.

Agents' debit balances are of two kinds: one we find in the statement of life insurance companies and the other in statements of fire insurance companies. The terms have two different meanings: in the case of a life insurance company, an agent's debit balance

refers to an advance which has been made to him (either in cash or by permitting him to retain premiums which he has collected) and which is unsecured in the sense that we understand it, although the advance may be secured by the renewal contract of the agent. In the case of a fire insurance company the agent's balance represents the premiums for which he has not accounted.

The cause of the difference in these two items arises from the fact that the two statements are on different bases. The statement of the life insurance company is upon a cash basis, and the only items that are considered as premium income are the premiums which have been actually paid either in cash or in notes; in the case of a fire insurance company every premium, as soon as it is written, is carried into the income account.

According to the annual statement blanks used by departments the amount of the ledger assets must exactly equal the ledger assets of the previous year, plus the income of the year, less the disbursements which have been made during the year; in consequence, the treatment of the premiums in the case of the fire insurance company requires us to have some corresponding item in the ledger assets to represent the indebtedness of the agent. In the case of a life insurance company the premiums are not carried into the income portion of the statement until they have been paid in cash, and the uncollected premiums, therefore, are not included among the ledger assets.

The agents' debit balances in a fire insurance company when not more than ninety days past due are recognized as a good asset. The reason for fixing

three months as a line of demarkation between a good asset and a bad asset is entirely arbitrary. Those who were charged with the duty of framing the statutes undoubtedly had to rely upon their past experience, and it was probably felt that an agent should report premiums in his hands within ninety days after they had been written. Section 118 of the New York Insurance Law specifically provides for the allowances of this item when an examination is made by the authority of the Superintendent of Insurance into the affairs of a fire insurance company, or when a fire insurance company renders a statement to the Insurance Department, for the section states:

"There shall not be allowed as assets any investments which are not held as prescribed by law at the date of such examination or rendering such statement; but unpaid premiums on policies written within three months shall be admitted as available resources. 99

I merely wish to call your attention to the fact that in the case of life insurance companies the debit balances of the agents are really bills receivable, and the same rule applies for their disallowance as in the case of bills receivable.

Accident and miscellaneous insurance companies have still a third form of statement. They are required to include at the present time among the items of income all premiums which have been written, but instead of charging them to the agents, they carry them into the ledger assets as items of "premiums in course of collection;" the same rule applies here as in the case of fire insurance companies, viz., premiums which are not more than ninety days