The two bases-"Policyholders' basis"- Various sources of interest - Other items of income - Premium on capital stock....... 133 Evidence of disbursements - Voucher-cheques-Losses - Payments in Development of schedules in annual statement blanks explanation of schedules A to Y, inclusive of life blank..... Additional schedule for fraternals - Schedules in blank used by fidelity, surety, credit and liability companies - Detailed classification of Schedules and their application to financial portions of statement Method of checking details shown in schedules with items in other por- Excise bonds - Special feature in New York State - Excise reinsurance Limitation as applied to liability policies - To credit policies - Policies in hands of agents - Method of Appendix H- Sheet for determining excess credits. Appendix I-New York Insurance Law referring to amortization and Appendix J-New York Insurance Law relating to the computation of the loss reserves for liability companies.... Appendix K- Michigan Insurance Law relating to the computation of Appendix L- Reserve for unpaid liability losses.. Appendix M-New York Insurance Law providing for a contingency PAGE Appendix N-Ohio Insurance Law pertaining to the participation in surplus by policyholders of life insurance companies.... 218 Appendix O-New York Insurance Law fixing the limitation of ex- THE EXAMINATION OF INSURANCE COMPANIES CHAPTER I The Development of Supervision - Personal Attitude of the Examiner - Qualities He Should Pos sess His Attitude Towards Officials of Company under Examination. It is my intention to discuss with you, from time to time, certain phases of your examining work and to lay down rules for your guidance; I think it proper that during this, my first talk, I should briefly trace the history of insurance examinations in this country and also lay down some general principles, rather than to deal with any particular phase of the examining work. Supervision in this country really started with the idea that insurance corporations, like other corporations, should render reports to the financial officers of the government so that taxes might be levied and a means for securing revenues for the State thereby created; the thought that they should be supervised for the benefit of the policyholders was an afterthought. The insurance departments of the various States in this country are gradual developments; originally started, as I have indicated, for the purpose of securing reports upon which taxes could be levied, they became bureaus of licenses established not only for the purpose of securing revenue from agents' licenses, but also for the prevention of soliciting for unauthorized companies. That was probably the first step for the protection of policyholders by the various insurance departments. As the companies grew larger and became more vital factors in the financial world, abuses crept into their management, and of late years, probably within the past two decades, the supervision by the State authorities has taken more and more upon itself the question of eliminating these abuses and requiring the insurance companies to be administered for the benefit of the policyholders along lines not only sound from a financial standpoint, but in the case of life insurance companies, secure from an actuarial standpoint. There is one great difference between a departmental examination and an examination made by a firm of certified public accountants, for instance, and that is this: it was never intended that a departmental examination should be an audit. It is impossible for any group of examiners coming to a company's office for a brief period of several weeks, or even several months, to properly review each and every transaction which has taken place since the company was last examined. The form of examination, therefore, which you will have to follow, may properly be described as more of a scrutiny of the system and methods than of the details. At least, the first part of an examiner's work should be to familiarize himself with the systems used in the office, to thoroughly trace the history of the various transactions in order that he may find out the course which every transaction or group of transactions takes in its progress through the office. This scrutiny will enable him to determine whether there is anything radically wrong in the way in which the various items are treated. Subsequently it will become necessary to ascertain whether those systems which have been prescribed by the superior officers have been properly carried out by the subordinates; no matter how perfect a system may be when it is outlined by the one in charge, it must be apparent that the results will not be accurate unless the man to whom has been entrusted the duty of making the entries, thoroughly understands the system and obeys his instructions. Any discrepancies which are found as a result of the examination of the details, must be followed to the very end and analyzed carefully. It will not do to dismiss apparent discrepancies on the theory that the amount involved is not large. A mistake of one dollar may indicate something radically wrong with the entire system and lead to the discovery of errors of great magnitude. I think it but proper that I should refer briefly to something of great importance in the matter of examinations, and that is the personal attitude of the examiner. A great deal of the success of any examiner is going to depend upon the way he comports himself in the offices which he is investigating. Tact is one of the primary necessities of an examiner; without that a man might as well make up his mind that he will never make any headway with his work. Above all, there must be no antagonism between you and the employees of the company, if for no other than selfish purposes; this should be carefully observed, for unless you have the passive assistance, at least, of those in |