with interest semi-annually or quarterly at a certain per cent. But the price of bonds, having say twenty years to run and bearing interest at 4%, payable semi-annually, varies somewhat with the state of the money market. In and following the panic of 1907 the best bonds showed a decline of from five to ten per cent. If mortgages on real estate or the title to real estate-passed from hand to hand as bonds do they would have shown a similar depreciation. Money was worth more, hence securities were worth less. But a life company's liabilities are not largely cash liabilities - they are long-term liabilities, and its securities are bought because they produce income and the principal will be paid at maturity. In view of these things and in order that the rate of interest shown should be the effective rate received, the State has established the rule that a bond that is "amply secured and not in default as to principal or interest, shall be valued, as follows: If purchased at par, at the par value; if purchased above or below par, on the basis of the purchase price adjusted so as to bring the value to par at maturity and so as to yield meantime the effective rate of interest at which the purchase was made".*

For example, a 4% bond bought at par always yields 4% on its cost, no matter when it matures; therefore its book value is always par. But a 32% bond having twenty years to run and bought at 93.16 per cent. also yields 4%; its book value must therefore be "adjusted" every year. To do this the Company credits interest account with 4% on the book value and adds the difference between 4% and the interest actually received to the book value. These additions bring the book value to par at maturity. On the other hand, a 42% bond having twenty years to run and bought at 106.84 per cent. also yields 4%. In this case the Company each year credits interest account with 4% on the book value. and deducts the balance from the book value of the bond. These deductions bring the book value to par at maturity. After the first year the rate is reckoned on the new book value.

The Branch Office debits and credits represent incomplete transactions- the Branch Offices (there are over one hundred of them) have received the money and paid it out, but the vouchers have not been received or have not been approved-they are not yet entirely matters of record. Until they are the debit balances are not "admitted assets".

The premiums due and unreported" represent cases where the policyholder is availing himself of the days of grace in the payment of premium; those under the head of new business represent policies upon which a quarterly or semi-annual premium has been paid, as a new policy is not in force until the first premium has been paid. The deferred premiums represent quarterly and semiannual premiums falling due in 1909 but belonging to the policy year beginning in 1908. Premiums are theoretically paid annually in advance, hence four quarterly or two semi-annual premiums belong to the year 1908, although some were not due until 1909. From all these premiums 25% is deducted as loading because under the law the Company might spend about this sum in expenses. The total loading on gross premiums received during the year averaged 21.1 per cent. of gross premiums, as per Gain and Loss Exhibit in report to the State.

* See Section 18 Insurance Law, Appendix.

It will be noted that market values in excess of book values are added and book values in excess of market values are deducted. This is done rather to make the statement conform to that required in other States and countries than as a test of real values, as the valuation of bonds by another method is-as we have seen-specifically authorized by the New York Insurance Law.

LIABILITIES-VALUATION OF POLICIES, ETC.

The New-York Life began business in April, 1845, and has been a growing Company ever since. On December 31, 1908, it had on its books over one million policies of insurance and nearly ten thousand annuity contracts. Naturally many of these reach back to years when other laws were in force and when policy forms were very different. In fact the different kinds of policies now on the Company's books furnish a history in miniature of life insurance during the last fifty years. The oldest Policy in force is number 620, issued in 1846, and there are 61 policies in force that are over fifty years old. We are just now being reminded that fifty years ago the Civil War began and that the country was then in a turmoil of excitement. Nevertheless the great moral and economic forces kept at work, building up even while destructive forces were tearing down. There is no more stirring chapter in the history of the Company than that covering the period 1861-65, during which time its business increased more than fourfold.

For purposes of valuation all policies issued prior to 1901, except those bearing 3% guarantees (issued since July, 1896), were grouped together and valued by the Actuaries' Table of Mortality with interest at 4%-a standard which by a law of the State superseded all others in 1880, and which is still in force for such policies. Other issues either follow subsequent laws or are valued by a higher standard than the law requires. The additional reserve set aside in excess of the State's requirements was $3,129,402, and will be found in item 35. After an exhaustive examination of all sources of information on the subject, including the mortality among its own declined risks during a period of twenty years, the Company began in 1896 the insurance of impaired and partially impaired risks. Upon the first of these and upon tropical insurances the Company held a reserve based upon a mortality double that of the American Table with 3% interest, and upon the second and upon semi-tropical insurances it held a reserve based upon a mortality once and a half that of the American Table with 3% interest. Annuities were valued by three standards, according to year of issue the later standards representing the larger experience. This immense amount of reserve-over 459 million dollars (it is now over 522 millions) is made up of the reserve required on individual contracts similar in general tenor to those which we have analyzed to ascertain their present values.

The liabilities under items 9 to 35 require little comment. The total amount of Policy Claims looks large, but over half of it is upon losses that have been reported but no proof of death received. Under item 12, strike out the words "or adjusted and not due". When a New-York Life policy claim is "adjusted" it is then paid. These words are in the official form to cover policies issued years ago under which a death-loss was not due until 30 or 60 days after proof was received. The New-York Life still has such policies in force, but does not avail

itself of the privilege of delay. The amount of death-claims resisted also looks large although it is less than one per cent. of the total of paid and resisted. It includes many cases carried over from the previous year. The Company must protect its policy-holders from fraudulent claims. Such claims are reported to the Insurance Department in detail each year, and upon the merits of its defense the Company invites the closest scrutiny. Taking the first ten on the list at the end of 1910, the Company's reasons for resisting payment were as follows: In three cases-insurance contract never consummated; in one case-insured not dead; in three cases-insurance benefits had expired before death-Company liable in one case for a surrender value which it is ready to pay; in two cases policies lapsed charged with loan-were endorsed for paid-up value less the debt, which the Company is ready to pay-one of these had been decided in favor of the Company and an appeal taken; in one case-fraud in procuring Policy.

The due and unpaid endowments and annuities are mostly those upon which checks had been sent out but they had not come back. The Company formerly waited for a claim to be made under endowment and annuity contracts, but some fifteen or more years ago it devised a form of check the endorsement and payment of which furnish the needed proof that the Beneficiary is alive. Such checks are now sent out so as to reach the Beneficiaries on or about the due date. Item 27 shows a large amount due in taxes. Taxes are levied on the business of the year, but are mostly due and payable in the following year when the totals have been made up.

To the special surplus funds included in item 35 there has since been added an "annual dividend equalization fund". Since the Company began to pay annual dividends on its new contribution annual dividend policies it has declared and paid the following percentages of the surplus normally accruing on such policies: For 1907, 100%; for 1908, 96%; for 1909, 97%; for 1910, 100%. The purpose is to lay by a little from the more prosperous years in order to maintain a normally increasing dividend as the policies grow older, as explained in the preceding chapter. This fund now (1911) amounts to $387,532. The reserve for Nylic contracts is the present value of certain agents' contracts and will be more fully explained in the chapter describing Agency Methods.

REPORTS TO OTHER STATES.

While the Convention of Insurance Commissioners adopted some years ago a standard form of report, the differing laws of various States make additional information necessary in some of them. Illinois, Massachusetts, New Jersey, Ohio and the District of Columbia require the report of new business and of insurance in force to be on the basis of "policies issued" instead of on the basis of “policies paid for". Massachusetts requires a record of individual policies and makes a seriatim valuation. Wisconsin requires (1) a schedule of each audit of the Company's affairs showing cost, (2) a schedule showing the bonds given by officers and employees, (3) a special gain and loss exhibit of non-participating policies, (4) a salary schedule showing all salaries of $3,000 or over, (5) a schedule showing in detail amounts paid as legislative expenses, (6) a schedule of lapsed policies on which loans have been made, (7) a loan schedule classified according to

interest rates, (8) a Wisconsin policy loan schedule, (9) a Wisconsin dividend schedule. The Company is also required to send to holders of deferred dividend policies in Wisconsin a statement showing their contingent interest in the deferred dividend fund. Idaho requires the table showing cash and loan values, paid-up and extended insurance of Ordinary Life policies to be extended to age 96. The following requirements are made by one or more States, and many of them are made by all:

A life insurance company must file a certified copy of its charter and, annually, a statement of its business and condition on the 31st day of December next preceding, in such form as the insurance official of the State may prescribe.

It must satisfy the insurance official of the State that it is lawfully organized and has complied with the laws of its Home State, and that it has on deposit with the financial officer of its Home State securities worth at least $100,000; in some cases additional deposits are required in the State where the company seeks to do business.

It must procure from the insurance official his certificate of compliance with the laws, and publish reports or abstracts thereof with the certificate, in the manner prescribed, and file evidence of such publication. Its annual statement must include data sufficient to enable State insurance officials to make a valuation of its policy liabilities, or it must furnish a certificate of such valuation from the insurance official of its own State.

It must appoint a resident of the State its attorney upon whom legal process may be served; in some States such attorney must be appointed in each county where the company does business; in some States each agent must be an attorney for service.

It must furnish lists of its agents within the State, who must, in many States, be residents thereof; such agents must file copies of their appointments and procure licenses, and their books must be open to the inspection of tax officers.

It must give bonds that it and its agents will comply with the laws and pay taxes as imposed, and reports must be made to tax officers of premiums received and schedules of policies in force.

It must allow an examination of its affairs to be made whenever deemed expedient by the insurance officials of the States where it does business, and pay the expense of such examinations.

It must make its investments, as prescribed by law, in certain securities, and of the value of these securities and of the real estate owned by the company, the insurance official is made the final judge.

It must file with the State official copies of all its policy forms; its policies must have attached thereto copies of all documents referred to therein and made a part thereof; they must be so fully described in large type on their face that the holder shall not be likely to mistake their nature or scope; they must be subject to the courts of the State wherein the Policy was issued; rebates of premium or other discrimination between insurants of the same class or expectation of life must not be made; and some States restrict their own companies, in the matter of reinsurance, to one-half the amount of the risk, except by consent of the insurance official.

It must require medical examinations, and the certificate of its medical examiner that an applicant was insurable according to the company's rules may bar the company from pleading that the insured was not in the state of health required by the company.

It must pay all claims and judgments within a specified time; it must allow a specified time for the beginning of an action; if it pleads misrepresentation, it must deposit the premiums received in court prior to the trial of the case; statements made in an application must be deemed true after the lapse of a specified time; statements of the applicant are to be considered as representations and not as warranties; misrepresentations are not to void a Policy unless the matter misrepresented shall actually contribute to the contingency or event on which the Policy is to become due and payable; suicide is not allowed to void a Policy unless it was contemplated when the insurance was taken and sometimes not at all; intemperate habits are not allowed to void a Policy if such habits were generally known where premiums were paid and the company continued to receive premiums on the Policy.

It must, unless its policies expressly contract otherwise, allow paid-up or term insurance in case of lapse after a specified number of annual premiums have been paid, and policies may not be lapsed for non-payment of premium unless notice of the due date thereof shall have been given within a time prescribed.

REPORTS TO FOREIGN GOVERNMENTS.

All the reports to foreign governments differ somewhat in detail from those furnished the States of the Union and some are required to be made with great fullness of detail according to the scope and plan of the particular countries. All are made in the money of the country, and some in American money also. Those which involve most labor are the Austrian, the British, the Canadian, the German, the Japanese, the Mexican and the Swiss. We give below a résumé of the German, which will serve as an example of the "permutations and combinations" to which the various details may be subjected:

The amount of income and disbursement is in a form known abroad as Profit and Loss Account, because everything is brought to a completed condition—a condition which shows the profit or the loss on the year's business. The amount brought forward from the previous year's report, after all adjustments had been made, is entered in the new report in some detail-as premium reserves, reserves for pending insurance claims, profit reserve of the insured and increase of same from surplus of previous year, other reserves set aside for various purposes and increase of same from surplus of previous year. The premium income includes all premiums belonging to the year, whether received during the year or not, premiums deferred from the previous year and premiums paid in advance being excluded. Income from securities is treated in the same manner, interest earned during the year being taken, no matter when received, and rents from real estate being net, after payment of taxes and expenses.

In disbursements, payments on claims of the preceding year are carefully distinguished from payments on claims incurred during the year, and the amount remaining unpaid in each class is carried into the total. The same method is