ground that they are intended to accomplish just what is accomplished, to wit, the entering into contracts by the insured, the true force and effect of which they do not understand."

The report of the insurance commissioner of Kentucky for 1870 says, "There is an almost endless variety of combinations and complications of conditions now being introduced into life insurance contracts, until even the actuaries in some cases seem to have become confused."

It is suggested that life insurance companies and the actuaries lend their influence to lessen the increasing confusion arising from the present great variety of policies, and use their learning to impart to the educated public correct and practical knowledge of the simple principles upon which true life insurance is founded.

Your committee are amazed to find that, in the short period since life insurance was introduced into the United States, "some companies in their prospectuses propose to issue as many as eight or nine hundred varieties of policies, each of which would require a distinct table of surrender values." We, therefore, respectfully ask of this convention to urge upon officers, actuaries, and agents of companies to go back to the first principles of real life insurance, and abandon at least eight hundred of the nine hundred varieties. When this has been done, something like a uniform designation of different kinds of policies may be determined upon and adopted.

Your committee, at the suggestion of members of the convention, desire to say a few words in reference to the very great and rapidly increasing number of policies that are yearly allowed to lapse. We have been requested to investigate this question, with a view to fixing upon the average rate at which life-policies lapse, and introduce this into the subject of net calculations. At present we have no sufficient data on which to base this kind of calculation, and feel no disposition to treat lapsed policies as properly pertaining to net values, even if we knew now just what proportion of policies will in the future be allowed to lapse in each company. We are however, disposed to treat this subject as one of great practical importance to companies and to policyholders; arising principally from the fact that, as at present conducted, there seems to be very great if not unnecessary expense incurred in getting a policyholder into a company. We therefore suggest that, in case of lapse, the company should make out an itemized account of all the indebtedness and dues of the policyholder to the company, deduct this from the net value of the policy at the time it lapsed, credit the balance to the policyholder, and settle

the account by either issuing a full paid policy for the amount this snm would then purchase, or returning the money, as may be agreed

upon.

We are clear in the opinion that policies are surrendered or allow ed to lapse, not because policyholders are at the time in good health, but very often from inability to pay the premium. Sometimes, no doubt, this occurs because the policyholder no longer needs to insure his life. But it is believed that much the larger portion of surrendered and lapsed policies arise from misapprehension on the part of policyholders at the time of taking out the policy in regard to its precise nature and effect. It is not harsh to say that this arises often from the fact that agents do not take the pains to explain, even when they themselves understand, the exact nature of the policy they sell.

The companies have not, as a rule, shown any over-anxiety to have other than favorable views presented to the policyholder at the time of signing the contract.

Full information, fair and candid dealing at the time the policy is issued is absolutely essential, if companies desire to diminish the number of policies surrendered and allowed to lapse.

This general principle is applicable to all kinds of business. Life insurance forms no exception to this rule, nor to the fact that success in business does not necessarily depend upon the amount of business done. Again, we advise and urge that the terms of the contract-the policy-be made explicit and fair. This, it is believed, will do more to make life insurance companies solid bodies than will ever be effected by the "cohesive force " it is proposed to apply to policyholders, by means of what is styled "a function of insurance value."

Knowledge of this subject of life insurance, full and explicit information, is what is needed. It will not hurt officers of companies, directors, trustees, or agents, and it is essential that some of the policyholders should understand this subject. What shall we say, in this connection, in reference to the makers of the laws regulating this important business, or to the state officers appointed to carry these laws into effect? We can say nothing in reply to this question, leaving those interested each for himself to make up his own answer.

We desire to call special attention to the following extract from the letter of Mr. F. S. Winston, (p. 137, published proceedings convention :)

"Correct mortality tables and a safe rate of interest as a basis for rates of insurance, ample reserves to cover all contingencies, and sound and reliable assets, always available, out of which to pay obliga

tions as they mature, are the corner-stones upon which life insurance rests. Lacking either, a company will sooner or later fail. The business of life insurance is now on trial before the American public, and its verdict will greatly depend upon the course marked out for it by your convention.”

SUMMARY.

We respectfully recommend that this convention approve the American experience table of mortality and four and a half per cent interest per annum as the data now proper to be designated by law in each of the states, as the basis for calculating net premiums and net values of life insurance policies. That the valuation of policies be made seriatim. And that, on the 31st day of December in each year, every company be required to show that it has on hand, to the credit of each of its policies then in force, an amount of bonafile assets equal to the net value of each policy on that day, computed upon the table of mortality and rate of interest designated above. This excludes from the accounts "policies not taken," "unpaid premiums," and "deferred premiums."

We report that a surrender charge does not pertain to net valuations, but belongs to what has been called the "commercial aspects" of life insurance or the ordinary business matters of expenses, profit, etc., which do not enter into calculations of net values; and that surrender charge is a proper subject for specific agreement, to be expressed in the terms of the contract made between companies and policyholders. So far as net calculations can go, the surrender value at any time is the net value of the policy at the time.

Instead of attempting to introduce uniformity in the designations of the present great variety of policies, we urgently advise the companies and the policyholders to greatly reduce the present number of different kinds of policies.

We recommend the acceptance by each state department of the valuations made by any other state department, (in which the companies were incorporated,) when properly performed on sound and recognized principles and legal basis as above; and that the "list of policies and securities" required in detail in the annual statements, be made to one state department only, (to the state under whose laws the company was organized, and which has at the time a regularly organized insurance department ;) provided the company shall furnish to the departments of other states a certificate of the commissioner or superintendent of such state department, setting forth the existing

value of all its outstanding policies on the data designated above; and that every company that fails promptly to furnish the certificate aforesaid, shall be required to make full detailed lists of policies and securities to the insurance department of every state in which it may have been transacting business during the year for which the state ment is made; and shall be liable in each state for all charges and expenses consequent upon not having furnished the certificate of valuation referred to.

We recommend that the power be reserved to the principal insurance officer of each state to examine, or cause to be examined, every detail of the business of any company transacting business of insurance within that state, whenever, in his judgment, such examination is required by the interests of the policyholders of such company.

Your committee desire that it be understood we do not ask that this convention shall recommend that the legislatures of the respective states pass any laws abrogating the terms of existing legal contracts for insurance. We have had in view the proper future control of this business, so far as it was referred to us by this convention.

The following letter was received by the committee from Mr. E. A. Rollins, President of the National Life Insurance Company of the United States, yesterday:

GENERAL G. W. SMITH:
Dear Sir- ***
-

"PHILADELPHIA, Oct. 16, 1871.

We have a capital of one million dollars. It is impaired on a 4 and 41⁄2 per cent basis. If we should put up another million it would still be impaired, and another million would not help it it would still be impaired, and this works serious disadvantages and should be obviated. If we have money necessary to respond to liability, that is enough. It matters not to the policyholder or the public - whom the departments represent, whether we get it from premiums or from stockholders. We have two dollars for every one of liability, and yet we show impairment, for two reasons: first, because of the 41⁄2 per cent valuation; and, second, because our capital is called a liability. The former you are carefully considering. The latter is too ridiculous for us to ask you to consider, but serious enough in its effects to constrain us to ask you to make recommendation of such character that we shall not be troubled with it hereafter."

In their report, this committee endeavored to express clearly the manner in which the legal net values of life insurance policies should be calculated; that, after all other existing liabilities are provided for, the amount called for by these net values should be on hand, in deposit with the company, and held in bona fide securities bearing net interest. In the opinion of this committee, it is immaterial who furnishes the money. The requisite legal deposit (or "reserve") must be on hand to the credit of each policy. In allusion to Mr. Rollins' letter, we will add that the less the state has to say or do in reference to "impairment of capital" in life insurance companies, the better for policyholders and companies, because this distracts attention from the "great sheet-anchor of life insurance"- the amount that must be held in deposit, in order to insure "payment to the widow and orphan," even at a distance almost beyond the horizon. Capital of a million dollars will not, in a large company, begin to furnish adequate security. The state looks to the deposit, and not to the capital stock, as the sheet-anchor of safety in life insurance companies.

Mr. SMITH: Before closing I would say that this committee signed a circular letter in September, and intrusted it to the secretary to be sent to