FII‘MIVVIHI. JlnllelL-IVIJ VI I." n- u ‘lev u ‘v— v-..“ - -- --.._-

Thesis for the Degree o¥ Ph. D.
MlCHIGAN STATE UNNERSiTY

ROBERT HUGH RAYMOND
I 964

E

 

This is to certify that the

thesis entitled

-- . -.

“4.r—. —3 C".- w' ‘ --' -. -rr '
tun. 11.0.31 cititdt'..arg ts u” .9 Ir23‘..1'.1:x3-3 C‘J'Vilfl’iles

presented by

Q ‘..-_ i. “ I —. _ _‘
11» gm -;. 1.1.T‘Za:n(1

I;

has been accepted towards fulfillment
of the requirements for

T."

‘ ,, D. degree in Accounting 8 Finance

/7Z9v\/4;27' E . #464;-

Major professor

 

. , ./" N M 5
Date / 00W 5/ //é/

 

0-169

 
   
    

  

LIBRA R Y
Michigan State

University

 

 
 
 

ABSTRACT
FINANCIAL STATEMENTS OF LIFE INSURANCE COMPANIES

by Robert Hugh Raymond

The financial statements of life insurance companies are designed to
help state officials protect policyholders. Use of these special-purpose
statements as the only financial data in annual reports to stockholders is
being severely criticized. Before stockholder-oriented statements can be
developed, a clear understanding must be reached concerning the precise

differences between the financial statements of commercial and industrial
firms and the special-purpose statements of life insurance companies, as
well as the reasons for these differences. This thesis contributes to such
understanding by (1) tracing the historical development of the underlying
frameworks of these two systems of financial reporting and (2) adjusting
the statements of sample companies to conform as nearly as possible to the
generally accepted accounting principles which are applied in the prepara-
tion of traditional financial statements. No changes are considered in the
uniform regulatory report known as the Convention Blank.

Several contrasts were uncovered by the application of these two
research techniques:

1. The financial statements of life insurance companies are
policyholder-oriented rather than stockholder-oriented.

2. The basic methodology in the preparation of life insurance company
financial statements is valuation of liabilities and assets rather than

allocation of costs and expenses against realized revenue.

Robert Hugh Raymond

3. Commercial and industrial financial statements assume a going
concern and are built upon a framework of double entry bookkeeping summarized
into financial statements emphasizing accountability by management. The
earnings statement is more important than the balance sheet.

The financial statements of life insurance companies are built around
a balance sheet which is not founded on double entry and the going concern
assumption. It is, instead, an elaborate formula for the computation of
legal surplus. The state insurance authorities use this surplus as a first-
line indicator of solvency. This solvency is, however, forward looking.

4. Balance sheet conservatism is emphasized in life insurance reports,
apparently on the theory that if a surplus is shown under the restrictions
imposed, state officials may justifiably assume that the company has sufficient
resources to carry out the provisions of every policy in force. In accounting
for unregulated businesses, conservatism is balanced with other principles and
requires consideration of its effect on future earnings as well as the
immediate balance sheet.

The adjustments applied to the Convention Blank statements of the
sample companies have a material effect on the reported earnings of some of
the companies and a mild effect on others. Important factors include age
of the company, rate of growth, reserve valuation methods employed, invest-
ment practices, and types of insurance sold. Greatest impact of the
adjustments occurred in firms which were undergoing change. Lack of major
impact on the earnings of well-established, stable companies must not be
allowed to divert attention from the need for stockholder-oriented statements

in other firms.

Robert Hugh Raymond

The detailed schedules of the Convention Blank contained sufficient
information for most of the adjustments. With the exception of factors
relating to direct acquisition costs of life insurance policies, the only
important assumptions which were necessary involve information which should
be readily available to the companies in practice. Before the reporting of
direct acquisition costs can be brought into conformance with generally
accepted accounting principles, certain additional information must be
compiled by the companies. Automatic data processing equipment might now
make this practical.

Before the adjustments could be made, a model set of financial state-
ments which conform with generally accepted accounting principles had to be
designed. It is believed that if technical details can be solved at the
company level, simplified versions of these model statements could be
included in.reports to stockholders accompanied by a complete and unqualified

opinion cf the certified public accountant.

Copyright by

ROBERT HUGH RAYMOND
1965

FINANCIAL STATEMENTS OF LIFE INSURANCE COMPANIES

by

Robert Hugh Raymond

A THESIS

Submitted to
Michigan State University
in partial fulfillment of the requirements
for the degree of

DOCTOR OF PHILOSOPHY

Department of Accounting and Financial Administration

1964

ACKNOWLEDGMENTS

The assistance and cooperation of many persons helped make the
preparation of this thesis a stimulating and rewarding experience. Deep
.appreciation is extended to Professors Herbert E. Miller, Milton B.
IDickerson and Thomas L. Wenck for their sound advice, guidance and assis-
tance. Dr. Miller suggested the topic and, as chairman, was a constant
source of inspiration and encouragement.

Many other persons should be mentioned, but space does not permit
identification of each personally. The officials and employees of the
Nebraska Department of Insurance deserve a special word of thanks. Every
controller, actuary and accountant who read the portion of the original
draft applicable to his company or client willingly gave of his time and
knowledge to discuss troublesome areas and offer constructive criticism.
Fellow faculty members at the University of Nebraska were always willing
to discuss concepts. The typing of Mrs. Helen Faust Speaks for itself.

A special word of appreciation goes to my wife, Agnes, and to Gary,

Karen and Linda for their contributions.

ii

TABLE OF CONTENTS

‘LOCATION OF DISCUSSION OF ADJUSTMENTS .

LIST OF TABLES

Chapter
I INTRODUCTION

II COMPARISON OF THE HISTORICAL DEVELOPMENT OF GENERALLY
ACCEPTED ACCOUNTING PRINCIPLES AND THE LIFE INSURANCE
CONVENTION BLANK

The Development of Statements Which Conform.With
Generally Accepted Accounting Principles

The framework

Building on to the framework

Development of generally accepted accounting
principles

Development of the Life Insurance Convention Blank

Structure of the present blank

The questionnaire period

The first financial statement forms

The static period under the Convention Blank
The 1951 revision of the Convention Blank

III TYPES OF ADJUSTMENTS NECESSARY IN ORDER TO EXTEND THE
FINANCIAL STATEMENTS OF LIFE INSURANCE COMPANIES TO
CONFORM WITH GENERALLY ACCEPTED ACCOUNTING PRINCIPLES

Revised Financial Statements

Generally accepted accounting principles
Primary objectives of the financial statements

Adjustments Applicable to Many Companies

Group I adjustments
Group II adjustments
Group III adjustments
Group IV adjustments
Group V adjustments

iii

12

14
19

25

38

38
43
45
54
59

66

66
69

71

71
81
91
92
110

Chapter*

IV'

THE COMPANIES ANALYZED IN DETAIL
Company A .

History

Adjustments peculiar to Company A

The financial statements

Exhibit I: Comparative earnings statement
Exhibit II: Reconciliation

Exhibit III: Balance sheet

Company B .

History

The financial statements

Exhibit I: Comparative earnings statement
Exhibit II: Reconciliation

Schedule II(A): Detailed schedule of adjustments
Exhibit III: Balance sheet

Company C .

History

Special study

Adjustments not previously discussed

The financial statements

Some interesting side issues

Exhibit I: Comparative earnings statement
Exhibit II: Reconciliation

Schedule II(A): Detailed schedule of adjustments
Exhibit III: Balance sheet

Company D .

History

Adjustments not previously discussed

The financial statements

Surplus notes

Exhibit I: Comparative earnings statement
Exhibit II: Reconciliation

Schedule II(A): Detailed schedule of adjustments
Exhibit III: Balance sheet

Schedule III(A): Working capital

Company E .

History
Adjustments not previously discussed
The financial statements
Exhibit 1: Comparative earnings statement
Exhibit II: Reconciliation
Schedule II(A): Detailed schedule of adjustments
Exhibit III: Balance sheet
iv

Page
115

117

117
118
118
131
132
133

134

134
134
143
144
145
146

147

147
148
149
153
154
156
157
158
159

160

160
161
166
167
174
176
178
180
181

182

182
183
187
191
192
193
194

Chapter'
Company F .

History

Adjustments not previously discussed

The financial statements

Exhibit I: Comparative earnings statement
Exhibit 11: Reconciliation ‘

Schedule II(A): Detailed schedule of adjustments
Exhibit III: Balance sheet

Summary . . .

‘V liAEFERIALITY OF THE ADJUSTMENTS FOR A WIDE RANGE OF
(BCNHPANIES . . . . . . .

The Remaining Nebraska Stock Companies

Company G
Company
Company
Company
Company
Company

r‘7:Lah¢u:

Ten Foreign Companies

Company
Company
Company
Company
Company
Company
Company
Company
Company
Company

<Ca‘t-JCOWD'TJOZZ

Summary . . .
VI CONCLUSIONS . .
Basic Frameworks . . . . .
Feasibility of Making the Adjustments in Practice .
Mbteriality and Significance of the Adjustments .

The Revised and Extended Financial Statements

Summary . . . . . . .

203

204

206

207

208
212
215
218
221
224

232
234
239
242
248
252
256
262
266
270
273
277
280
281
283
286
292

296

T‘

BIBLIOGRAPHY OF WORKS CITED AND MAJOR SOURCES CONSULTED . . 298

APPENDIX I: TABLE 7--UNDERWRITING AND OTHER STATISTICS ON THE

FOREIGN COMPANIES ANALYZED . 311
APPENDIX II: WORKSHEET USED TO EXTEND CONVENTION BLANK

STATEMENTS TO CONFORM WITH "GENERALLY ACCEPTED ACCOUNTING

PRINCIPLES"--LIFE INSURANCE COMPANY F, 1962 . . . . 312
APPENDIX III: SELECTED PAGES FROM 1962 CONVENTION BLANK FORM . 317

vi

LOCATION OF DISCUSSION OF ADJUSTMENTS
First Encountered
Or Discussed In

Number Title 91 Adjustment Chapter Company Page

Group IuPlace non-admitted assets % the statements:

 

 

 

 

 

 

1 Supplies, stationery and printed matter III 74
2 Advances to agents or officers III 74
3 Loans considered inadmissible III 75
4 Agents' debit balances III 75
5 Premium notes, etc. in excess of net value
and other policy liabilities on individual
policies III 79
6 Insurance premiums paid in advance III 79
7 Bills receivable III 80
8 Foreign exchange III 81
9 Returned checks and remittances IV C 149
10 Miscellaneous IV C 149
11 College Plan notes IV D 161
12 Deposit in industrial bank IV D 161
13 Receivables from other companies IV D 162
lit Premiums in course of collection IV F 196
15 Mortgage loans V L 231
16 Underremittances V N 239
17' Stocks of doubtful value V S 262
18 .Accrued interest receivable V U 270
:19 .Accident and health insurance premiums over
three months past due V V 273
Group II-—Reverse adjustment _f securities _t_q N.A.I.C.
value-S’,’ Que returning them t__ amortized cost:
20 Bonds III 85
21 Stocks III 87
22 Mortgage loans III 91
23 Unrealized profit in mortgage loans V R 258
23a Investment real estate V T 269
24 Stock in subsidiary corporation IV C 150
25 change in capital gains as a result of
other adjustments in this group III 91
Grou III__.Provide for possible losses 93 certain assets:
30 Agents' debit balances III 92
31 Non—admitted current assets IV D 162
32 Provision for loss on certain stocks IV D 162
33 Uncollectible receivables V T 266
34 Accident and health insurance premiums over
three months past due V U 273

vii

Number Title _q_f_ Adjustment

Group lib-Defer a_ portion 93 acgisition costs _t_9_
future periods:

 

 

 

40 First-year life insurance commissions .
41 Accident and health insurance commissions
42 Accident and health insurance direct
acquisition costs
43 Single premium life insurance commissions
Group lnPlace non-admitted fixed assets 93 the
statements and carry all fixed assets fi amortized cost:
50 Record furniture and equipment
50a Record electronic data processing equipment
(when necessary to distinguish from furniture
and equipment)
51 Record depreciation of furniture and equipment
51b Record depreciation of electronic data
processing equipment (when included in 50a)
52 Reverse entry for change in net book value of
furniture and equipment
523 Reverse entry for change in net book value of
electronic data processing equipment (when
necessary to distinguish from furniture and
equipment)
52b Reverse entry for change in net book value of
special home office equipment
53 ‘ Reverse write-up of value of land and buildings
54 Reverse placing of value of furniture and
equipment on the books by the company
55 Record depreciation of home office building
55 Reverse company's write-down in lieu of
depreciation
56a Reverse company's write-down in excess of

depreciation in Exhibit 2 of Convention Blank

57
adjustments in this group

58 Record cost of credit insurance agencies as
an asset

59 Record amortization of cost of credit
insurance agencies

59a Capitalize permanent additions to buildings

59b Record depreciation of permanent additions to

bui 1dings

viii

change in capital gains as a result of previous

III
III

III
IV

III

III

III

IV

IV
IV

IV

IV

IV

IV

 

First Encountered
Or Discussed In
Chapter Company Page

104
10 7

109
135

112

255

112

255

113

258

258
150

151
162

162

243

163

166

166
238

238

Number

Group Elf-Transfer certain losses and expenses pp_the
proper year and correct minor errors ip the

Title p£_Adjustment

Convention Blank:

60
61
62
63
64

65

66

Retroactive income tax on 1958 income

Error in listing amortized value of bond
Elimdnate excessive accrual of income taxes
Past services portion of pension plan
Reverse accruals which are really

appropriations of surplus

Reverse charge to expense for group disaster

contingency reserve

Transfer treasury stock to a negative capital

account

ix

First Encountered

Or Discussed In

Chgpter Company Page

IV
IV
IV
IV

IV

IV

00656:!

[:1

144
144
151
152
183
186

255

 

Table

LIST OF TABLES

Selected Lines from Exhibit 13 of the 1962 Convention
Blank of Company F .

Selected Lines from Exhibit 5 of the 1962 Convention
Blank of Company F . . . . . . .

Format of Statement Included in 1850 Report of Mutual
Life Insurance Company to Comptroller of the State of
New York . . . . . . . . .

Percentages of Selected Assets to Total Assets in Five
Companies Reporting to New York Superintendent of
Insurance in 1870 . .

Comparison of Selected Totals for the Firms Subjected to
the Abbreviated Analysis

Comparison of the Increase (Decrease) in Net Income
Computed in Conformance With Generally Accepted
Accounting Principles Over the Net Gain from Operations
per the Convention Blank ‘

Underwriting and Other Statistics on The Foreign
Companies Analyzed .

Page

40

41

45

53

278

288

311

CHAPTER _1_
INTRODUCTION

Financial statements are included in the annual reports to stockholders
because they provide a concise summary of the financial activities of the
firm. The form and content of these statements are dependent in part upon
the underlying assumptions regarding the business and the purposes the state-
ments are intended to serve. The financial statements of regulated financial
institutions do not rest upon the same assumptions as those accepted for
commercial and industrial firms. Regulatory statements are designed to
provide the data which government officials require in order to carry out
their statutory duties. The goal is to provide information which will be
studied by and presumably useful to experts in the regulatory agency.

A difficult situation arises when special purpose statements pre-
scribed for regulatory purposes are included in annual reports to stock-
holders or are otherwise presented to the general public. This was not a
matter of serious concern before 1930 because the financial information in
reports to stockholders prior to that time was scanty. Since then, the
quality and quantity of financial information in annual reports of commercial
and industrial firms have been greatly improved, and the typical stockholder
has acquired reasonable skill in reading and understanding ordinary financial
statements. However, casual observation indicates that he often intuitively
assumes that all statements can be read in the same manner. If the state-

ments for a particular industry are special-purpose regulatory reports

2
based on different assumptions and constructed on a different framework
than the rest of the statements the stockholder receives, misinterpretation
is apt to occur. This is especially likely if the special-purpose state-

:nents look like traditional statements.

Nature pf the problem studied

The financial statements included in the reports to stockholders of
life insurance companies are especially subject to misinterpretation because
the state insurance departments insist that these statements agree with the
special-purpose statements included in the Convention Blank, as the uniform
report filed with the state insurance departments is called. These state-
ments are not based on the going concern assumption. They are built around
a legal framework rather than double entry accounting. Unfortunately,
since 1951 they have been made to look almost like the statements of
commercial and industrial firms but are, in fact, quite different.

Several groups1 have recently criticized these statements. Few of

them, however, seem to have a clear understanding of the reasons for the

 

1Financial analysts are so concerned about acquisition costs and
other items charged directly to expense by life insurance companies that
they make their own rule of thumb adjustments to book values and earnings
for the "value of insurance in force." For other criticisms by this group,
see "Sub-committee Report on Life Insurance Company Annual Reports,"
special advance mailing to the membership by Financial Analysts Federation,

December, 1963.

The Securities and Exchange Commission issued a proposed Article 7-A
to Regulation S-X on August 20, 1962, requiring changes in the financial
statements portion of life insurance company registrations under the
Securities Act of 1933. So many protests and suggestions were filed that
no further action has been taken. The Securities and Exchange Commission
has asked Congress for extended authority over annual reports and other

3
differences between the statements of commercial and industrial firms
‘which follow generally accepted accounting principles and the statements
of life insurance companies, or to have pin-pointed precisely what those

differences are.

 

aspects of stockholder interest in life insurance companies and devoted
pages 77-82 of its 1963 gpecial §tudy pp Securities Markets to life
insurance companies.

The American Institute of Certified Public Accountants is deeply
concerned about the type of certificate a CPA may give an insurance company.
‘Life insurance companies were included in the provisions of Paragraph 38 of
Statement pp_§gditing Procedure 2; in the fall of 1962 (now included in
Chapter 10 of Statement pp_Auditing Procedure 2;: Auditing_§tandards 222
Procedures, issued in December, 1963). That statement requires a disclaimer
or qualification of opinion which calls the attention of the reader to
departures from generally accepted accounting principles. Life insurance
officials contend that they were not given sufficient opportunity to discuss
their problems with the accounting profession prior to issuance of that
statement. and joint meetings are now being held. See Richard C. Lytle,
"Audit Reports on Insurance Companies," Journal p£.Accountancy, V. 117,

No. 1 (January, 1964) 75, for a recommended interim wording of the certifi-
cate containing a brief summary of primary differences between life insurance
statements and the requirements of generally accepted principles.

The 1959 Revenue Act brought the entire operations of life insurance
companies into the computation of Federal income taxes for the first time.
Tax specialists agree that an understanding of the differences between
insurance accounting and generally accepted accounting on the part of revenue
agents and the insurance company representatives who work with them is sorely
needed.

The market prices of life insurance company stocks have risen many
times faster than the prices of most other stocks in recent years. Although
both Standard and Poor's 500 Stock Index and Best's Life Insurance Index are
designed to measure price movement of actively traded stocks and both use
1941-1943 prices as a base of 10, Best's Life Insurance Index was 441.4 on
Mhy 31. 1964. compared to 85.4 for Standard and Poor's 500 Stocks. It may
be that one of the reasons for this rise is that investors either ignore
the financial statements of life insurance companies because they do not
contain the information included in the reports of other companies, or else
grossly exaggerate the effect of the conservatism which is built into life
insurance company statements.

Many critics of life insurance company financial statements call
attention to the fact that the life insurance industry is now the largest
industry in the United States in terms of total assets. There has been a
vast increase in the number of stock life insurance companies during the
past ten years. At least a few of these companies have been promotional
in nature in the sense that the organizers have made a quick profit at the
expense of someone else. The Convention Blank statements do not contain
all of the information needed to identify these firms.

 

4
This study attempts to identify those differences and the reasons
for them. It also attempts to find the principal problems that life insur-
ance companies would face if they attempted to extend and revise the
Convention Blank statements so as to conform with the generally accepted
accounting principles followed by other firms and makes a limited test of

the materiality of such revisions.

Method o_f_ approach

The differences between insurance company financial statements and
the statements of commercial and industrial firms which follow generally
accepted accounting principles stem from the assumptions and frameworks
upon which each set is built. This study accordingly takes two steps
designed to provide a better understanding of these underlying concepts.

First, a brief comparison is made of the contrasts in the historical
development of the basic structures of both systems of reporting and the
basic philosophies underlying them. This review comprises Chapter II.
Every effort is made to cut through the detail which is common to each
system so as to concentrate on the fundamental underlying structures.

The second step is an attempt to adjust the statements of twenty-two
life insurance companies to conform with generally accepted accounting
principles. Plunging directly into the Convention Blank in this way and
actually trying to make the conversions is the most effective way of
identifying the precise differences. It is similar to the laboratory
approach of the natural sciences.

The adjustment process is handled in two phases. In the first,

six Nebraska domestic companies are analyzed in detail for ten or more

5

years each.1 A regular accounting worksheet is prepared for each company
for each year. These worksheets are then used to prepare the extended and
revised financial statements which are presented in Chapter IV.

The detailed analysis of these six companies covered a total of
sixty-six years, so sixty-six individual sets of detailed worksheets were
prepared. As the worksheets were extended, each account was scrutinized
for conformance with generally accepted accounting principles and, subject
to the limitations stipulated later in this chapter, appropriate adjustments
were devised in each instance where the Convention Blank figure did not
conform with these principles. These worksheets verify the techniques used
in computing the adjustments and insure that no major items are overlooked.

The worksheet of Company F for 1962 is reproduced as Appendix II so that
the exact procedure can be seen.

No new types of adjustments were uncovered in the analysis of the
sixth company even though it is the largest of the six. Further detailed
analysis would probably uncover little more than additional examples of
the basic differences.

The analysis of six firms is not enough, however, to establish the
materiality of the adjustments required. This materiality is tested by
2

applying an abbreviated analysis to the remaining Nebraska stock companies

and to ten large national stock companies. Worksheets are not prepared.

 

UWith the exception of Company A which was organized in 1954.
Company D was organized in 1946 so it is analyzed for all seventeen years
of its existence through 1962. The other four companies are analyzed for

ten years.

2Excluding those which are so inactive or so new as to provide no
base for significant study.

6

Instead, the adjustments which were worked out in the detailed analyses

are applied directly to the Convention Blank figures, using a reconciliation
schedule for control. This reconciliation, which shows the Convention Blank
earnings and the revised earnings, is presented for each company subjected
to the abbreviated analysis in Chapter V. A schedule of the individual

adjustments is also included.

Nature 2; the adjustments required

Some indication of the severity of the problem faced by life insurance
companies in preparing acceptable reports to stockholders can be grasped
by examining briefly the nature of the adjustments which are required in
order to make their statements conform with generally accepted accounting
principles. These adjustments are divided into six broad groups for ana-
1ytica1 purposes. These groups, and each of the individual adjustments
within each, are tabulated in the "Location of Discussion of Adjustments"
following the table of contents. Reference to that tabulatiOn will indicate
the specific items involved. Each group is discussed, and illustrated with
an explanation of those individual adjustments which pertain to several
companies, in Chapter III. The remaining adjustments are discussed in
Chapters IV and V in connection with the analysis of the companies to which
they pertain.

The Group I adjustments are the easiest to make because the information
for them is tabulated in the detailed schedules in the Convention Blank.
They are also the most revealing of the nature of insurance accounting. As
will be established in Chapter II, the balance sheet in the Convention
Blank is really just an elaborate formula for the computation of legal

surplus. Only those assets which are qualified as legal investments of

policyholder reserves may be included. All other assets must be excluded.
In general, the assets which qualify are those which are readily salable
if needed to meet policyholder claims. Such things as balances owed to
the company by agents do not qualify, so must be classed as "non-admitted"
and excluded from the Convention Blank balance sheet. Interestingly,
agents' credit balances must be separated from the debit balances. These
credit balances are left in the liabilities even though the debit balances
are eliminated from assets. This is indicative of a philosophy of conserva-
tism which runs throughout the Convention Blank--inc1ude every possible
liability but exclude all assets except those which are clearly salable at
or above the value at which they are included. The Group V adjustments
are similar to Group I, but deal with fixed assets. These two groups of
adjustments restore the non-admitted assets to the balance sheet.
Corporation stocks and certain other investments are carried at market
J value in the Convention Blank. These assets are returned to cost, or cost
adjusted for amortization of premium or discount, in the Group II adjustments.
The Group III adjustments are used to demonstrate the accepted account-
ing technique for providing for losses which experience has shown exist but
which cannot be specifically identified at the time the statements are
prepared. For example, some of the agents' debit balances will undoubtedly
not be collected. Ten per cent of these balances are arbitrarily set up
as a provision for loss.
The most difficult group of adjustments is Group IV. Revenue is
received from insurance policies over a period of many years, commonly a
person's lifetime. Mbst of the expenses in connection with a policy are

incurred during the first year. Commercial accountants would strive for a

 

 

 

\.
\

8

realistic matching of revenue and costs by charging the direct acquisition
costs of a policy to an asset account and amortizing that cost against
revenue when realized. Insurance companies take a different approach.
They have developed several "modified preliminary term" plans for the
computation of the liability for policyholder reserves which permit a
smaller than normal reserve to be established at the end of the first
policy year and then gradually bring the reserve up to the normal amount
over a period of years. The same surplus is obtained as would result from
establishment of an asset for the same amount as the reduction of the
reserve, so the needs of the regulatory authorities are served.

Under generally accepted accounting principles, it is not permissible

1 by understating a liability. An

to compensate for omission of an asset
attempt is therefore made to adjust the statements so as to capitalize the
acquisition costs and amortize them. In the case of life insurance policies,
the specific adjustment is completely arbitrary, consisting merely of
capitalizing first-year commissions and amortizing them over the five-year
select mortality period, but effectively demonstrates differences between

insurance concepts and generally accepted accounting principles, and

provides a sufficient test of the significance of the adjustment.

Limitations
Several limitations were placed on the research for this study, but
only the most important are mentioned here. Others are discussed in

detail at the point where they have a bearing on analysis.

 

1It is important to note that the concept of an asset might be quite
different in insurance accounting than it is in ordinary accounting, so
insurance officials might not believe that an asset is omitted.

9

A fundamental point which must be clearly understood is that it is
assumed that the Convention Blank provides the state insurance departments
with precisely the information they need set forth in the format which is
easiest for them to use. No changes of any kind are considered regarding
the form or content of the Convention Blank. The objective of this study
is to understand why and how the regulatory statements differ from the
statements of commercial and industrial firms and to test the significance
of these differences from the point of view of stockholders and other public
users of published statements.

The companies analyzed are all stock companies with one exception.
Company E is a mutual company. It is included in order to demonstrate that
rnutuals could adopt the recommendations made in this study without diffi-
culty should they find them useful.

Before the Convention Blank statements could be adjusted to conform
with accepted accounting principles, new financial statements had to be
designed. These statements went through several extensive revisions but
even as finally adopted are in no way presented as the best statements
‘which could be adopted by the industry. They are research tools only, and
admittedly are both technically imperfect and possibly too complicated for
adoption in present form.

All of the financial statements and information for the adjustments
were obtained from the Convention Blanks and the examiners' reports on
file in the Nebraska State Insurance Department. The adjustments are,
therefore, limited to the data available in those reports plus a few

arbitrary estimates which are believed reasonable and which could probably

‘0. mm:

-.- o“
v . .
a...

 

a...

I .

 

 

10
be accurately determined by the companies. The Nebraska Insurance Department
retains the Convention Blanks of foreign companies for only five years, so
the analysis of the ten national companies is confined to the years 1958
through 1962.

Since some of the adjustments are based on arbitrary assumptions, the
revised financial statements are not as precise in detail as would be
possible in practice. This is not a matter of serious concern because the
purpose of this part of the study is to test the feasibility of making
revised statements and to determine what specific problems must be solved
before meaningful revised and extended statements could be prepared in
practice. The assumptions are realistic enough to permit a fair test of
the materiality and significance of these extended statements as compared
to the statements in the Convention Blank.

Even though the revised and extended statements are labeled "in
conformance with generally accepted accounting principles," it must be
understood that certain principles could not be fully applied because of
the limitations on the sources of data. Minor omissions of desirable
adjustments are mentioned from time to time in the discussion of the
company analyses, but two are so important as to require underscoring at
this point. One is that the adjustment for first-year life insurance
commissions is not only arbitrary, but is the same for all companies regard-
less of the reserve valuation plan followed. A proper adjustment would
have to take cognizance of the method of reserve valuation used. Only that
portion of direct acquisition costs not recovered through use of one of the
modified preliminary term reserve valuation methods should be capitalized.

The importance of the reserve valuation method is clearly demonstrated in

11

the study of those Nebraska companies which have been organized only a
short time. These companies are discussed in the first portion of Chapter V.

The other major area which is not brought up to the minimum require-
ments of generally accepted accounting principles concerns Federal income
taxes. Half of the underwriting profits of life insurance companies are
not taxed until distributed to stockholders or until certain maximums are
reached. The amount of earnings so deferred must be credited to a special

1 account for tax purposes. The Convention

Phase III "policyholder surplus,"
Blank does not even ask the company to state the amount of profit deferred
from taxation in this account. Without access to the tax returns, it is,
therefore, impossible to estimate the amount of tax which may eventually
be payable on this income. Furthermore, it is impossible to test whether
this tax could be computed accurately enough under the three phase method
required of life insurance companies to make formal recognition in the
accounts practical, or if footnote disclosure is the best that can be
achieved.

Without access to the tax returns, it is similarly impossible to
estimate the amount of tax which will eventually be paid (or be reduced,
as the case may be) on the change in income which results from the adjust-
ments given effect in preparing the revised and extended financial statements.

These statements cannot truly be said to conform with generally accepted

accounting principles until all of these tax factors are adequately disclosed.

 

1"Policyholder surplus" is used in a specialized sense in the Internal
Revenue Code to refer to this income which is deferred from taxation. This
is not the same as the meaning ascribed to the term in state insurance
statutes .

so.

 

.u‘

CHAPTER 11

W 91‘. THE. TORICAL DEVELOPMENT
on CENEMLLY ACCEPTED ACCOUNTING PRINCIPLES AND

THE LIFE INSURANCE CONVENTION BLANK

Life insurance company financial statements are special purpose reports.
They are based upon different postulates, are built upon a different frame-
work, and are designed to serve different purposes than statements prepared
in accordance with "generally accepted accounting principles." The state-
ments of life insurance companies are not based upon the going concern
postulate. They are built around a legal framework designed to provide the
data which the state insurance departments have asked for to help them fulfil
their statutory obligations to the policyholder and the public. Consequently,
financial statements of life insurance companies are policyholder oriented
rather than stockholder oriented, and are more concerned with valuation than
with allocation.

Both general commercial financial statements and the special reports
used by life insurance companies have developed gradually in response to the
needs of the users of the statements. A sound starting point in obtaining
an understanding of the differences between the two types of statements and
the reasons for these differences is to examine the process by which each
has developed. This chapter attempts to do this, but is intentionally
limited to the most important factors in the development of the basic

framework underlying the two systems of financial reports. The important

12

 

l3
differences between the reports stem from fundamental differences in these
basic frameworks so it is desirable to focus attention on them.

"Generally accepted accounting principles” involve a concept which
must be understood rather than defined. A sizeable portion of the discussion
of traditional accounting in this chapter is accordingly devoted to the
development of this concept and its meaning. Particular emphasis is placed
on the research programs of the professional accounting organizations in an
effort to indicate why no attempt is made to list specific generally accepted
principles in this study.

Mbst of the material in this chapter is based on secondary sources.

The purpose of the chapter is to contrast the known factors in the develop-
ment of the two systems of financial reports rather than to ferret out
.previously undiscovered items. Much of the general material on the develop-
ment of statements based on generally accepted accounting principles which
is not footnoted to other sources is summarized from the several works by

A. C. Littleton1 and from Reed K. Storey's study,2 which was published after
most of the research for this dissertation was completed but which brings
much of the recent material together in a form which permits easy contrast

with the development of insurance reports. Similarly, part of the material

 

1The following were used extensively: Aggounting Eyplution pp 1900
(New York: American Institute Publishing Co., Inc., 1933); Studies 13.332
Histopy‘p£_Accounting, joint ed. with B. S. Yamey (Homewood, Illinois:
Richard D. Irwin, Inc., 1956); Essays pp_Accountancy (Urbana, Illinois:
University of Illinois Press, 1961); and Accounting Theory: Continuity 22g,
Change, with V. K. Zimmerman (Englewood Cliffs, New Jersey: Prentice Hall,
Inc., 1962)

2:23 Search fpp_Accounting Principles: Todayjs Problems lp Perspective
(New York: American Institute of Certified Public Accountants, Inc., 1964).
A condensed version appears in the Journal pfbAccountancy, V. 117, No. 6
(June, 1964) p. 47-55 under the title "Accounting Principles: AAA and AICP ."

 

14
on the development of life insurance company statements prior to the 1951
revision of the Convention Blank is summarized from an unpublished disserta-
tion by Sterling Surrey at the University of Pennsylvania in 1950, entitled
323 Development pg Egg Convention Form‘pg Life Insurance Statement, and from

the proceedings of the National Association of Insurance Commissioners.

THE DEVELOPMENT OF STATEMENTS WHICH CONFORM WITH
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES

Accounting as we know it today has developed through three stages:
(1) record keeping, (2) bookkeeping, and (3) accounting.1 The origin of
double entry is obscure, but it ushered in the bookkeeping stage. The book-
keeping stage gradually gave way to the accounting stage as the double entry
‘bookkeeping which was develOped by the Italian merchants of the thirteenth
and fourteenth centuries was blended with the stewardship reports developed
during feudal times in England. The gradual process by which this blending

took place is traced in the next few pages.

323 Framework
Double entgy bookkeeping
Double entry bookkeeping is an analytical model in which each trans-
action is analyzed from two points of view. One point of view is that of
amounts expended. The other is that of where the funds or purchasing power
came from. Naturally, since the same transaction is involved, the totals

recorded from each point of view are the same. This is the reason that

 

1This concept is discussed by James Don Edwards in "Early Bookkeeping
and Its Development into Accounting," Business History_§eview, V. 34 (Winter,
1960) 446-458.

 

 

 

 

9
rue.

i

 

as...
.

..-

0

A

“ ‘I.
,

 

 

 

 

15
double entry bookkeeping has been called a self-proving system. Even more
important, it is the feature which permits complete integration of the real
and nominal accounts.

The idea of double entry undoubtedly arose somewhere back in the
record keeping stage. Very possibly it was in connection with the early
Roman contract of expensilatio.1 Whether or not this is the origin of the
idea is immaterial because the dark ages were really dark as far as accounting
is concerned. Bookkeepers had to start afresh after this period without
having inherited the achievements of their classical forebearers. The first,
and best known, treatise dealing with double entry bookkeeping is part of a
'book on mathematics written in 1494, just two years after Columbus dis-
covered America, by Luca Paciolo. The system which he describes was already
highly developed and widely used by the Northern Italian merchants and
bankers. Paciolo's objective was to collect material on mathematics and
bookkeeping and put it in the hands of the Italian people, hoping that they
‘would use it to improve their lives.

Accounting has been put to uses never dreamed of by Paciolo, but the
double entry bookkeeping on which it rests has remained unchanged. As
Brown and Johnston point out in their recent book on Paciolo, "most of the
accounting methodology suggested in the treatise . . . are as applicable

today as they were in the fifteenth century."2

 

10. A. Smith, "Speculations on Roman Influences on the Theory of
Double Entry Bookkeeping," Accounting Research, V. 5 (1954) 335-42.

2R. Gene Brown and Kenneth S. Johnston, Paciolo pp_Accounting (New
‘York: McGraw-Hill Book Company, Inc., 1963) 8.

 

 

 

 

 

 

.
.
~.._ .'
. ‘0 I!
s ,‘
"‘0 .-
" I. ‘
" "-u
'l:. I.
. -‘ .

 

 

J.-.1..

16

It is generally conceded that the "cross-entries" which bankers
maintained contributed to the development of double entry bookkeeping, but
the essential ingredient was need on the part of merchants. If Florence
Edler de Roover's description of pre-double entry partnerships is accurate,1
it is easy to understand why these firms welcomed a system.which reflects
the source of all funds received on one hand and the specific assets those
funds were invested in on the other. She points out that there were two
principal types of contract, but both involved a traveling partner and an
investing partner. The traveling partner might be involved in several
partnerships on a single trip, each with a different investing partner.
Profits were computed at the end of the venture, although there is some
evidence that settlement was sometimes made before all of the items were
disposed of.

Many of the large merchandising houses were also bankers. Littleton
and Zimmerman, in fact, characterize the early double entry records as those
of the Italian banker-traders.2 The need for keeping track of both the
sources of funds and the amounts expended for specific items must have
become extremely acute when both the traveling partner and the merchant-
banker who acted as the investing partner were involved in several ventures
at the same time. The establishment of branch offices and similar complica-
tions of organization undoubtedly furthered the need for, and demonstrated

the effectiveness of, the double entry system.

1"Partnership Accounts in Twelfth Century Genoa," in A. C. Littleton

and B. S. Yamey (ed.) Studies it; the History p_f_ Accounting (Homewood,
Illinois: Richard D. Irwin, Inc., 1956) 86-90.

2Accounting Theory: Continuity and Change (Englewood Cliffs, New
J'el'sey: Prentice-Hall, Inc., 1962).

 

17

The system described by Paciolo did not provide for financial state-
ments. Since the ledger was accessible to all of the members of the venture,
the profit and loss summary account served as an income statement. Before
any entries were made in the records they were often presented to government
officials for authentication. Thereafter these books were admissible as
legal evidence.

Balance sheets were not a part of the system. The closest thing to a
balance sheet was the balance account. This account was used when the
balances were transferred to a new bound ledger, and was really nothing
more than a post-closing trial balance.

The real contribution.--The recording of transactions twice, each from

 

a different point of view, is the basic mechanic of double entry bookkeeping,
but it is not the real contribution of the method. The real contribution
lies in the integration of the real and nominal accounts. This is the
foundation upon which present-day general accounting is based. Its
significance is emphasized by Littleton with the observation that "here,

for the first time, was a method of systematically and continuously recording
the interaction of capital on income and of income on capital, thus making

it possible to observe the separateness and the interrelation of finance and
operations."1 The following evaluation is made by Littleton and Zimmerman:
"The significance of the accomplishment of the integration of real and
nominal accounts far surpasses every other single aspect of accounting
development."2 They label the Italian double entry system "capital-income"

accounting to emphasize this integration.

 

1"Variety in the Concept of Income," New York Certified Public
Accountant V. 23, No. 7 (July, 1953) 420. Reproduced in Essays pp
Accountangy (Urbana, Illinois: University of Illinois Press, 1961) 288.

 

2AccountingTheory: Continuity and Change, p. 47.

18

English stewardship reports

Mbst of the countries of Northern Europe were able to get by with
memorandum single entry records until the Italian double entry method was
made available through the several translations of Paciolo's book which
appeared shortly after its original publication.1 The English had, however,
developed a system of stewardship reports which were especially adapted to
the feudal organization which came into being following the Norman invasion.
This system was primarily one of agency reports rather than the capital-
income, proprietorship accounting under the Italian system.

Vestiges of the English agency system can be seen in some of our
present-day legal requirements for fiduciary accounting. The principal
characteristic of the system was that the party reporting would charge
himself with the items he became responsible for and discharge himself in
the record for every release from responsibility. The report was not
necessarily in monetary terms. For example, the records kept at each
station in one of the landed estates (granary, mill, bakery, dining hall,
etc.) might indicate (1) materials received, in quantity but not money
price, (2) product converted (either forwarded to the next station or
consumed), and (3) material or product left, if any.2

Two aspects of these reports are particularly significant for this

study. First, these were reports by agents who were acting for someone

else. The reports are of stewardship, or accountability, concerning

 

1Raymond de Roover includes a comprehensive summary of the bookkeeping
of these countries in "The Development of Accounting Prior to Luca Pacioli
According to the Account-Books of Medieval Merchants," in A. C. Littleton
and B. S. Yamey (ed.) Studies‘ip'gpg History pf|Accounting, pp. 114-174.

2Littleton and Zimmerman, p. 23.

..
...

l9
discharge of responsibility for someone else's property. Corporate manage-
ment occupies a position with some similarities to such agency. Second, no
specific records were apparently required. The important thing was the
report and it was up to the individual to keep records which would permit
him to properly complete the report. This is essentially true of the

Convention Blank used by insurance companies today.

Blending

The blending of these two concepts--the Italian "capital-income"
accounting with its emphasis on items which affected the proprietor either
favorably or unfavorably, implemented with a double entry bookkeeping pro-
cedure which permits complete integration of the real and nominal accounts;
and the English financial reports emphasizing stewardship and accountability--
produced the basic framework upon which modern commercial and industrial
accounting is built. Our records are double entry but are summarized into
financial statements emphasizing accountability and stewardship.

It must be emphasized that accounting has developed far beyond a mere
blending of the Italian bookkeeping system with the English reports, but
the basic framework has not changed. The development of accounting has
been through recognizing previously undetected usefulnesses, by adding to
the services performed through the basic structure, through refinement of

theory, and by devising more efficient ways of carrying out the basic

procedure.

Building przp the Framework
Although accounting developed primarily as a means of providing

operating management (owners in the old days) with information regarding

20
their own past actions,1 the principles which are referred to in the standard
CPA certificate are largely oriented toward statements prepared for outsiders.
Mention of just a few of the many influences upon the development of accounting
after the merging of the Italian and English systems is sufficient to show

how this came about.

basis pf accounting

Little attention was paid to fixed assets in the bookkeeping for the
Italian foreign trading ventures. The books were closed at or near the end
of the venture and profit was computed at that time. Consequently, an
accurate profit computation was obtained if the asset account was debited
for the cost of assets purchased and credited for the proceeds of sale. The
balance prior to sale was the amount invested in the asset, and the balance
after sale was the net cost (or profit) of using the asset. If settlement
‘was made before all assets were disposed of, these assets were valued at
expected realizeable value since liquidation was intended. Fixed assets
were thus placed on the books as an adjusting entry for inventory of goods
to be sold.

Not all businesses were ventures for a limited period of time. In
continuing businesses, partners wished to make periodic settlement instead
of waiting until the partnership was dissolved many years hence to divide
profits. First attempts at this probably consisted of hypothetical liquida-

tions, but this soon gave way to simply dividing profits on the transactions

 

1A. C. Littleton, "Principles Under Challenge," New York Certified
Public Accountant, V. 24 (January, 1954) 26. Reproduced in Essays pp

Accountancy, p. 407.

21
which were complete. This was apparently done at irregular intervals
whenever the partners chose to make a settlement. Expenditures for incom-
plete transactions were simply left in the asset accounts, and were carried
forward to a new ledger through use of the balance account referred to
previously. While theory was not discussed in those days, here was the
going concern postulate in its basic form.

Irregular settlement computations gradually gave way to regular annual
closing of the records, especially for merchandising firms where the annual
period was a natural operating cycle. An annual period has been universally
adopted today, the only concession being that many firms use a fiscal year
which ends on dates other than December 31.

As soon as the practice of opening a new ledger each year was adopted,
the accrual, or revenue, basis of accounting became readily possible. In
fifteenth century Italy this was achieved by holding the revenue records
open for awhile. Transactions during the first part of the new year were
entered in whichever set of books was most appropriate. After a time into
the new year, all transactions were entered in the new set and the old set
was closed.1 This method produced reliable earnings data and was satisfactory
so long as the balance account remained simply a method of transferring the

accounts to the next ledger.

é_complete pycle p§.statement emphasis
The settlement of partnership accounts may have caused the first

financial statements to be prepared. Since only one person could keep the

 

1Wilmer Green, History and Survey pf Accountancy (Brooklyn, New York:
Standard Text Press, 1930) 105.

22
books, copies of the profit and loss summary account and the balance account
were likely given to the other partners. A columnar form was worked out
which permitted revaluation of any items necessary in order to make a
proper settlement.1 This form of statement eventually became the accountant's
worksheet. It made the preparation of adjusting entries easy to handle and
may have contributed to the development of these entries as a method vastly
superior to holding the books open. It permitted accurate balance account
figures as of the end of the period.

Even though English translations of Paciolo's book were available,
the Italian system was apparently brought to England by young merchants
who were sent to Italy or the Low Countries to study. They brought double
entry bookkeeping back to their businesses in England, but the English
legal system was used to working with financial statements which were
reports of stewardship. The net result was that, even though less satis-
factory in several respects, the balance sheet replaced the charge and
discharge statement as a report of stewardship and changed places with
profit and loss as the most important statement. To some extent the profit
and loss statement became the proof of the change in the balance sheets
from one year to the next.

The advent of the corporation did much to emphasize the balance sheet
in England. Although limited companies had been formed by special charter
as early as the East India Company in 1600, the British Companies Act of
1862, and the less complete act of 1855, constitute the first nationwide

recognition of the principle of freedom of incorporation with limited

 

1Littleton, Accounting Evolution pp_1900, p. 137.

23

liability and, along with it, direct accountability to shareholders. The
act required that the accounts he examined and the correctness of the
balance sheet ascertained by one or more auditors.. No mention was made of
a trading or profit and loss account.1

The balance sheets submitted by the English companies were apparently
highly condensed and void of meaningful detail. Prior to World War I, it
was not necessary for management to render detailed reports because the
firms were able to obtain the capital they needed without them. Two "old
wives' tales" were often used to argue against detailed statements,
particularly anything having to do with profits--(l) in good times, no one
cares and (2) in poor times they give too much information to competition.2
Littleton and Zimmerman place the reasons on a loftier plane by suggesting
that the prominence of the balance sheet during this period was apparently
encouraged by ideas about accountability derived from the landed estates
of feudal days whereas privacy of income data reflects an extension of the
ideas of the classical economists about free enterprise and the controlling
force of competition.3

Balance sheet emphasis in the United States during this period stemmed

from other factors. With the exception of the railroads, which copied the

English reporting requirements to a large extent, enterprise did not draw

significant amounts of capital from public sale of securities. Only

 

1Maurice E. Peloubet, ”The Historical Background of Accounting," in
Merton Backer (ed.) Handbook 2; Modern.AccountingTheopy_(New York:
Prentice-Hall, Inc., 1955) 21.

2Nicholas A. H. Stacey, English Accountanpy, A Study ip_Social and
Economic History, 1800-1954. (London: Gee and Company, Ltd., 1954) 60.

3Littleton and Zimmerman, p. 95.

24
thirty-seven industrial stocks were listed on the New York Stock Exchange
as late as 1897.1 Short-term bank loans developed, with the encouragement
of the bankers, as the primary outside source of working capital. Conse-
quently, the first outsiders to receive financial statements in this
country were bankers. They looked on the balance sheet as a clue to a
borrower's probable ability to repay short-term loans. This ability was
thought to be more directly related to the conversion of inventory into
cash than to the earning of a periodic profit.2

The price break and inventory depression of 1920-21 led to the
adoption of a policy of financing through stock issues instead of through
short-term borrowings. This in turn directed attention to earnings compu-
tations and marks the point from which the income statement took precedence
over the balance sheet. Even short-term credit grantors began to realize
that loans are ordinarily repaid out of normal operations and profits.
Liquidation was finally recognized as a last ditch defense.

This does not mean that the idea of stewardship or accountability by
management was abandoned. Rather, it was a recognition that management
exercises a multiple stewardship, operating as well as financial.3 The
income statement provides a measure of earnings at the point where they
become subject to management decision concerning their disposition.

Earnings are one of the sources of funds for which management must account

 

1George 0. May, Financial Accounting (New York: The Macmillan
Company, 1943) 51.

2Littleton and Zimmerman, p. 92-95.

3See A. C. Littleton, Structure p£_Accountinngheo y (Urbana,
Illinois: American Accounting Association, 1953) 79-81 for a discussion
of shortcomings of traditional financial statements as reports of
stewardship.

25

and are also an indication of how well management has met its operating
stewardship obligation by putting funds to work to create earning power.

As often happens, once the income statement received attention it
was over-emphasized. Today, the balance sheet is coming back in for
attention, but not from the liquidation straight-jacket viewpoint of the
nineteenth century. It is gaining recognition as the foundation for the
computation of earning power rather than as either extreme of (1) the only
important statement or (2) mere proof of the accuracy of the earnings
statement. Furthermore, it is now recognized that income as a measure of
performance must be compared against investment in the firm.1

A complete cycle has thus been made. Early Italian accounting was
almost entirely income oriented. Emphasis gradually changed to the balance
sheet but starting in the 1920's the income statement again came into
prominence. In very recent years the balance sheet has been brought back

in for more attention. It may be that a lasting equilibrium of emphasis

between the two primary statements has been reached.

Development‘pg Generally Accepted Accounting Principles

 

Reports £2 stockholders prior £2_jggg

As financing moved from short-term loans to sale of long-term
securities, industrial accounting took on new significance. The New York
Stock Exchange started trying to improve the quality and quantity of data
made available to stockholders as early as the Civil War, but without much
success. Louis H. Rappaport recently characterized the period as one in

which the financial affairs of a business were regarded as highly confidential

 

1R. J. Chambers, "Function of the Balance Sheet," Chartered Accountant
jppAustralia, V. 27 (April, 1957)

26
and any suggestion that they be made available to outsiders--among whom
public stockholders were included--was considered presumptuous.1 This
sounds remarkably like the situation in England noted previously. As will
be discussed in the next part of this chapter, inSurance companies were
filing detailed reports of assets during this period, but were just as
reluctant to reveal operating data as were commercial and industrial firms.

Rappaport cites two examples which may not only help visualize the
improvement which has taken place in reporting to stockholders during the
twentieth century, but should help keep some of the early shortcomings of
the uniform insurance report in perspective. In 1866, just five years
before the National Association of Insurance Commissioners was formed, the
Delaware, Lockawanna &‘Western Railroad Company replied to a request for
information by the Stock Exchange by stating that it ". . . makes no
reports and publishes no statements and has not done anything Of the kind
for the past five years."

In 1892, at the time when the National Association of Insurance
Commissioners was debating the inclusion of a Gain and Loss Exhibit in the
annual insurance report, one of the footnotes to the balance sheet submitted
in the listing application of General Electric Company predicted that a
large profit might be expected from certain bonds that were carried in the
statement at 70 per cent of par value. Another footnote assured the reader
that the inventory had been taken in the usual way at less than cost.
(emphasis added). A third footnote stated that the large amounts expended

for patents had all been charged to expense.

 

l"Forces Influencing Accounting: The Stock Exchanges," Lybrand
Journal V. 44, No. 1 (1963) 45.

27
By 1895, balance sheets were required with listing applications, and

by 1899 annual reports to stockholders were required.1

Action py|the New York Stock Exchangp

The Exchange was stirred to determined action by publication of a
series of articles by a Professor William Z. Ripley in the Atlantic
iMOnthly in 1926 in which he was extremely critical of the information
furnished, or not furnished, to corporate stockholders. Mr. J. M; B. Hoxsey
was appointed the first executive assistant to the Committee on Stock List.
He obtained the services of George 0. May, senior partner of Price
Waterhouse and Co. as a consultant and in 1930 was instrumental in forming
a joint committee with the American Institute of Accountants2 with Mr. May
as chairman. Correspondence between the Exchange and the Institute
committee was fruitful and eventually was published as a pamphlet entitled
Audits pfwgorporate Accounts.3 This document is a milestone in the history
of accountancy in the United States and marks the start of a concentrated
effort to set forth accounting principles pertaining to financial statements

for stockholders and others outside the firm.

First use and meaning p£_the term

”generally accepted accounting
principles"

 

One of the particularly interesting developments in the correspondence

between the Exchange and the American Institute was the use of the phrase

 

1Rappaport, p. 46.

2Now the American Institute of Certified Public Accountants.

3New York: American Institute of Accountants, 1934.

'“

 

 

.s.\a-.

28

"principles of accounting." Early drafts used the word "practices" but
terminology turned to such phrases as "practices or principles" and
eventually became "principles." In later discussion, May was quick to
point out that the committee had considered a prinCiple as "a general law
or rule adopted or professed as a guide to action; a settled ground or

'1 He repeatedly emphasized the word

basis of conduct or practice.‘
"accepted" because it makes clear the essential point that the authority
of the rules or principles on which accounting is based depends on
acceptance.2

One of the recommendations of the joint committee was never fully
realized but has provided the stimulus for much of the development of
accounting theory since that time. Each company was to submit a fairly
comprehensive summary of the methods and procedures it had adopted and was
to follow them consistently or notify the Exchange of changes. The public
accountant would certify whether the methods used were acceptable, whether
they had been consistently followed, and whether the methods used were
properly reflected in the statements.3 In his Financial Accountipg, May
explains the intent of this provision was as a means by which (1) to make
unequivocally clear the existence of a variety of methods and (2) to
provide a procedure by which the variety could be curtailed and the best
methods gradually made practically universal. He believed that if corpora-

tions were required to explain in detail the bases on which their financial

 

1"Principles of Accounting," The Journal pf_Accountangy, V. 64, No. 6
(December, 1937) 423. The definition was taken from the Oxford Dictionary.

2"Principles of Accounting," p. 24.

3Reed K. Storey, The Search for Accounting Principles: Today's
Problems 1p_Perspective (New York: American Institute of Certified
Public Accountants, Inc., 1964) 14.

29
statements were made up the pressure of public opinion would gradually

bring about the elimination of less desirable practices.1

The Securities and Egchange Commission
The cooperation between the New York Stock Exchange and the American

Institute undoubtedly had a profound effect on the development of commercial
and industrial accounting in another respect. The Securities and Exchange
Commission was given authority to prescribe "the items or details to be
shown in the balance sheet and earnings statement, and the methods to be
followed in the preparation of accounts,"2 for the Companies subject to
their jurisdiction. However, the Commission chose not to exercise this
power. Instead, it sought cooperation from the accounting profession and,
following the lead of the Exchange, endeavored to rely on accepted corporate
accounting practice and on the competence of the independent accountants.
Their basic position is well summarized in their twenty-ninth annual report
as follows:

In the area not covered by such rules (specific rulings by the

Commission), the Commissions principal means of providing investors

protection . . . is by requiring a certificate from an independent

public accountant based on an audit . . . which expresses an opinion

as to whether the financial statements are presented fairly in con-

formity with accounting principles and practices which are recognized

as sound and which have gained general acceptance.
The Professional accounting associations

The term "accepted principles" has worried accountants from the time

it was first used because they have difficulty stating what it means. It

 

1May, Financial Accounting, p. 41-42.

2Securities Act p£_l933, Section 19(a). Similar language is found
in the Securities §§changg_Act.p§ 1934.

 

30

is quite possible that the meaning today is not the same as the meaning
ascribed to the term by the committee which first used it. Whether or not
this is so is beyond the scope of this study, but it is important to dis-
tinguish the approaches taken by the two professional associations which
have devoted substantial attention to the concept, and to ask what criteria
insurance companies have to meet before accountants could properly certify
that their statements are prepared in conformance with generally accepted
principles.

The contributions by the professional associations have been carefully
traced in the study by Reed K. Storey mentioned previously, so only those
highlights which help explain the criteria which statements must meet in
order to properly bear the label "generally accepted" need to be mentioned
here.

According to Storey, ”accounting, as it is practiced today, probably
owes more to the decade of the thirties than to any other period after the

"1 The two accounting organizations

development of double entry bookkeeping.
which have been most directly concerned with accounting principles pertaining
to statements prepared for stockholders chose their respective approaches

to the problem of identifying accounting principles and of setting guide-
lines for the practitioner during this period. One of the most significant
contributions of the period was the acceptance of accounting as a process

of cost allocation based on the matching of revenues and expenses.

Original ppproaches.--One of the first specific steps designed to

help the practitioner, as well as the theoretitian, was a study by

 

1Storey, p. 19.

31
‘Messrs. Sanders, Hatfield and Moore.1 The statement of principles resulting
from this study was obtained from interviews, reviews of accounting litera-
ture, statutes, court decisions, and corporation reports. The final report
consisted of a set of generalizations derived from accounting practice and
was largely an uncritical acceptance of existing methods. It was, in short,
a distillation of practice.

One of the chief benefits from the study came as a result of a mis-
understanding of its purpose. Several extremely questionable practices
were included in the list of procedures which were being used, and the
report was severely criticized. ,Even though this criticism may not have
been justified in view of the purpose of the report, the fact remains that
for almost the first time a critical look was taken at many practices which
were being followed.

The American Accounting Association, formerly the American Association
of University Instructors in Accounting, published four statements on
accounting principles with important matters elaborated upon in eight
supplementary statements during the period from 1936 to 1957. The approach
of the American Accounting Association might be characterized as searching
for ”what ought to be.” Specifically, the Association believed that
improvement in accounting and reporting practices could best be achieved
by strengthening the over-all theoretical framework which supported account-

ing practice. The principles which they sought to identify were not

 

1Thomas H. Sanders, Henry Rand Hatfield and Underhill Moore, A
Statement pf_Accounting Principles (New York: The American Institute of
Accountants, 1938). The study was sponsored by the Haskins and Sells
‘Foundation. It was republished by the American Accounting Association in

1959.

l

32

descriptions of procedures but standards against which procedures might be
judged. Between 1936 and 1957 the Association's pronouncements gradually
evolved from a fairly general statement about a few items into a more or
less comprehensive statement covering most of the important areas of
accounting.1 This does not mean that the Association's pronouncements
were universally accepted, however. They were not intended to be since
they were designed to set a level toward which practice could be raised.
Furthermore, they were the work of committees. Criticism was, especially
in the first statement, specifically invited with the hope that wide
discussion would lead to a more comprehensive and improved formulation.

The American Institute of Certified Public Accountants took a different
approach. Although seldom stated in the literature, many of the Institute's
pronouncements partake of the nature of minimum requirements which must be
met before a member can properly certify to the statements. Specific
problem areas were dealt with rather than broad problems. vThe approach
was primarily practical; the objective was to give immediate help to the
practicing accountant faced with a problem. The Institute has had an
important committee working on accounting principles since 1933. The first
committee adopted six rules, the first five of which had been recommended
in the correspondence with the New York Stock Exchange. A twenty-one man
committee on Accounting Procedure was formed in 1938 and continued until
1959. This committee issued a series of 51 accounting research bulletins

dealing with problems facing the accounting profession. Early in its

 

1Storey, p. 42.

33

career the committee discussed briefly the desirability of preparing a
comprehensive statement of accounting principles that would be virtually
all-inclusive, but this was quickly rejected. The approach taken was
stated in the committee's first report as follows:1

The present plan of the committee is to consider specific topics,

first of all in relation to the existing state of practice, and to

recommend, whenever possible, one or more alternative procedures as

being definitely superior in its opinion to other procedures which

have received a certain measure of recognition and, at the same time,

to express itself adversely in regard to procedures which should in

its opinion be regarded as unacceptable. In considering each case,

particularly where alternative methods seem to possess substantial

merit, it will aim to consider the conflict of considerations which

make such a situation possible and thus gradually to prepare the way

for further narrowing of choices.

In 1949 the Committee began a renewed effort to formulate a compre-
hensive statement of principles, but the project was soon abandoned in
favor of the approach the committee had followed since its inception and
the first 42 bulletins were combined into Accounting Research Bulletin 43.

In spite of the differences in philosophy and in the basic concepts
and methods of approach, the two professional associations have three basic
similarities in their original programs: (1) the two societies had exactly
the same objective--the improvement of financial accounting and reporting
practice by reducing the number of acceptable alternative procedures;

(2) both saw financial accounting as essentially a process of cost and
revenue allocation rather than as a process of asset and liability valuation;
and (3) both looked upon accounting principles as being derived from

accounting practice.2

 

1"History of the Accounting Procedure Committee--from the Final
Report," The Journal pf Accountancy, V. 108, No. 5 (November, 1959)
70-71.

2Storey, p. 41.

34

The different approaches of the two associations complemented each
other in many respects. To some extent, the American Accounting Association
set forth general goals and ideals while the American Institute laid down
minimums representing the furthest deviation from the ideal which would be
tolerated in specific instances. Storey gets at this by observing that the
Institute's position was that accounting principles were a distillation of
experience and that they were essentially conventions. The Association, by
contrast, had considerably more of the flavor of ”this is how accounting
should be" and viewed principles as standards by which rules and procedures
should be evaluated.

Not all of the Institute's bulletins were strictly minimum require-
ments, nor were all of the Association's releases restricted to broad
standards. Procedural rules crept into the Association's statements and
some of the Institute's bulletins made strong pleas for methods which the
committee considered superior. Storey observes, however, that "(1) the
committee on accounting procedure failed to make firm choices among
alternative procedures, and (2) the committee was clearly reluctant to
condemn widely used methods even though they were in conflict with its
recommendations."1 As a consequence, one of the problems plaguing the
accounting profession and the business world today is a super-abundance of
acceptable accounting practices. Storey notes that most of the questionable
practices which were in evidence in the Sanders, Hatfield and MOore state-
ment had completely disappeared by the late 1940's or early 1950's, but

there has been an increase in the number of alternative methods and

 

1Storey, p. 49.

35
procedures which "have been able to squeeze past the minimum barriers and
have been cloaked with the respectability inherent in 'general acceptance.'"1
222.22! research program'pgflppg’AIQ§§.--It was against this background

that the American Institute of Certified Public Accountants embarked upon
a new research program. The old Accounting Procedure Committee rendered
its final report in 1959 a few months after the new program got under way.
Practitioners and others contributed funds with which to conduct a large
scale research program and a new Accounting Principles Board was established.
The governing Council of the Institute stated the objective of the new
program to be:

To advance the written expression of what constitutes generally

accepted accounting principles, for the guidance of its members and

of others. This means something more than a survey of existing

practice. It means a continuing effort to determine appropriate

practice and to narrow the areas of difference and inconsistency in

practice.

Six research studies have been published under the new program and

the Accounting Principles Board has issued four official opinions. The
research studies are in no sense statements of the official position of the
Institute. They are to be widely circulated with the hope that they will
stimulate interest and discussion before the Board makes a pronouncement
on a subject. The weight which should be given to official opinions of

the Accounting Principles Board is not settled, but the following resolution

was adopted at the Spring, 1964 meeting of the Council:2

 

1Storey, p. 49.

2"News Report," The Journal p£_Accountancy, V. 117, No. 6 (June,
1964) 9.

 

 

4...

a...

 

h
C

36
Resolved--That it is the sense of this Council that reports of members
(on financial statements) should disclose material departures from
opinions of the Accounting Principles Board, and that the President
is hereby authorized to appoint a special committee to recommend to
Council appropriate methods of implementing the substance of this
resolution.

The significance of this resolution is far reaching. It focuses
attention on the very nature of the accountant's certificate as a judgment
on the part of the accountant that the financial statements of the company
not only portray the financial facts "fairly" but also that the methods
followed are at least up to the minimums recognized as "generally accepted."
It will strengthen the basic concept that the users of financial statements
can assume that the statements are prepared by methods at least as sound
as the "principles" which gain official recognition. If those principles
do not fit the particular situation, the company or industry involved does
not have to follow the Board's pronouncements but the certificate must call
the attention of the reader to the departures. The reason for mention in
the certificate is not to cast reflection on the statements in such
situations, but, rather, to call attention of the reader to the fact that
the statements must be interpreted differently than the statements of most

firms.

ép_evaluation.--It is possible that the current emphasis on deriving

 

a list of principles, if that is part of the goal of present research,

may have caused accountants to temporarily lose sight of a fundamental
which has an important bearing on this study. The outstanding feature of
double entry accounting is the complete integration of all of the accounts,
both real and nominal. This carries to the underlying concepts, standards,
principles or whatever one chooses to call them. Each affects the other

and it is the complete result that the accountant appraises. The term

37

"generally accepted accounting principles" is in reality a shorthand
expression which encompasses a broad spectrum of complex but not as yet
specifically defined concepts which should apply to all businesses. The
professional accountant is not as bothered by lack of a list of principles
as non-accountants might think. He can visualize how a particular pg; of
procedures will affect the reports of a business and can evaluate whether
or not they will be fair reports of accountability. He is probably most
concerned with the problem of choosing the best alternatives from several
which meet the minimum criteria of general acceptance.1

At the same time, one must not lose sight of the fact that financial
statements are more than just a report of accountability by management.
The framework is that of double entry accounting summarized into a report
of accountability by management, but much of the usefulness of accounting
data comes from the inherent qualities of such a report, such as accuracy,
objectivity, control and reliability. Data with these qualities have many
uses which business is just coming to realize. Even though generally
accepted principles have been developed for reports by management to stock-
holders and creditors, this same report and analyses of the detail back
of it are extremely valuable to management for internal use. Areas such
as cost accounting are tied to the double entry records in order to take
advantage of the inherent characteristics of these records. The principles

which guide them therefore have a profound effect on internal management

accounting.

 

1See, for example, Herbert E. Miller, ”After There is Agreement on
Broad Accounting Principles - What Then?" The Texas CPA, V. 34 (September,
1961) 3-6.

38

If accounting is to achieve its maximum usefulness, public confidence
and understanding are essential. Accountants must strive to identify as
many of the broad spectrum of interrelated concepts as possible. This is
important not so much for their own understanding but as a means of giving
the public an insight into the relationships involved.

Perspective.--The foregoing discussion of the goals of present
research is designed to provide a basic understanding of what is meant by
the phrase "generally accepted accounting principles." It gives an indica-
tion of the range of practices which can be employed and still permit the
statements to bear the label "generally accepted." Most important, it
indicates why no attempt is made to state specific generally accepted
principles in this study. Hopefully it conveys the understanding that,
although accepted principles are hard to define, recognition of non-
acceptable procedures is not difficult when their effect is tested against

the basic framework of accountability by management.

DEVELOPMENT OF THE LIFE INSURANCE CONVENTION BLANK

Before tracing the development of the life insurance Convention
Blank it is helpful to note a few of the structural features of the present
blank. Pertinent pages of the blank are included herein as Appendix III.

All of the state insurance departments require insurance companies

operating in their state to file the uniform annual statement called the

39
Convention Blank.1 This report is designed by the Blanks Committee of the
National Association of Insurance Commissioners and is reconsidered annually.
An insurance company may adopt any accounting system it chooses so long as
it is able to complete the Convention Blank satisfactorily and so long as
the insurance department examiners can trace what was done. However, the
blank requires so much detail that there is little practical room for
variation in the accounting system.

The accounting system which makes completion of the blank easiest is
one characterized as "modified single entry" or "incomplete double entry."
Double entry books are kept for cash transactions only. Non-cash items,
accruals, and all liabilities are maintained in memoranda accounts or are
determined by analyses or by inventory at the end of the accounting period,
and are brought onto the statement by what amounts to adjusting entries.2
The Convention Blank is in many respects a worksheet for compilation of
the data which eventually are summarized into the basic financial statements
on pages 2, 3 and 4 of the blank. This can most easily be seen by examining
Table 1, which reproduces selected lines from Exhibit 13 of the blank filed

by one of the companies analyzed in Chapter IV: (A copy of the complete

form for Exhibit 13 appears in Appendix III).

 

1This designation was probably started when the National Association
of Insurance Commissioners was called the National Convention of Insurance
Commissioners. The term'WAnnual Statement" is also used to describe the
report, but is not used in this dissertation, except in direct quotation,
in order to avoid confusion with the annual report to stockholders and/or
policyholders.

2Insurance Examination Committee, Dallas Chapter of Texas Society of
Certified Public Accountants, unpublished manuscript A_Brief Introduction
‘33 the Financial Statements and Taxation 2; Life Insurance Companies, Hay,
1963, p. 12.

a"

a.-

40

Table 1: Selected Lines from Exhibit 13 of the
1962 Convention Blank of Company F

 

 

 

 

 

fieduct:
Add: Assets Net
Ledger Non-Ledger Not Admitted
Assets Assets ‘ Admitted Assets
(1) (2) (3) (4)
l. Bonds $223,777,608 $ 60,000 $223,717,608
2. Stocks 30,279,318 $13,632,240 43,911,558
12.3 Furniture and
equipment 1,253,085 851,563 401,522
19.1 Interest due and
accrued 2,854,038 2,854,038
Totals $397,709,671 $27,527,777 $832,296a $424,405,152

 

 

 

 

Source: The Convention Blank filed with the Nebraska Insurance Department.
3There are negative amounts in this column so the total is less than
line 12.3.
Those assets for which there are accounts in the ledger because they result
from cash transactions are entered in column (1). Other assets are brought
onto the statement by entering them in column (2). For such assets as
corporate stocks, the amount entered in this column is the difference
between the book value of the asset and the value at which it must be
carried in the statement. Accrued assets and inventories are normally
entered in column (2) rather than by making adjusting entries in the ledger.
Certain assets do not qualify as legal investments of insurance
reserves, so cannot be shown in the balance sheet. They are eliminated
by entering them in column (3). In the above tabulation, one bond issue
no longer meets statutory requirements and the only furniture and equipment
which is admissible is electronic data processing equipment. The net figure
in column (4) is the amount which must be carried to the balance sheet.
Many public accountants who serve small commercial businesses use a

similar system. The business keeps its books on the cash basis, but

provides the public accountant with lists of unpaid accounts, accruals,

”I;
b b-

D“

 

-
a...‘
l

0-.

 

'4
.I

‘5'

I

II

"I

41

receivables, etc. The public accountant enters these as adjustments on
his worksheet in order to produce statements on the accrual basis. He
ordinarily enters these adjustments in the ledger at the end of the year
only, using cumulative adjustments on each succeeding worksheet during
the year. Insurance companies do not enter adjustments in the ledger,
‘but let the Convention Blank serve as a permanent record.1

The computation of operating figures follows a similar plan for the
broad groups carried to the Income Statement, but individual categories are
‘reported on the cash basis only. For example, Table 2 is excerpted from
Exhibit 5--General Expenses for the firm in Table 1.

Table 2: Selected Lines from Exhibit 5 of the
1962 Convention Blank of Company P

 

 

 

Insurance
Accident
and
Life Health Investment Total
(1) (2) (3) (45
1. Rent 8 403,959 $ 46,511 $ 36,670 3 487,140
2. Salaries and wages 3,126,669 367,003 357,284 3,850,956
10. Total general expenses ,
paid, $6,597,533 $604,044 $1,490,284 $8,691,861
11. General expenses unpaid .
December 31, current year 357,537 66,978 42,180 466,695

12. General expenses unpaid

December 31, previous

year 347,795 89,843 46,519 484,157
13. General expenses

incurred during year
(10 +-ll - 12) $6,607,275 $581,179 $1,485,944 $8,684,398

 

Source: Convention Blank filed with the Nebraska Insurance Department.

 

1The following example of one company believed to have typical portions
entered in the ledger and portions brought onto the statement by "adjustment"
is cited in the manuscript by the Dallas Chapter of the Texas Society of
Certified Public Accountants referred to in the footnote on page 39.
Per Cent of Dollar Amount

Ledger Non-ledger Total

Assets 93.67. 6.41 100.01
Liabilities 0. 5 99 .5 100.0

Surplus and other funds 13.1 86.9 100.0

42

The cash expended for each class of expense must be entered on each line

 

of Exhibit 5, broken into the three "departmental" columns. After the
total cash expenditure for each "department" is accumulated in line 10,
the beginning accounts payable are added and the ending accounts payable
are deducted to arrive at total expenses on the accrual, or revenue, basis.
Similar schedules and computations are required for all revenue and expense.
If records are kept on the full accrual basis, it is necessary to reverse
the accruals for each category of expense in order to obtain the figures
for each on the cash basis. Firms which have tried accrual accounting
have generally given it up after a few years. For example, the report of
the State Insurance Department Examiners on one of the companies analyzed
in Chapter IV notes: "During the examination period (3 years) the Company
changed its accounting system to the accrual basis. This procedure compli-
cated preparation of the Annual Statement and was discountinued January 1,
1962. . . ."

Care must be taken, however, not to let what seems to the commercial
accountant a rather unsophisticated methodology lead one to hasty criticism.
In most commercial firms, the liabilities can be precisely determined from
the accounting records, but certain assets, particularly inventories, have
to be determined by a valuation process. In life insurance, most of the
assets are specifically determinable, but the largest liability-~the
insurance reserves-~must be determined by a valuation process. In a sense,
the physical inventory procedure used by trading firms is also used for the
reserve liability by life insurance companies. The task of valuing reserves

is so monumental that it tends to overshadow other aspects of insurance

accounting. 1

 

1Reserves are discussed in Chapter III in connection with the
Group IV adjustments.

 

.Ia"

 

v-..~

‘o'..

 

 
 
 

43

As one works with the Convention Blank, he must remember that it must
be used by all firms, large and small. He should not forget that the purpose
of the blank is to provide the state insurance departments with the data
they need. The Convention Blank with its many detailed lists of specific
assets, proofs and detailed analyses bears marked similarities to the set
of working papers compiled by a public accountant on an audit. The insurance
commissioner and his staff may use the analyses in the blank much as a
reviewing principal in a public accounting firm does the audit work papers
in evaluating the report he is asked to approve. Although the insurance
company prepares its own Convention Blank, the authenticity of the company
analyses is ordinarily verified once in three years with an examination by
insurance department examiners.

One final preliminary observation must be made. Most states have
statutory restrictions similar to Nebraska whereby insurance companies are
prohibited from publishing financial statements which do not ,"correspond
with or include the corresponding items from its verified statement made
to the Department of Insurance."1 The history of the Convention Blank is,

therefore, also the history of life insurance financial reports.

The Questionnaire Period
Although a Massachusetts statute had required publication of its
financial condition as a charter provision of an insurance company as
early as 1799, the Convention Blank had its genesis in a New York State
law of 1828 which required all "monied corporations" to file an annual

statement with the state comptroller. The form adopted by the comptroller

 

1Sec. 44-324, Revised Statutes of Nebraska.

44
was not a financial statement but just a list of items, including capital
stock, real estate, debts and claims against the company. Surrey points
out that although this form was used until 1848, its value was slight

1 The 1828 form was revised in 1848 but

because many items were left out.
the changes were more in the nature of form than of content.

Massachusetts enacted legislation in 1837 which applied specifically
to insurance companies. The statement required was briefer than the
New York form and tended to stress a listing of the assets rather than
reserves and liabilities. The statement was not in questionnaire form
like the New York form, but neither was it a balance sheet because there
was no account to show the proprietary interest other than a statement of
capital.2

Surrey found three examples of New York Companies which went beyond
the requirements of the questionnaire and used a formula type of report in
1850. The Mutual Life Insurance Company's report, its first, is particu-
larly interesting because it bears a marked resemblance to the Convention
Blank primary statement used until 1951, and retained as Exhibit 12 of the
current blank. It is a formula which tries to integrate the receipts and

disbursements with the assets, but shows no indication of an understanding

of double entry accounting.

 

1Sterling Surrey, The Development of the Convention Form of Life
Insurance Statement (Philadelphia: Unpublished dissertation at the
University of Pennsylvania, 1950) 3.

2Surrey, p. 14.

45

Table 3: Format of Statement Included in 1850 Report of
Mutual Life Insurance Company to Comptroller of the
State of New York

 

Net Assets 1/31/1849 $ 000
Receipts:

For premiums $ 000

For interest 000

Profit on sale of securities 000 000
Total $ 000
Disbursements:

For losses paid $ 000

For surrendered policies 000

For salaries, etc. 000

For commissions 000 000
Assets 1/31/1850 $ 000
Less: Losses incurred, not yet paid,

waiting proof of death 000

Net Assets $ 000

(Followed by an itemized listing of the
investment in these assets)

Liabilities (not listed) $ 000

 

Source: Sterling Surrey, The Development of the Convention Form gf Life
Insurance Statement, p. 19, (Original source: Barnes, New York Insurance
Reports, Condensed edition, Vol. I, p. 626).

Surrey calls this presentation "a marked improvement over the required
form."1 The two features which are most significant are (1) the listing of

specific assets with little attention to liabilities, and (2) receipts and

disbursements are used to prove the change in assets.

First Financial Statement Forms

Experimentation and growth

The individual states were involved in considerable accounting

experimentation around 1850 and insurance statements evolved rapidly.

p. 20.

-0

 

 

 

 

-..

l.».-_

 

 

- e ._
0-. ..
‘—
a
we
.-
.1.
~§.,_
. ‘ _I
"‘~.l
9
" -.
er: \
u
'n. '
. ~ ~
' .
'o
I

 

 

 

 

  

 

46
New York adopted a form in 1854, and used it until 1859, which used an
account classification technique rather than a questionnaire. Accounts
were divided into assets and liabilities, although a balance between these
two groups was impossible because insurance in force was included in
liabilities. The assets, however, were balanced with a capital and
accumulation account. An income and expenditures schedule was included,
but the balance of income over expenditures did not account directly for
net balance sheet or even net asset changes. Clearly, double entry accounting
was not part of this statement, nor were the stewardship aspects of the
statement submitted by Mutual Life Insurance Company in 1850 recognized.
The statement was little more than a well organized grouping of data which
the regulatory agencies needed.

The New York Insurance Department was created by a legislative act
of 1859. The first insurance superintendent designed a blank which had
two notable features. First, insurance in force was dropped from the list
of liabilities and a reserve for reinsurance took its place. Second, pro-
vision was made for accrued interest. However, assets were not balanced
with the liabilities because the law permitted a degree of impairment of
capital. This impairment was apparently permitted to cover organization
and beginning operating costs. The statutes varied but a 20 per cent

impairment limitation was common.1

Adoption of the ,present formula
The first balancing of assets and liabilities was in the Massachusetts
Blank of 1867. This was accomplished by including an account "surplus over

1Edwin H. Patterson, The Insurance Commissioner in the United States

(Cambridge: Harvard University Press, 1927) p. 211 and 144.

 

 

47
capital" in the liabilities section.1 This established the basic formula
which has governed insurance company balance sheets since that time--Surplus
is the difference between the value of assets and liabilities (including
capital stock). Considerable understanding of the basic structure of
insurance financial reports can be gained by speculating about the possible
reasons for adoption of this formula.

Impairment pf capital concept borrowed from dividend lpg,--The old
corporation law in America held that dividends should not be paid out of
capital; nor when capital was impaired.2 The insurance formula likely
had its genesis in this concept of impairment of capital. It should be
noted, however, that there is no universal provision regarding dividends.
The most comprehensive treatise, Kehl,3 points out that there are no English
common law precedents in the area, and that statutory provisions in every
state include in substance one or more of the following limitations:

(1) insolvency, (2) surplus and (3) profits. Each of these has several

variants. For example, insolvency may mean simple inability to pay current
debts or may be used in the bankruptcy sense. In some states, profits may
mean the profits for the current year even though capital is impaired, and

may or may not mean the profit shown in the firm's financial statements.

 

1Surrey, p. 66.

2Adolf A. Berle, Jr. and Gardiner C. Means, The Modern Corporation
and Private Property (New York: The Macmillan Company, 1934) 146.

3Donald Kehl, Corporate Dividends (New York: The Ronald Press
C ompany , 194 l) .

l,.. A

hiib vu

 

 

 

 

 

 

 

.,
I
a

i

 

48
Accountants are often shocked to find that the legal interpretation is not
the same as general usage in accounting. This is particularly true of the
surplus limitation.

The position of some courts regarding the meaning of impairment of
capital and surplus was stated in a 1940 New York decision in unequivocal
terms. The New York statute contained the following provision: "No stock
corporation shall declare or pay any dividend which shall impair its
capital or capital stock, nor shall any such corporation declare or pay
any dividend . . . unless the value of its assets remaining after the pay-
ment of such dividend . . . shall be at least equal to the aggregate amount
of its debts and liabilities including capital or capital stock." The
directors were being sued because they had declared a dividend which
allegedly impaired capital. The trial judge pointed out that "the test
being whether or not the value of the assets exceeds the debts and the
liability to stockholders, all assets must be taken at their actual
value . . . . This view required directors to make a determination of the
value of the assets at each dividend declaration. What the directors must
do is to exercise an informed judgment of their own . . . . If directors
have blindly or complacently accepted either cost or any other arbitrary
figures as indicative of value, they have not exercised either discretion
or judgment . . . . I find ample evidence to sustain and satisfy the judg-

tnent of the directors that the value of the land and improvements exceeded

0 fl

.n-u
.-

Oe-

 

so...”

 

...

.a

 
 
 
 

49
the sum at which they were carried on the books by an amount sufficient to
show a surplus greater than the amount of the dividends."1

As will be emphasized repeatedly in this study, the formula adopted
for insurance reporting purposes starting with the Massachusetts Blank of
1867 is the same formula applied by the judge in the dividend case just
discussed. The only significant differences are that the National
Association of Insurance Commissioners has adopted detailed and specific
valuation techniques for assets instead of leaving valuation up to the
company or its governing board, and permit only certain kinds of readily
marketable assets to be included.

Legal assumptions about balance sheets.--Another possible explanation
for adoption of the formula type balance sheet lies in the background of
legislators and the early state insurance officials. Many of them
undoubtedly had legal training, but likely few or none were trained
accountants. The attorney in those days was most apt to be concerned
with financial statements when a partnership was being formed or liqui-
dated. Partnership settlements are on the basis of values of assets less
the claims of creditors. Either the assets are sold and the proceeds
divided, or a hypothetical sale takes place by agreeing on the value of
assets. Beyond the realm of partnership law, the post Civil War attorney

*was concerned with the values of assets less prior claims in such areas

 

IRandall 1~ Bailey 23 N.Y.S.2d. 173; aff'd 228 N.Y. 280, 43 N.E.2d 43.
‘This is, of course, the position of a New York court only and might not be
followed in other states where the word "value" is not used so prominently
in the statute. The Mbdel Corporation Act entitles the directors to rely
iJI good faith on book values (I 41). Oleck notes that "If the directors
dc) not rely on book values in good faith, then they must substitute some
other value and are responsible for the value adopted by them." Howard L.
Oleck, Edern Corporation Lfl (Indianapolis: The Bobbs-Merrill Company,
Inc., 1959) V. 2, I 611.

50
as estate settlements, suits for damages or collections on a judgment. So,
it is reasonable to assume that regulatory officials with legal training
would think of a balance sheet as a computation of equity using the value
of assets less liabilities.

Elizur Wright.--No speculating needs to be done about the influence

 

of Elizur Wright, a mathematician often regarded as the father of American
legal reserve insurance. Two of his innovations had a profound effect on
insurance reporting: (1) his insistence on the net premium method of
valuation of reserves and (2) the establishment of the balance sheet as
the first line indicator of solvency.

Wright was an abolitionist who turned his crusading zeal to insurance
after attending an auction of existing life insurance policies in England.
Surrender values in a life insurance policy were rare at that time, so it
was a common practice in England for old people who could no longer pay
their premiums to offer their policies for sale and to "place themselves
on the block" so that prospective purchasers could appraise their general
health and prospects for a short remaining life. The buyer made himself
the beneficiary of the policy and took over the premium obligations in the
hope of eventually collecting more from the policy than he put into it.

Wright became a lobbyist in the Massachusetts legislature, campaigning
for a law which would establish a state insurance commission which would
not only calculate proper policy reserves and cash surrender values based
on them, but also would have the power to enforce these reserve liabilities
typon the companies. He was convinced that reserves on whole life policies
1were often so inadequate that the solvency of the companies was endangered.
Ike urged and gained acceptance of the net premium method of calculating

reserves, as opposed to the gross premium method used in England and

51
calculated a monumental set of net reserve valuation tables which were
adopted by Massachusetts in 1850 as a basis for judging the solvency of
companies.

In 1858 Wright was appointed as one of a two-man board of insurance
commissioners and in 1861 he was able to secure passage of his non-forfeiture
law. His concern for policyholders and adequate reserves can be grasped
from the fact that while in office he started and maintained a registry
book in which he listed every single policy issued in the state together
with the yearly calculation showing what the reserve should be at any
point. He kept this registry open to any policyholder who wanted to see
what the reserve on his policy should be.1

Hp! Epight's formula i§_p§gd‘ip regulation.--The balance sheet of
life insurance companies has remained a formula for computation of legal
surplus since 1867. The most difficult figure to obtain is the aggregate
reserve for all of the insurance policies. Once the actuary has obtained
this aggregate, it and the other liabilities are subtracted from the 23123
of the assets to determine surplus. This surplus is used as a first line
indicator of solvency of the company and therefore the ability of the
insurance company to fulfil all of the terms of every insurance policy
in force. This solvency is forward looking in the sense that the company
could cease to write new business and still remain solvent as long as

necessary to fulfil all of its contracts. This naturally assumes that the

actuarial assumptions will not be exceeded in fact.

 

1The discussion in Robert I. Mehr and Robert W. Osler, HEQEEE.E££E
Insurance (New York: The Macmillan Company, third edition, 1961) 673-675
is drawn on heavily in this discussion of Wright.

 

-
is

II

 

52

The use made of this computation of surplus formula was effectively
stated by John A. McCall, one of the influential early commissioners:
"The theory . . . presupposes that the company will always have on hand a
certain amount from each premium to be improved at interest" and that "the
state . . . declares not what a company shall charge for insurance, but
what it shall have on hand upon contracts already in existence in order
to continue in business . . . ."1 The formula which comprises the frame-
work of the life insurance balance sheet is an attempt to measure whether
or not the firm does have salable assets sufficient to meet the statutory
reserve requirement after payment of liabilities.
Developpent pg pgp_important aspects
pf_ppg_formula

Non-admitted assets.--Assets which could not be readily sold to meet
policy obligations were soon recognized as having no place in this formula.
In 1866, the New York Commissioner objected to including such things as
commissions to agents in advance as assets.2 This was not a mere techni-
cality but a matter of whether or not a reserve really existed. In 1870

his report included the illustration reproduced in Table 4.

 

1John A. McCall, "The Scope and Grounds of State Supervision of Life
Insurance in the United States," Proceedings p£_£pg National Convention pf
Insurance Commissioners, 1902, p. 90. Mr. McCall was president of New York
ZLife Insurance Company at the time he delivered this address.

2Surrey, p. 55.

53

Table 4: Percentages of Selected Assets to Total Assets
in Five Companies Reporting to New York
Superintendent of Insurance in 1870
‘PEF—Cent_t3—Total Assets

 

Premiums
In Hands Deferred Premium
Company Of Agents Premiums Notes Totals
A 30% 10% 35% 75%
B 55 10 10 75
C 10 0 50 60
D 15 10 50 75
E 15 10 33 58

 

Source: Sterling Surrey, The Development 2; the Convention Form‘pf Life
Insurance §tatement, 57 (Original Source: New York Reports, 1870,
p. viii.)

 

The solution was found in classifying these items as non-admitted assets
and excluding them from the computation of legal surplus. In 1871,

both the Massachusetts and New York Commissioners segregated the following
as unadmitted: agents' balances, caSh in hands of agents, loans or advances
to officers and agents payable from their salary or future commissions,

and stationery or future commissions.1 As will be seen in the analyses of
specific companies later in this study, these items are among those
considered non-admitted today.

‘Pppgfdpf change 13 ledge; assets.--Another development of this time
which helps explain the Convention Blank of today was the adoption of the
form of statement which the Mutual Life Insurance Company voluntarily
submitted in 1850,2 wherein receipts and disbursements were used to prove
the change in assets. This necessitated keeping assets on the cash basis
so that the net change in cash exactly equaled the increase or decrease in

"Ledger assets." The start toward the accrual basis which had been made

 

1Surrey, p. 58.

2See Table 3.

54

by the first New York commissioner was abandoned. One cannot help but
wonder why someone did not come on the scene who knew double entry book-
keeping and could have shown how that system automatically integrates the
entire balance sheet and the income accounts into an over-all proof. One
must remember, however, that although most large businesses used double ‘
entry bookkeeping at this time, there was no significant publication of
financial statements until early in the twentieth century. The information
asked for by the insurance departments must have seemed most revealing of
confidential data and one can guess that the companies were not anxious

to extend the reports to include the proofs and control inherent in double

 

 

entry.
The Static Period Under the Convention Blank
Adoption

As more and more states adopted regulatory laws, each with its own
requirements, forms to be submitted, depository regulations, etc., it
became obvious that coordination and uniformity was required. In 1871 the
National Convention of Insurance Commissioners was formed. This organi-
zation drew on the best features of the various state blanks then in use
and, in 1875, adopted a uniform blank which remained essentially unchanged

until 1951.

_T_1_1_§ gay; _a__nc_l loss exhibit

Mbst of the changes in the Convention Blank prior to 1951 were by
‘way of additional detailed schedules, particularly following the Armstrong
IInvestigation in New York in 1905. In 1895 a so-called "gain and loss
exhibit" was added to the blank. This exhibit has had a turbulent history

arui was the subject of intensive and bitter debates for many years. It

55
was deleted from the blank for a number of years between 1900 and 1906, but,
in or out, it was the center of considerable debate at every annual meeting
of the commissioners for over a decade.

The Gain and Loss Exhibit was originally devised during an insurance
department examination in an effort to explain the difference between the
beginning and ending surplus, but included a complicated attempt to compare
actual experience with actuarial assumptions. A comparison of the following
items comprised the basic structure of the exhibit:1

Loading cf. Actual expenses

Interest required to cf. Interest actually earned
maintain reserves

Expected mortality, cf. Actual mortality minus
net reserves

Reserves released by cf. Values allowed policyholders
terminations other on such terminations
than death
Each of the items on the left side was computed according to the
mortality table and interest rate specified for determination of statutory
reserves. Yet the insurance companies, than as now, based premiums on
more realistic mortality tables than those required by statute for
valuation of reserves.
The chief difficulty with the exhibit had its root in two factors:

(1) The exhibit was prepared on the accrual basis, but the books and the

primary statements were prepared on the cash basis, and (2) Actuarial

 

1C. 0. Shepherd, "The 'Convention' Statement of Life Insurance
Companies" The Record, American Institute o_f_ Actuaries, V. 26, No. 54
(1937) 181.

21. M. Krowitz, "Gain and Loss Exhibit," in Adelbert G. Straub (ed.)
Examination pf Insurance Companies (New York: New York Insurance
Department, 1954, IV) 321.

56
factors were introduced into the exhibit which were not practically
possible to record in the books.

Ahmissed ppportunity.--The Gain and Loss Exhibit was first introduced

 

into the blank at the exact time the New York Stock Exchange finally estab-
lished a firm rule that a balance sheet was mandatory in every listing
application. The insurance industry was, however, working with the formula
which had been established in 1875 without recognizing that double entry
bookkeeping centered on an income statement and that the income accounts
were an integral part of the system even though only the balance sheet was
published. They apparently did not realize that double entry records on
the accrual basis could integrate the balance sheet and revenue accounts
and provide an automatic proof. Had they adopted a double entry system
and segregated the analytical actuarial and budgetary schedules from the
formal statements, the insurance industry could have had a report far in
advance of anything commercial business publishes today. Shepherd summarized
the situation well with the following observation, even though he failed to
recognize that the revenue and expense accounts were always an integral part
of double entry:

The idea of actuarial analysis along gain and loss lines was born

ten or fifteen years too soon. With the growing realization in

general business and accounting circles that accrued items in assets

and liabilities called for accrued items in income and outgo, and

with the development of reserves in general business . . . it seems

altogether probable that life insurance might have followed general

accounting practice and adopted a Net Income statement.

Lessons p£_experience.--The hard work the insurance industry created

for itself by not adopting the type of proposal suggested in the preceding

paragraph can be visualized by the statement made by one commissioner in

 

1Shepherd, p. 184.

57
campaigning against inclusion of the Gain and Loss Exhibit in the blank:
"Its author, in the examination of a company, tried to make up a gain and
loss exhibit, and he was only a million and a half dollars out of ha1ahee."1
At the same meeting, another speaker pointed out that "all companies
estimate some items in the exhibit, . . . some estimate what others calcu-
late, while calculating what others estimate, and . . . excepting those
who enter a balance unaccounted for, every company has an item which
represents a forced balance."2 One of the perplexing factors in the portion
of the research for this dissertation which was done before gathering the
historical material was the appearance of the out-of-balance account in
the Gain and Loss Exhibit for Company C for every year until 1939.

Even though insurance companies made considerably more information
available to the public regarding assets than commercial and industrial
companies did during the last half of the nineteenth century, they were
apparently no more willing to devulge operating data than other firms.

For example, the 1902 Connecticut Insurance Report notes a complaint by
companies that the Gain and Loss Exhibit "transcends the purpose of
official supervision, in that it requires a company to disclose conditions
which neither the policyholder nor the public has any right to be informed

about."3 Companies were, however, properly concerned with how the data in

the gain and loss exhibit were used. The danger was called to the attention

 

1Comment by Mr. Fletcher, Proceedings pf the National Convention pf
_12§urance Commissioners, 1906, p. 83.

2Comment by Mr. Vorys, p. 69.

3H. Pierson Hammond, "The History of the Development of the Gain and
LOSS Exhibit of Life Companies," Proceedings pf the National Convention pg
Insrtrance Commissioners, 1924, p. 244.

58

of the 1906 convention of the commissioners by Mr. Vorys with the warning
that although the gain and loss exhibit serves a good purpose internally
and for the state insurance department, "it does not serve that purpose
when . . . someone (makes up) a lot of ratios--tables we are all familiar
with--ratios of expected to actual mortality, of interest earned and
required on reserves, of loading for expenses and actual expenses, etc.
And it is herein that the harm is accomplished."1

In 1925 the old exhibit was split into two statements, a ”Gain and
Loss Exhibit" and an "Exhibit of the Changes in Surplus for the Year

According to Classes or Lines of Business.’ The idea was commendable,

but the change was really not much more than a rearrangement of the forms
in use prior to 1925.2
The shift of commercial accounting emphasis to the income statement
during the 1920's and the research programs of the professional accounting
societies which commenced in the 1930's were felt by the insurance industry,
if not by the regulatory officials. Substantial changes were made in the
gain and loss exhibit in 1939, due in part to the urging in the article by
C. 0. Shepherd which is cited several times in the preceding paragraphs,
and further stimulated by the hearings which the Temporary National Economic
Committee was holding at that time. This new exhibit was finally able to
reconcile the change in surplus during the year. The format made it less

easy for those who did not understand what was involved to pick up one or

two ratios and use them to reach unwarranted conclusions. The data were

1Proceedings, p. 70.
2Surrey, p. 135.

59

still available, however, so that those who knew what the ratios properly
portrayed could compute them easily.

The 1939 gain and loss exhibit was still relegated to secondary place
in the report, and the income and disbursements statement remained as a
proof of change in ledger assets--that is, those assets recorded on the
cash basis. The basic formula was still fundamentally the same as the one
adopted in 1875. This formula, incidentally, has much in common with the
supposedly new dynamic concept of cash flow. Its usefulness in the type
of analysis which the state insurance departments need to do in carrying
out their statutory obligations is attested to by its retention in the
Convention Blank, even at the price of foregoing the integration of all

accounts into an automatic proof, and the other advantages, inherent in

double entry.

Tpg_12§1 Revision pf the Convention Blank
Attempts at revision of the Convention Blank were made in 1895, 1914,
1925, 1939 and 1951. The first four resulted in added exhibits and more
detail or the splitting of one exhibit into two or more, but few changes of
substance were made. The Armstrong Investigation of 1905 resulted in an
increase in the amount of detail and the addition of previously undisclosed
information. All of this additional detail was important to regulatory

officials but its inclusion did not change the basic financial statements.

Changes_recommended 21 the insurance
_associations

The 1951 revision stemmed from the joint efforts of the Life Insurance
.Association of America and the American Life Convention rather than from

the insurance commissioners. These two organizations formed a joint committee

60

in 1941. Three discussion versions of a new blank proposal were submitted
to member companies and interested persons before its report was formally
made to the National Association of Insurance Commissioners. The joint
committee stated that their objective was to "have a Statement which is,
as nearly as may be, in the form generally used by other corporations and
as understandable to the public as the intricacies of our business permit,"
and which, at the same time would "include the information necessary for
proper supervision by the State Insurance Departments."1 The most important
change in the financial statements in the blank recommended by the joint
committee was the adoption of a double entry system of reporting on the
accrual, or revenue, basis with full integration of the balance sheet and
the nominal accounts. Three primary statements were to be included: A
Balance Sheet, a Statement of Income, and a summary of the Surplus Account.
This does not mean that the committee anticipated abandonment of the modified
single entry system of keeping the records. Worksheets could be used to
convert the data to full accrual double entry basis. But, it would also
have been possible for a company to use full double entry accrual accounting,
leaving only reserves to be picked up by adjusting entry similar to the
way inventories are usually handled in trading firms, and handling other
adjustments in the same way as commercial and industrial firms.

Even though an accrual basis income statement was integrated into the

proposed statement, the Gain and Loss Exhibit was retained. However, it

 

1Joint Committee on Blanks of the Life Insurance Association of
America and The American Life Convention, Discussion 2f Revised Form 9_f_
Annual Statement for Life Insurance Companies, December, 1947, p. 3.

61
became a supporting departmental analysis of each item in the Income
Statement. Actuarial information regarding reserves was in separate

analyses.

The blank adopted

The National Association of Insurance Commissioners adopted many of
the recommendations of the joint committee, but not all of them. The joint
committee pointed out that their proposed statement "contains more infor-
mation than the current form of statement; it also includes practically all
of the information which is available in the current Statement and much of
the information is given in greater detail. It is believed that this form

of statement will be understood by general accountants and is more in line

1

with the type of Statement which is recognized today." The National

Association of Insurance Commissioners apparently did not agree. Wightman's
version of what happened to the proposed blank is: ”The Commissioners'
Committee's recommendations reflected an attempt to effect a'compromise
between the form of Blank then in use and that proposed by the Joint
Committee. The 1951 Blank, while outwardly seeming to conform to the
suggestions of the Joint Committee, is in effect primarily a mere rearrange-
ment of the data presented in the blank previously prescribed."2

The features of the blank which was adopted were outlined in the
introduction to this section, and are examined in detail in later chapters.

It should be emphasized, however, that the primary statements are on the

 

1Discussion, p. 3.

2E. C. Wightman, Life Insurance Statements and Accounts (New York:
Life Office Management Association, 1952) 40.

62
accrual basis but the cash basis is maintained for all of the rest of the
statement, with the computations of adjustment to accrual shown in each
exhibit. The old formula for proof of ledger assets was moved from the
primary spot to Exhibit 12. A member of the Blanks Committee in 1950 and
1951 stated informally to the writer that the reason for retention was
that dropping it would have required revision of the examination procedure.
However, the similarity to a statement of cash flow must have been recog-
nized by some of those who urged its retention as a supporting schedule.
In their analytical work they must have found certain stewardship and
analytical attributes of this statement superior to the balance sheet in
some respects. Commercial and industrial firms are now being urged to
include a statement of source and application of funds in their annual
reports in order to gain some of these advantages. Except for the
concentration on cash instead of "funds" the insurance industry was

seventy-five years ahead in this respect.

Regulatory needs

Apparently the insurance commissioners have found that they can
best carry out their statutory obligations by working from the details of
cash transactions. In this study, it is assumed that the Convention
Blank provides the regulatory officials with precisely the information
they need. Concern herein is with the possibility of extending the state-
ments to include data from the detailed schedules in the blank and other
data readily generated by the companies in a way which would provide

information of interest to the stockholder.

63

Evaluation

One item of evaluation is, however, appropriate to the theme of this
study. Considerable criticism appeared in the literature regarding the
three-way classification of assets prior to 1951.1 It is agreed that the
breakdown between non-ledger assets and ledger assets was pointless as far
as reports to stockholders are concerned. This breakdown is a matter of
procedure in accumulation of data and is of no more concern to the stock-
holder than a breakdown of the figures before and after adjusting entries
would be in a commercial or industrial firm. The non-admitted assets are
another matter. Removal of these assets from the balance sheet, coupled
with the requirement that all published statements must agree with the
Convention Blank, may be the basis for a large portion of the present
dissatisfaction with insurance company reports to stockholders. When non-
admitted assets are removed from the balance sheet, that balance sheet is
no longer a complete report of accountability by management, but just a
balance sheet of the "reserve fund," a commendable schedule if it were just
properly labeled. Had the insurance industry left the non-admitted assets
in the balance sheet, readers would have been able to see at a glance that
the insurance industry statements have some distinctive features and must
therefore be interpreted differently than the statements of other firms.
The form of balance sheet which must now be used in all published reports
is misleading in that it looks like the statement for commercial and

industrial firms when in fact it is quite different.

 

1Ledger assets plus non-ledger assets equals gross assets. Non-
adndtted assets were listed and subtracted from gross assets to arrive at
the net admitted assets which were used in the computation of legal surplus.

CHAPTER III

TYPES 91: ADJUSTMENTS NECESSARY _I_N ORDER fl EXTEND THE
FINANCIAL STATEMENTS 9; LIFE INSURANCE COMPANIES

1'2 CONFORM WITH "GENERALLY ACCEPTED ACCOUNTING PRINCIPLES"

The preceding chapter used a comparison of the historical development
of life insurance accounting and reporting and the historical development
of commercial and manufacturing accounting to emphasize the difference
between the underlying structure of the two systems. When one realizes
that the basic framework of life insurance accounting is not founded on
double entry bookkeeping but is, instead, an elaborate formula for the
computation of legal surplus, a vital first step has been taken in under-
standing the differences between life insurance company financial statements
and the financial statements of commercial and industrial firms. Both types
of financial statements contain useful data not available in the other.

Each is designed to meet the needs of a different set of users.

Life insurance company financial statements are designed to provide
the information needed by regulatory officials in fulfilling their obli-
gation to protect the policyholders. Their primary concern is the ability
of the insurance company to fulfil the terms of every life insurance con-
tract and pay all future claims when they arise. Serious misunderstanding
occurs, however, when the financial statements designed to test these

criteria for regulatory purposes are included in the published annual

64

65
reports which are sent to stockholders and the public. These users often
attempt to interpret those financial statements in the same way they
interpret the statements they receive from other concerns.

Several steps have been taken which are designed to minimize this
misinterpretation. One of the important efforts was the American Institute
of Certified Public Accountants' inclusion in Statement pp Auditing
Procedure 32 in the fall of 1962 of a requirement that when the state-
ments required by a regulatory authority do not conform with generally
accepted accounting principles, the independent Certified Public Accountant
must call this to the attention of the reader by issuing a qualified or
adverse opinion.

The difficulty with the solution adopted by Statement 32 is that
many readers equate a qualified or adverse opinion with the idea that
there is something wrong, rather than merely as a warning that the state-
ments must be interpreted in a different manner than the statements of
commerCial and manufacturing companies. A more satisfactory solution
would be to find a way of extending the regulatory statements so that the
published statements could conform with accepted accounting principles
.Ehllé leaving SEE regulatory statements unchanged. The remainder of this
report describes an attempt to do this.

The primary inquiry attempts to find the answers to four questions:
(1) How close can one come to extending the Convention Blank financial
statements into statements which conform with generally accepted accounting
principles using just the data in the detailed schedules of the Convention
Blank? (2) Where it is not possible to make satisfactory revisions using
the data in the Convention Blank, is it reasonable to believe that insurance

companies could make an appropriate conversion with the additional data

66

available to them or readily generated by them? (3) Are the adjustments
which are required material and significant? (4) Would substitution of
the extended and revised statements add important data not now available
or cure a significant portion of the misinterpretation which now results
from inclusion of the regulatory statements in the published reports? The
answers to these questions are sought by attempting to make the conversions.

The steps by which the research was conducted are explained in detail
in Chapters IV and V. This chapter is confined to an outline of the
general nature of the revised financial statements and of the broad groups
of adjustments which are made. However, those specific adjustments which
apply to several companies are used to indicate the exact nature of each

of the broad groups of adjustments.

REVISED FINANCIAL STATEMENTS

Many of the readers of financial statements have difficulty under-
standing them. This difficulty is compounded when the statements for a
particular company or industry do not follow the same format and style as
others, or when captions other than those the reader has become accustomed
to are used. Every effort should, therefore, be made to have the same
item Shown in the same way by every concern. At the same time, an item
‘which is truly different should not be made to look like something it is
not, for the sake of uniformity and simplicity. The statements to which

the Convention Blank data are extended in this study are designed to meet

these criteria.

Generally Accepted Accounting Principles

The trial and error process through which the financial statements

used in this study were developed is traced as the individual companies

67

are analyzed in Chapter IV and V. Certain preliminary considerations first
had to be resolved, however, and these need to be reviewed briefly at this
point even though they were developed more fully in Chapter II.

First of all, the position maintained in this study is that the
primary requisite for any set of financial statements which conform with
"generally accepted accounting principles" is that they fairly set forth
the funds which have been made available to the firm and provide an account-
ing for what was done with those funds from a going concern point of view.
This is the fundamental underlying structure which developed from the
merging of double entry bookkeeping with the English stewardship reports.
One of the most important expansions of this basic structure has been the
emergence of the income statement as the most important statement, because
it provides a measure of one of the sources of funds on one hand and a
measure of how well the resources of the firm have been used to generate
earning power on the other.

Second, it must be recognized that while the term "generally accepted
accounting principles" is a shorthand expression which encompasses a broad
spectrum of complex but not specifically defined concepts which apply to
all businesses, these "principles" were developed primarily by commercial
firms and were adapted for use by manufacturing firms without much alteration.
The financial statements of commercial and manufacturing companies therefore
provide the most accessible yardstick against which to evaluate the state-
ments of industries which want to use the "generally accepted" label. This
in no way indicates that the statements of commercial and manufacturing
firms are necessarily better than those of other industries nor that there
is not vast room for improvement. It casts no reflections on the quality

of Special purpose statements for regulatory or other purposes.

68

Third, the term "generally accepted accounting principles" used in
the standard certificate developed by the American Institute of Certified
Public Accountants refers primarily to the accounting involved in reports
made by a business to outsiders, particularly stockholders and creditors.

Finally, the evaluation of whether or not an item is in accord with
generally accepted accounting principles is made in the way accountants
have traditionally made such a determination. An attempt is made to appraise
whether the item meets the accountability, or stewardship.criterion in a
way that would be understood by a reader who is reasonably familiar with
the financial reports in annual statements to stockholders. The questions
which are constantly asked are: (1) Would this item be handled in this
way by a commercial or manufacturing firm which is recognized as following
acceptable accounting? and (2) Do the statements provide the type of
accountability data, including measurement of income, which stockholders
and members of the public have come to expect management to provide regarding
the firm? These questions are resolved by reference to the bulletins of
professional accounting organizations, textbooks and periodical articles.
Care is taken to distinguish between those minimum requirements which are
barely sufficient for certification by the independent certified public
accountant and those ideals which both the American Accounting Association
and the American Institute of Certified Public Accountants are now searching
for. The latter are insisted on as the basis for the adjustments only when
clearly acceptable. If a practice meets an agreed on minimum and is being
directed toward something better, it is considered "generally accepted" for

purposes of this study.

69
Primary Objectives pf Egg Financial Statements

Revised financial statements are included in Chapter IV for each of
the firms analyzed in detail. The discussion in that chapter is arranged
so that the statements progress from the simplest ones to the most complex.
A general outline of objectives is needed at this point, however, as back-
ground for the discussion of the groups of adjustments which comprise the
remainder of this chapter. The format of the statements themselves is
reviewed when the first company is presented in Chapter IV.

Earnings statements are in comparative form. The objective is a
reliable measurement of the flow of earnings at the point where they become
available to management for alternative uses. Since different users of the
financial statements are interested in different points of measurement,
several sub-classifications of earnings are introduced--gross revenue,
gross income, net insurance income, net income before income tax, net income,
and net addition to unrestricted retained earnings. A combined income and
retained earnings format is used rather than separate statements of income
and changes in retained earnings. This is appropriate in view of the long-
range nature of life insurance contracts.

The balance sheet poses serious problems. The primary objective is
to reflect all of the funds which have been made available to the firm and
the amounts invested in each of the assets those funds are used to acquire.
However, state statutes restrict the information which can be published to
that contained in the Convention Blank. It is therefore necessary to Show
the legal surplus figure and the National Association of Insurance Commissioners
valuation of assets.

At first impression it seems impossible to do both. A format was

worked out through trial and error, however, which includes both types of

70
data and is still simple enough to be comprehended. The primary statement
is a traditional balance sheet with two modifications. First, the insurance
reserves are listed at the top of the liabilities section and the revenue-
producing assets in which most of these reserves are invested are listed at
the top of the assets section. These are extra items which do not appear
in the balance sheets of commercial and manufacturing concerns. Once this
is recognized, it is possible to construct a traditional balance Sheet with
the remaining assets and liabilities. The only major change is that assets
must be divided into what are called "admitted" and "non-admitted" items.
These terms are defined when the Group I adjustments are discussed in the
ensuing pages.

Second, the National Association of Insurance Commissioners valuation
of assets is stated in a memorandum column, but is used to compute the
legal "Policyholder Surplus". This surplus is then adjusted for the
unrealized increment or loss in the N.A.I.C. valuations to arrive at the
funds which must be accounted for. Hopefully, the resulting balance sheet
provides something that no other industry has-~a statement which reflects
both the accountability for funds which is inherent in double-entry-type
balance sheets, and a computation of solvency which comprises the regula-
tory type balance sheet.

The preceding outline should provide enough background to place the
discussion of the groups of adjustments which follows into perspective.

The discussion of the adjustments in turn provides the transition from the
stipulations regarding generally accepted accounting principles to the

financial statements themselves.

71
ADJUSTMENTS APPLICABLE TO MANY COMPANIES
Six groups of adjustments are made for each of the companies studied--
both those analyzed in detail and those subjected to the abbreviated analysis,
Each individual adjustment is listed in a detailed schedule for each firm

1in each instance,

and the group totals are carried over to a primary exhibit
except for Company A which has so few adjustments that they are entered
directly in Exhibit II.

The remainder of this Chapter is devoted to a discussion of these
groups of adjustments. In order to make the comments as specific as possible,
those individual adjustments which apply to several of the companies are
outlined at this point. This procedure has the added advantage of elimi-
nating the necessity of going over these adjustments in the analysis of
each firm. However, the discussion of those adjustments which are peculiar
to a particular company is deferred to the next chapter so that they can be
viewed against the specific attributes of the company involved. In many
respects, some of the most interesting and informative findings of the
research for this dissertation is reflected in the analysis of the adjust-

ments which are peculiar to a particular company, but the present chapter

is necessary in order to set the stage.

Group I_Adjustments: Place Non-admitted Assets ‘
pp the Statements

(Other Than Fixed Assets Which Are Included
_ip the Group V Adjustments)

The balance sheets on pages 2 and 3 of the Convention Blank include

every liability of the insurance company, but only those assets which meet

 

1For the companies analyzed in detail, the detailed schedule is
"Schedu1e II(A)" and the primary exhibit is "Exhibit II". For the companies
subjected to the abbreviated analysis, the detailed schedule is "Schedule 1”
and the primary exhibit is "Exhibit A".

72
the legal requirements of eligibility for the investment of funds of a
life insurance company in the state of the company's domicile.1 The assets
which do not meet these requirements are classed as non-admitted assets
and are eliminated from the balance sheet through the process described in
Chapter II. The offsetting expense debit is to either "Capital Gains and
Losses" or "Gains and Losses from Change in Value of Non-admitted and
Related Items." As can be seen in Exhibit 11 for any of the companies
studied,2 bothof these accounts are reported as part of the Changes in
Surplus Section of the blank rather than as operating income.

The fact that an asset is non-admitted does not mean that there is
necessarily any question about its value to the insurance company from a
going concern viewpoint, nor should there be any reflection upon the pro-
priety or legality of the purchase of the asset. It Simply means that it
is not included in the list of items which qualify as admitted assets.
Generally, only those classes of items which would clearly be salable at
or abOve book value in case of liquidation are considered admissible by
the National Association of Insurance Commissioners.

Since one of the purposes of a financial statement prepared in con-
formity with generally accepted accounting principles is to report the
disposition or use made of all the funds management is responsible for,3

these non-admitted assets should be included in the balance sheet.

 

1E. C. Wightman, Life Insurance Statements and Accounts (New York:
Life Office Management Association, 1952) p. 61.

2Or in Page 4 of the 1962 Convention Blank which is reproduced in
Appendix III.

3This does not imply the cash basis of Accounting but, instead,
emphasizes the need for the accrual basis so that expenditures will be
reported as soon as an obligation to pay is incurred.

73

Furthermore, if there is reason to believe that there has been any loss in
connection with these expenditures, a contra-account (sometimes called a
valuation reserve) should be set up so as to charge operations with the
loss in the period in which it occurred. The contra-account is deducted
from the asset cost so as to report the portion of the amount invested
which is applicable to future operations. An example of this technique

is the Provision for Uncollectible Accounts which is deducted from Accounts
Receivable on the balance sheet. Bad debts expense is debited when the
Provision is set up, thus charging the loss to the proper year.

Under the accounting procedure outlined in the preceding paragraph,
both the present and future financial statements are conservative. The
balance sheet is even more conservative under the insurance regulatory
system, but, as will be demonstrated in connection with the discussion of
the specific adjustments, future earnings statements are the very opposite
of conservative. This is a matter of secondary concern to the regulatory
officials in carrying out their supervisory duties since they must of
necessity make evaluations based on measurement of the present legal surplus
and technical solvency of the company. It is, however, a matter of deep
concern to those interested in obtaining an accurate report by management
of the status of the company as a going concern, both as to the amounts
invested in assets which are used by the firm and as to the earning power

which has been created.

74
The first group of adjustments which is attempted, therefore, is to
place these non-admitted assets on the balance sheet and to set up appropriate

provisions for estimated losses in connection with these assets.1

Adjustment i. Supplies, stationery,
printed matter

 

 

Mbst of the companies studied do not show either a ledger or non-
ledger asset for the inventory of these supplies in Exhibit 13. Unless
this is done, there is no way to obtain the data for an adjustment from
the Convention Blank.

The accounting for supplies by insurance companies is not very
different than the procedure used by many commercial firms. Many commercial
firms also charge these supply items to expense when purchased. No objection
is ordinarily made unless the amount is material. However, the amounts
involved in the adjustments for those insurance companies which do inventory
these items suggests that these supplies may at times be material.
Adjustment 2, Advances pp agents pp
officers

These assets are not admissible, so must be eliminated from the
assets in the Convention Blank balance Sheet. They are reinstated with

this adjustment.

 

1The mechanics of making these adjustments for the non-admitted assets
are easy. These assets are eliminated in Exhibit 13 of the Blank, and the
portion applicable to the current year is inCIuded in either Exhibit 4 or 14.
Accurate adjustments can be made from the data in these exhibits. The adjust-
ments are entered on the yearly worksheets and are proved by comparing the
revised balances with the amounts shown in columns 1 and 2 of Exhibit 13.
The success of this procedure proves the authenticity of the abbreviated
analysis, used for companies G to V, wherein the adjustments are entered
directly in Exhibit B without going through the laborious work sheet and
proof of each balance.

The provisions for losses, by contrast, are done on a completely arbi-
trary basis. The methods used are discussed in connection with the individual

adjustments.

75

Adjustment'g. Loans considered
inadmissible

 

With the exception of a few special items, the Convention Blank
either admits assets in full or eliminates them.- Loans which do not meet
the requirements for admission are therefore eliminated in the Convention
Blank. They are reinstated with this adjustment. However, discussion is
deferred to the chapter on analysis of individual companies so that refer-

ence can be made to the exact types of loans involved.

Adjustment 4, Agents' debit balances

The analysis of this item reveals important factors in the philosophy
underlying insurance accounting.

Convention Blank reqpirements.--The review of the development of the
Convention Blank in the preceding chapter indicates that the balance sheet
in that blank is primarily a formula for computation of legal surplus.

Much of the emphasis in the regulation of insurance companies centers
around "impairment of capital." The Commissioners have accepted the idea
of impairment of capital as a deadline over which a company must not be
permitted to pass and remain in business.1 Extreme conservatism has been
the rule in determining impairment of capital, apparently under the belief
that if Surplus is shown at the lowest possible reasonable amount and
capital is not impaired thereby, the company is clearly solvent and can pay

claims on the policies in force.

 

1See, for example, the address of E. E. Rittenhouse before the
National Association of Insurance Commissioners in 1908. Proceedings pf
the Thirty-Ninth Session, page 204.

76

An agent can become indebted to a company in many ways. Some of the
common ways include advances against future commissions; advances during a
training period which are to be offset against future commissions;1 failure
to pay, within the time specified in his contract, the entire net amount of
a premium due the company under a policy delivered to him; default in
remitting company funds collected by him; improper incurrence of expenses
on behalf of the company; and incurrence of an obligation to reimburse the
company for medical and/or inspection fees which it had incurred on policies
which he was unable to deliver.2 In some instances, the amount of the
debit balance may be clearly collectible, regardless of the personal fortunes
of the agent. For example, the commissions on policies being processed may
be more than the balance due from the agent. At the other extreme are
balances due from agents who will shortly leave the company and never pay
the amount due. Rather than attempt an evaluation of the collectibility
of agents' balances, the insurance Commissioners require that all agents'
debit balances be treated as non-admitted assets. This means the aggregate
of all individual debit balances, not the net balance in the Agents' Account
Control.

On the other hand, the aggregate of all agents' credit balances must
be included in liabilities in the Convention Blank. These are as definite

liabilities as would be the case if the indebtedness were to any other

creditor or to a policyholder.

 

1Some companies are attempting to do away with schemes which put
a new agent into debt to the company, which has to be repaid out of future
production, but the practice is still not uncommon.

2Wightman, 168.

77

Evaluation and comparison with generally accepted principles.--Although
the elimination of agents' debit balances from assets but the inclusion of
credit balances in liabilities provide the regulatory officials with a con-
servative computation of surplus and leaves a safety margin in the computa-
tion of impairment of capital, it does not provide the type of reporting by
management which stockholders are interested in. Stockholders should be
informed about the total amount of company funds which are tied up in agents'
debit balances and the estimated portion which will probably not be collected.
Furthermore, the accounts which are uncollectible should be deducted as an
expense in the earnings statement in the year in which the debit balance was
incurred. The regulatory system reduces legal surplus by the entire amount
of all debit balances when incurred, through the "Gain and Losses from
Change in Value of Non-admitted and Related Items" accounts. When the
balance is repaid, increase in legal surplus is shown. The regulatory
system thus understates everything except liabilities in the year an agent‘s
debit balance arises, and overstates earnings1 in the year in which the
balance is collected.

‘Mechanics'gg adjustment.--Adjustment 4 is designed to reinstate the

 

agents' debit balances and eliminate the "Loss from Change in value of Non-
admitted Assets." In addition, a Contra-account (valuation reserve) of

10 per cent of these debit balances is set up in Adjustment 30 for many of
the companies. This 10 per cent is completely arbitrary, but is a demon-

stration of how provision can be made for the estimated losses on this

 

1These "earnings” are reported in the "change in non-admitted and
related items" accounts in the Analysis of Surplus statement rather than
as part of gain from operations.

78
type of asset. Naturally, each company would have to make studies to
determine what portion of agents' debit balances are likely uncollectible
in their own experience.1
An adjustment for agents' balances is made for every company studied.
The significance of these adjustments can be seen in Exhibit II for each.
In addition, noteworthy relationships are called to attention in the next

chapter as the individual companies are discussed.2

 

1The 10 per cent contra-account is established for all of the national
and domestic firms subjected to the abbreviated analysis, but for only those
of the companies studied in detail which had not followed a rigorous policy
of charging off accounts as soon as they became doubtful.

This policy regarding charge-Offs had to be subjectively determined
from the relationship between Recoveries on Accounts Previously Charged Off
(memorandum on line 7.2 of Exhibit 5 of 1962 statement and the comparable
line in other years) and the dollar amount of the charge-offs.

2The mechanics of making this adjustment seem confusing at first.
Reference to the partial Convention Blank in Appendix III will show that
the balance of the Agents' balances control account is entered on line
12.1 of Exhibit 13. This balance is the net of all balances, both debit
and credit. This net balance is the amount which is eliminated in Column 3
of Exhibit 13. This same net balance is used on line 32 of Exhibit 14.
However, the net credit balances are entered in Line 39 of Exhibit 14. The
result is that the change in debit balances is given effect in the total
of Column 3 of Exhibit 14, which is carried to the Changes in Surplus
portion of Page 3.

The adjustment for the year is, then, the sum of Lines 32 and 39 of
Exhibit 14, and is the change in aggregate debit balances. Had the detailed
yearly worksheets not been prepared for those companies studied in detail,
it would have been easy to neglect Line 39. The worksheets could not be
proved if this error was made, and their use established the authenticity
of the summary entry used in the abbreviated analysis.

79

Adjustment‘é. Premium notes, etc., 3p
excess pf net value and other policy
liabilities‘pp individual pplicies

Not very many of the companies studied have this asset.. When the
company does accept such notes, the portion in excess of the value of the
policy must be considered inadmissible. Since the insurance company could
offset the value of the policy against the note in case of non-payment,
premium notes are admissible up to the value of the policy.

Adjustment 5 reinstates the portion of premium notes which is
inadmissible. If there is doubt about the collectibility of these notes,
a contra-account (valuation reserve) should be set up in a manner similar
to that used for estimated uncollectible agents' balances.
Adjustment 9. Insurance premiums pgid
‘12 advance

Not many companies bother to compute prepaid fire and other insurance
premiums probably because this asset is inadmissible, anyway. From the
going concern viewpoint upon which generally accepted accounting principles
are based, this asset is composed of expenditures for the future benefit of
the business and should be shown as such. It is as much of an asset as cash
with which to pay premiums which are due would be. That is, the position
of the company is little different whether they have insurance premiums paid
in advance, or have the cash on hand with which to pay them and also have

the unpaid bill.1 For those companies where the information was available

 

1At no time in the research for this paper was a suggestion encountered
which considered the possibility of entering the pro-rata cancellation value
of the policies as an asset in the Convention Blank. Yet, such a possibility
would seem consistent with the procedure followed in the case of premium
notes covered by Adjustment 5.

80
in the Convention Blank, the prepaid insurance premiums are reinstated to

the balance sheet with this adjustment.

Adjpstmentgl. Bills receivable

No receivable, generally, is admitted to the Convention Blank balance
sheet unless it is secured. Most of the examiners' reports itemize the
composition of the Bills Receivable account. Many different types of
unsecured receivables, and some rather unexpected items, are included. In
most instances these items are proper assets from the going concern point
of View so are reinstated with Adjustment 7. Where they are not, specific

comment is made during the discussion of the company in the next chapter.

Adjustment 8, Foreign exchange

 

Assets and liabilities which are payable in currency of other countries
have to be converted to equivalent American dollars at the free rate of
exchange1 in the preparation of the Convention Blank. The net adjustment
is entered as an asset in the Convention Blank if a debit and as a liability
if it is a credit. The change during the year is reported as a Capital Gain
or Loss in Exhibit 4. Gains and Losses on the actual transfer of funds to
or from a foreign country are also reported as Capital Gains and Losses,
but on a separate line of Exhibit 4.. Generally accepted accounting
principles would require that these items be shown in the earnings state-

ment.2 However, from a going concern viewpoint, there would seem to be no

 

¥AS published in the annual book of Valuation pf Securities published
by the committee on Valuation of Securities of the National Association of
Insurance Commissioners.

2AICP’A Accountipngesearch Bulletin 33, page 113.

81

need to adjust assets being held permanently unless there is good reason
to believe that a permanent loss has been incurred. AICPA Accounting

Research Bulletin 4; recommends that "Fixed assets, permanent investments,

 

and long-term receivables should be translated into dollars at the rates

prevailing Eggp‘spgp assets were acguired or constructed."1 (emphasis added).
Adjustment 8 eliminates the adjustment for foreign exchange, thus

reinstating the assets to the amount which has been invested in them.

Since the only significant foreign assets of the companies studied were,

so far as could be determined from the examiner's reports and the Convention

Blanks,located in Canada there should be no permanent losses which should

be recognized. Losses on assets in Cuba have, of course, been recognized

and the assets eliminated from the balance sheet entirely.

Other non-admitted assets
There are several other classes of non-admitted assets involved in
the individual companies, but they are peculiar to one or two companies

only, so are discussed when those companies are analyzed.

QRQQE_II.Adjustments: Reverse Adjustment‘pg Securities pp
N.A.I.C. Values, Thus Returning Them pp|Amortized Cost
The decision to make this group of adjustments was not as easy as for
the Group I adjustments. However, this turned Out to be one of the most
interesting groups of adjustments because it focused attention on factors
‘which are being discussed in professional accounting circles concerning
the valuation of assets generally, and may point to aspects which are often

ovarlooked in those discussions.

 

1Page 113.

82

Regulatory requirements

The review of development of the Convention Blank and insurance
accounting in Chapter II points out the naturalness of the assumption by
the courts and the legal profession that assets should be inventoried at
liquidating values in the computation of legal sUrplus and solvency. That
discussion also supports the contention that the balance sheet in the
Convention Blank is, in reality, simply a formula for computation of legal
surplus. Mere of the insurance commissioners during the formative years
of insurance regulation, probably had a legal background than an accounting
background. It is likely, therefore, that these officials just assumed
that assets would be included at liquidation values without making any
Specific inquiry into the matter or into accounting techniques used in
commercial firms.

The development of the valuation rules pertaining to the Convention
Blank has been traced in the first chapter of Harold C. Fraine's Valuation

.2: Securities Holdings of ife Insurance Companies.1 Professor Fraine's

—_

 

study lends credence to the presumptions stated in the preceding paragraph.

He concludes that "The valuation of securities holdings of life insurance
companies did not play an important role in insurance regulation prior to

1907. The insurance codes of the various States were then generally silent

on the matter of valuation."2 He suggests that "the National Convention of
Insurance Commissioners (now the National Association of Insurance Commissioners)
first became concerned about valuation in connection with the 1255 pf uniformity

in the market prices at which different companies were carrying the same

 

1Homewood, Illinois: Richard D. Irwin, Inc., 1962. Professor Fraine
calls attention to the assistance of the investment research staff of the
Life Insurance Association of America in the development of this historical
material.

2Ibid., 2.

83

1 (emphasis added). The New York State Insurance Department,

securities."
working with the Massachusetts department, developed a list of market prices
which they made available to all departments. In 1910 a permanent committee
was established by the National Convention, and this committee has issued

an annual list of security values since that time. This volume naturally
reflects stock exchange and over-the-counter market quotations for securities
actively traded. In addition, the committee will assign a value, upon
application, to any security not included in its annual volume.

Some might argue that the objective market data available from this
Committee would make the use of market values permissible under generally
accepted accounting principles. They could point out, for example, that
institutions such as mutual funds state their security holding at the stock
exchange and over-the-counter market quotations.

At the present time even the regulatory system does not, however,
make very extensive use of market values for most insurance company assets.
From the beginning, it was assumed that cost and market were the same for
such assets as sound mortgage loans. Over the years, more and more of the
securities have come to be carried at cost, or cost adjusted for amortiza-
tion of premium and discount or depreciation.

The reasons for the departure from market value are clearly and
concisely set forth in Fraine's book so there is no need to review them
here, other than to make a general observation about the underlying cause.
All of the departures from market value have been made in order to achieve

stability of valuation and thus reduce fluctuations in legal surplus.

 

1Ibid., 3.

-l

84
Radical temporary departures from market value were made during the Panic
of 1907, World War I, and the Depression of the 1930's.

Under present rules, bonds which meet certain quality tests are stated
at cost adjusted for amortization of premium and discount. Mast of the
bonds purchased by life insurance companies qualify for amortization under
these rules. Preferred stocks which meet the tests laid down for quality
are stated at what amounts to a five year moving average market value.1
Common stocks alone must be stated at market value regardless of quality.
Since the statutes of most states severely limit the investment in stocks,

only a small portion of the assets of a life insurance company are stated

at market today.

Generally accepted accounting principles

The discussions in accounting theory textbooks are in agreement as
to the generally accepted accounting for investments by commercial and
manufacturing firms. All agree that if the intent of the firm is that the
assets are held temporarily and if the securities are readily marketable,
they may be included in current assets. In this case, they should be shown
at the lower of cost or market. However, this need not be done on an item
by item basis, but only in regard to the entire portfolio. If the securities
are held as long-term investments, they are traditionally shown at cost

adjusted for amortization of premium and discount. However, serious declines

 

1Specifically, the statement value for the prior year (or cost if
purchased during the year), plus one-fifth of the difference between this

value and the current market price.

85

of a permanent nature should be reflected in the accounts. There is also
general agreement that market values should be disclosed.1

The lower of cost or market is recommended for temporary investments
which are included in current assets because these temporary investments
are really part of the cash account. They should not, therefore, be stated
at more than the amount of cash which can be realized upon sale. This is
not a departure from the going concern to a liquidation postulate, but

simply a recognition that the going concern intends to sell these assets

as soon as it needs cash.

Adjustment 29. ‘nggg

As was pointed out above, bonds which meet certain quality tests are
included in the Convention Blank balance sheet at cost adjusted for amorti-
zation of premium and discount. The determination of eligibility for
amortization is made by the Committee on Valuation of Securities of the
National Association of Insurance Commissioners and is published in their
annual Valuation‘pf Securities. Unless a bond is rated by the committee
as being eligible for amortization, it must be shown at market value. In
general, bonds not eligible for amortization include those in default as
to principal or interest, income bonds, perpetual bonds, and those not in
the first four ratings by accredited rating organizations. An alternative

to qualification via rating organization is provided through a battery of

 

1Finney and Miller, Principles pf_Accounting-Intermediate, p. 296-297;
Welsch, Zlatkovich and White, Ippermediate Accountipg, p. 463; Meigs,
Johnson and Keller, Intermediate Accounting, p. 223; Holmes, Maynard,
Edwards and Meier, Intermediate Accounting, p. 330; Paton and Paton, Asset
Accountipg, pp. 139:141.

86

stipulated tests which include such computations as number of times interest
is covered and the ratio of debt to total capitalization.1

Bonds owned must be tabulated in detail in Schedule D of the Convention
Blank.2 Column 13 of that schedule requires an indication of whether or
not each issue is eligible for amortization. Before the adjustments for
bonds could be made, it was necessary to analyze carefully the exact nature
of the bonds which were identified as not eligible for amortization in that
column. That analysis indicated that the bonds which failed to qualify often
showed considerable change in market value from year to year, but were
seldom bonds which would probably not be paid at maturity. Where this

appears true, the bonds are reinstated to amortized cost in Adjustment 20.3

 

1Exact requirements are set forth in a pamphlet Valuation Procedures
‘ppd Instructions for Bonds and Stocks published annually by the Committee
on Valuation of Securities. Summaries can be found in Charles M. Beardsley,
Life Company Annual Statement Handbook (Winston-Salem, North Carolina: The
author, 1962), p. V-64 and Harold G. Fraine, Valuation pf Securities
Holdings 2: Life Insurance Companies (Homewood, Illinois: Richard D. Irwin,
1962), p. 13.

2The extent of detail required can be visualized from the consolation
offered by Beardsley on page V-56: "It is not necessary to list every
individual bond owned by the Company. All those bonds having the same
issuer, same maturity date and same interest rate may be grouped together
on one line, even though they have been purchased at various dates."

3In many cases, the appropriate adjustment is the total of columns
1, 3 and 5 of Exhibit 4--Capita1 Gains and Losses. However, this is not
always true since there is a diversity of practice between companies in
regard to the method of handling amortization and the computation of gain
and loss upon sale of bonds. (As was noted earlier, there is no prescribed
accounting system. The only requirement is that the Convention Blank be
satisfactorily filled out.)

Considerable research time was required at the start of the study of
each company (both those analyzed in detail and those subjected to the
abbreviated analysis) to see if the adjustment based on Exhibit 4 really
gave an adjusted balance equal to amortized cost. The examination reports
were often helpful in reconstructing company procedure.

Absolute certainty that every issue was adjusted to amortized cost
was not achieved for the larger firms with huge bond portfolios, but the
degree of possible error would be so minor as to be immaterial.

87
The balance sheet which is prepared for each of the companies studied in
detail thereby shows the market value in a memorandum column, and the
effective amount invested in bonds is the primary figure. This is consis-

tent with the pattern recommended throughout this study.

Adjustment 21. ,Stocks

As is noted above, common stocks have to be shown at market value in
the Convention Blank balance sheet, and qualified preferred stocks at a
five year moving average of market price. Non-qualified preferred stocks
are shown at current market value.

During the period covered by this study, most common stocks have
risen in market value. This has resulted in an increase in assets and in
"Capital Gains," reported in the statements of life insurance companies.
Interestingly, the resulting "Capital Gain" is reported in the Surplus
Account section of the Convention Blank rather than in the Operating section.

Qppg "hidden" 33 Convention Blank detailed schedules.--One of the
significant aspects of the Convention Blank is that there is a wealth of
significant data in the blank, but this information is available to only
those experts who have ready access to the blank and know where to find
the details within the blank. This is well illustrated by the way capital
gains and losses are handled. The amount entered in the Surplus Account
section is supported by a schedule (Exhibit 4) which tabulates the amount
of gain from each source--bonds, stocks, etc.--and breaks each down accord-
ing to the portion resulting from actual sale, from change in market value
of securities still owned at the end of the year, and from changes in book
value. This exhibit contains a summary which breaks capital gains and

losses into two categories: (I) realized and (2) unrealized. This breakdown

‘1

88
is designed to provide precise information as to the portion of capital
gains resulting from sale of securities and the portion resulting from
changes in the market value of the securities still owned. However, this
information does not appear in those annual repOrts to stockholders or
data in financial reporting services which are based on the first four
pages of the blank. Although some companies show the realized and unrealized
portions separately in a summary of changes of surplus in their annual report
to stockholders, the practice is far from universal. Of the 45 reports to
stockholders or policyholders obtained for 1962 as one of the preliminaries
to this study, only 11 make a clear-cut segregation.

Diversity 9: practice.--A further problem exists in regard to compu-
tation of realized and unrealized capital gains shown in the Convention
Blank. There is a wide diversity of practice among companies. No official
instructions are given as to the specific items which belong in each

classification, but the company is asked to explain the method it uses.1

 

1The extent of the lack of agreement among companies is evident in

the "Digest of Informal Discussion" of the Transactions‘gg the Sociery pf
Actuaries, Meeting Number 8 (1952), pages 131-144. A few random quotations
illustrate the diversity of opinion: Mr. William Chodorcoff reported that
"The Prudential assumed that the terms referred to the results of the year
and that realized gains or losses arose only on asset dispositions during
the year. The amount of realized net gain was taken as the difference
between the net consideration received and the §§§§£.value at the beginning
of the year, adjusted for the current year's amortization or depreciation

to date of disposition." (emphasis added).

Mr. L. H. MCVity is reported to have observed that "one formula for
'realized' capital gains is to use the net profit or loss from sale or
maturity. This formula would result in a company never showing a realized
loss from the original book value of an asset which was marked down in a
previous year but which was sold in the current year at a price somewhere
between the marked-down price and the original book value."

Mr. G. M. Crowley reported that "The 1951 statements of 22 leading
companies showed that 11 companies took gross profits less gross losses

89

Gains and losses on securities sold are computed in Schedule D-4 of the
Convention Blank (detailed list of all bonds and stocks sold, redeemed or
otherwise disposed of) and carried in total to the summary of capital gains
and losses in Exhibit 4. Schedule D-4 contains a space for both the cost

of the security to the company and the book value at the date of sale.

 

on sale or maturity as the measure of realized gains; 3 also included
increases less decreases in book value; and 8 used special bases, no two of
which appeared to be exactly the same. One company took $4 millions set
aside for the new security valuation reserve as an unrealized capital loss."

The 1951 Convention Blank included realized capital gains in the
operating section, but unrealized capital gains were reported directly in
the Summary of Changes in Surplus. After that one year, both types were
included in the Summary of Changes in Surplus only.

Current practice, as revealed by analysis of capital gains in the
companies whose statements are adjusted to agree with generally accepted
accounting principles in this study, is nearly as diverse as when the split
between realized and unrealized gains was introduced in 1951. Specific
comments are made in connection with the analysis of the individual companies.

The only specific instructions uncovered in the course of research are
in Beardsley. On pages III-72 and 73 he observes: ”A company may apply its
own interpretation....However, for most life insurance companies it is
believed that the method used by Mbdel Company (the example in the manual)
will be appropriate.

"The gain or loss realized on sale or maturity of investments is the
arithmetic difference between the total of Columns (2) and (4). Usually,
however, all of such gain or loss cannot be attributed to the current year
only, particularly in the case of stocks. Therefore there is an adjustment
to modify this difference by any net gain or loss which might have been
included but which is not attributable to the current year.

"The problem involved here can be illustrated by a simple example
of the distortion which might take place if the gains of previous years
are not recognized as such. Assume that a company has capital gains only
in stocks. Say the market value of stocks over the book value at the end
of the prior year is $100,000. If, in the current year, the Company
should sell the particular stocks which account for this difference in
value, and there are no other changes in the stock portfolio or its market
value, then Exhibit 4 in the current year will indicate a profit of $100,000
in Column (2) and a loss from change in difference between book and market
value of $100,000 in Column (5). The net gain in Column (6) will be zero.

90
According to Beardsley, the gain or loss is to be computed from the book
value at the date of sale rather than from the cost of the stock. In
many instances, the cost and book value at the date of sale is the same,
but there are firms which make adjustments to book value of stocks, and,
as a result, the gain or loss reported is not the difference between cost
and selling price. Specific examples will be pointed out in the discussion
of the individual companies in the next chapter.

:prp adjustment g; attempts pp g3.--In order to provide the type of
accountability information upon which generally accepted accounting prin-
ciples are based, an attempt is made to return the common stock account
to cost in adjustment 21. Market value is shown in the proposed balance
sheet, but as a memorandum figure only as far as assets are concerned.
This memorandum figure is, however, used in the computation of legal
surplus.

Adjustment 21 also provides for computation of the gain or loss on
sale of stock as the difference between the consideration received and
the cost of the stock. This is the gain which became available to manage-

ment in the form of funds which could be applied to alternative uses, and

 

If Line 11 considers only the total realized gain, and not the fact that
the excess of market value over book value was accumulated in previous
years, it will show as $100,000 and Line 12 will show an unrealized loss
of $100,000. Clearly these are not the facts as they should be presented.

"For this example, Line 11 should be completed to show $100,000
realized gains on assets disposed of during the year, less $100,000
reflected in previous years, or a net of zero for the year. Line 12
should show net unrealized gains of $100,000.

"To obtain the amount of gains reflected in previous years' state-
ments a company will calculate the excess of market value over book value
on January 1 of the current year for any securities later sold during the

year...."

91
should be accounted for as such, rather than be merged with changes in the
market value of securities still owned. Prior to the time a security is
sold, management decisions are of a different nature and relate to the
opportunity to sell the stock and realize a gain or loss. A decision to
hold the security rather than sell should be as carefully reflected in the
accounts as the gain on a sale. The proposed balance sheet permits manage-

ment to report both of these aspects.

Adjustment 2;, Mortgage lppps

This adjustment applies to only a few of the companies studied, so
is discussed in the next chapter at the same time those companies are
reviewed.
Adjustment 2;. Change ip_Capital Gains
A§_§_Result pf Other Adjustments 12
This Group

Mast of the adjustments in this category result from the situations
described in the discussion of Adjustment 21. In the case of the abbrevi-
ated analysis, the amount entered as Adjustment 25 is, in some cases, the
amount necessary to keep the balance Sheet adjusted figures in agreement
with the cost data in detailed Schedule D of the Convention Blank. The
proofs worked out in the annual worksheets for the companies analyzed in
detail indicate that this is a reasonable presumption.

Group III Adjustments: Provide for Possible Losses pp
Certain Assets

 

This group of adjustments is primarily demonstrative in nature. They
are used to demonstrate the generally accepted accounting technique of
providing for estimated losses which experience has proved exist but which

cannot be specifically identified. For example, experience would undoubtedly

92

indicate that some portion of agents' debit balances would not be collectible.

As was noted in connection with the discussion of Adjustment 4, 10 per cent
of agents' debit balances is arbitrarily set up as a provision for estimated
losses for many of the companies. Naturally, an insurance company using
this procedure in practice would have to devise a method of estimating the
probable uncollectibles which fits its own situation. One possibility

might be a five year moving average of uncollectibles as a percentage of
either total debit balances or volume. Any such scheme must, however, be
reappraised periodically to be sure it fits current conditions.

The type of adjustment made in this group could be used for any asset
where there is a loss which should be charged to expense in a current period
in order to obtain accurate matching of revenues and expenses, but the
specific individual asset which will suffer the loss cannot be identified.
Some illustrations are given in the discussion of the individual companies

in the next chapter.

Group I! Adjustments: Defer g Portion prAcquisition
Costs pp Future Periods

 

 

This group of adjustments brings to light one of the principal
differences between the generally accepted accounting developed for
commercial and manufacturing concerns and the insurance accounting required
by the Convention Blank. The basic problem involved in acquisition costs
is recognized in both, but the approach to the handling of the problem is

totally different.

:22 problem

Life insurance policies are contracts extending over a considerable

period of time, commonly a person's lifetime. Financial reports, on the

U

93

other hand, are prepared annually. This alone poses an almost insurmountable
problem. However, the problem is made even more difficult by the fact that
a large portion of the costs of an insurance policy are incurred during the
first year. Not only is the first-year commission substantially higher than
renewal commissions, but the underwriting costs such as physical examinations,
policy costs, establishment of policy and accounting records and other over-
head costs are largely incurred in the first year.

Insurance companies are required, in completing the Convention Blank,
to charge all of these costs to expense when incurred. This is in line
with the concept of admitted assets. However, the effect on the legal
surplus of a newly organized or rapidly expanding company can be disastrous.
Estimates of first-year costs vary widely, but nearly all estimates are for
amounts substantially in excess of the first-year premium.1 Thus, even
before provision for reserves each new policy shows a loss in the first
year and causes a reduction in Legal Surplus as computed in the Convention
Blank. A new company can completely deplete what appeared to be an adequate
original surplus if it is able to write a substantial volume of insurance
before the "profit" from renewal premiums is large enough to offset the

"loss" on first-year business.

 

1For example, Laurence F. Lee testified before the Senate Finance
Committee in 1958 that ”it takes approximately $1.45 to put on a dollars
worth of new business." Taxation pthife Insurance Income - Hearings
_§efore Committee pp Finance, United States Senate, on H. R. 10021, 85th
Congress, second session, March 5 and 6, 1958, page 118.

The following comment from Dan M; MCGill, Life Insurance (Homewood,
Illinois: Richard D. Irwin, Inc., 1959) p. 268 is typical of the comments
in textbooks: "The costs of acquisition are such that the first year
expenses greatly exceed the loading in the first year gross premium. Indeed,
under many policies, first year expenses will exceed the entire gross premium."

94

The Insurance Industry Solution -
_Pre1iminary Term_Reserve Methods

In recognition of this problem, the insurance industry has developed
a system of modified preliminary term reserves. The effect of these
methods is to reduce the amount of reserve which has to be set up at the
end of the first year below what it should be under the level premium
concept. This in turn permits a large portion of premiums to be included
in revenue in the first policy year to partially compensate for the high
initial expense. Larger amounts are transferred to reserves in ensuing
years than would be required under net level premium plans, thus gradually
bringing reserves up to level premium standards.

Justification.--This solution may seem strange to the accountant who

is used to dealing with commercial and manufacturing firms until he

 

In an earlier chapter, McGill works out an example using first-year
costs as 1152 of first-year premiums, with a footnote warning that first-
year commissions in a small company are usually 60 to 80 per cent of gross
premiums whereas 55 per cent is assumed in his example for commissions and
60 per cent for other expenses. (p. 245).

The examiners report on file in the Nebraska Insurance Department on
one medium-sized mutual company includes a summary of studies of the costs
of acquiring ordinary insurance conducted by that company for internal

purposes. That study shows:
1959 1960 1961 1962

—u_

Cost per thousand dollars of ordinary

 

 

insurance:
Administrative costs, including

service and overhead expenses $19.99 $20.20 $20.41 $19.31
First year commissions and

training program allowance 13.70 13.61 14.65 14.25
Total cost $33.69 $33.81 $35.06 $33.50

 

 

 

 

 

Average first year premiums per

thousand dollars of ordinary
insurance $20.03 $19.42 $20.29 $20.04

 

 

 

 

 

 

 

95
remembers that (1) the Convention Blank balance sheet is primarily a formula
for computation of legal surplus, (2) only readily salable or collectible
assets which qualify as legal investments of insurance reserves may be
included in that balance sheet, (3) the development of the Convention Blank
has been in large measure the responsibility of actuaries, who are vitally
concerned with valuation of policy reserves, and (4) experience has shown
that there is a select period in the first years of a policy during which,
due to selection of risks through physical examinations and other means,
death claims are relatively few. The next few paragraphs summarize the
reasoning by which these concepts are used by the insurance industry to
justify modified preliminary term reserves.

If the balance sheet is only a formula for computation of legal
surplus, it makes no difference whether a factor is added to assets or
subtracted from liabilities. Since the items which can be included in
assets are severely limited, actuaries naturally look to liabilities as a
means of achieving proper measurement of surplus. Reserves are the largest
liability and, contrary to liabilities in a commercial enterprise which
are usually definite in amount, are mathematical estimates based on
assumptions regarding mortality and interest.1 A helpful concept, but
one subject to technical qualification, is that insurance reserves are the

portion of premiums which, because of the level premium method of paying

 

1A technical definition on page 583 of Robert J. Mehr and Robert W.
Osler, Madern Life Insurance (3d ed.; New York: The Macmillan Company,
1961) reads: "The reserve is a liability representing that amount which,
together with future net premiums and interest will be exactly sufficient
to enable the company to meet all policy obligations as they fall due,
assuming that the company's experience is precisely in accordance with its
assumptions relating to mortality and interest."

96

for insurance protection, are paid in advance during the early years of a
policy. These advance payments, together with the interest thereon, offset
the higher premiums which would otherwise be due in the later years of the
policy if premiums were paid in accordance with expected mortality year by
year. Care must be taken, however, to recognize that the reserves are not
allocated by bookkeeping entry when premiums are received on individual
policies but are, instead, placed on the financial statements by an adjust-
ment process based on computations involving aggregates applied to mortality
tables approved by the state.

The real factor which the computation of legal surplus, or technical
solvency, is supposed to measure is the ability of the insurance company
to pay all claims as they come due. Those who support modified preliminary
term reserves argue, consequently, that any reserve system which gives
reasonable assurance of this ability should be satisfactory. Not only is
there a select mortality period in the first years of a policy during
which deaths are lower than shown in the ultimate mortality tables pre-
scribed by statute, but the mortality tables have a built-in safety factor.
That is, the assumptions as to the rates of interest, mortality, and expense
used in calculating the reserve are substantially less favorable than those

1 The reserves are consequently greater than would be

actually expected.
required to meet all future obligations on the basis of realistic assump-
tions. Policyholders are, therefore, adequately protected even though part

of the reserve is temporarily "borrowed" during the first policy year, so

 

1Joseph B. Maclean, Life Insurance (New York: McGraw-Hill Book
Company, Inc., Ninth edition, 1962) p. 127.

\U'

97

long as the system brings the total reserve up to the net level premium
standard by the time the advance payments of the early years are needed.1

The landmark court case2 involving preliminary term insurance reserves
was decided after calling on prominent actuaries for expert testimony. The
court concluded that since this method of reserve computation involved
merely a postponement of the accumulation of the required reserve, it
involved no danger to the solvency and safety of the company. Considerable
weight was given to two public policies. First, the court noted that the
company involved was a foreign company which had applied for a license in
Vermont, and suggested that it was highly desirable to have insurance risks
distributed as widely as possible by admitting companies which had met the
requirements of their home states unless clearly not qualified under
Vermont statutes. Second, the court was concerned that the valuation rules
not be interpreted in such a way as to give a monopoly of the life insurance
business to established companies by applying a rule which would make it
impossible for a new company to survive. The court also paid considerable
heed to equity between old and new policyholders and argued that new policy-
holders should stand their own acquisition costs insofar as possible through
lower policy reserves.

Actuarial justification centers around the fact that a mathematical
assumption that "loading is just sufficient to cover expenses” is made in

computing net level reserves. Further, the computations imply that "Since

 

1M'cGill, pages 270-275 used the idea of "borrowing” to explain the
idea of preliminary term valuation.

2Bankers Life Insurance 99., vs. Howland (1900), 73 Vt. 1, 48 Atl.
435.

98
the loading is the same every year, the expenses are the same." These
assumptions are not, of course, in accord with the facts.1 Since loading

2 a modified

is the difference between the gross premium and the net premium
system with a lower net premium reserve requirement in the first year also
means a higher loading that year. This, they point out, brings loading
closer to actual expenses.

Full preliminary term reserves.--The original reserve method using
the modified reserve concepts is known as the full-preliminary-term method.
The essential feature is that no reserve is required at the end of the
first year. For purposes of calculating reserves, the policy is looked
upon as a one-year term life insurance policy for the first year. There-
after it is regarded as the original policy, issued one year later, for a
period one year Shorter.3 For example, a twenty-payment life insurance
policy issued at age 35 is regarded as a one-year term life insurance
policy at age 35 plus a nineteen-payment life insurance policy issued at
age 36. The entire first-year premium is thus taken into revenue to offset
the high first-year costs. The reserve is started the second year and is
gradually brought up to what it would have been under full level premium

reserve computations so that the two are equal by the end of the premium

paying period.4

 

1Robert G. Larson and Erwin A. Gaumnitz, Life Insurance Mathematics
(New York: John Wiley & Sons, Inc., 1951) p. 100.

2Allen L. Mayerson, "Dividends: Life Companies," Ch. 12 in Vol. 3 of
Examination p£_1nsurance Companies, Adelbert G. Straub, ed. (New York:
New York Insurance Department, 1954) p. 615.

 

3M'ehr and Osler, page 588.

4Care must be taken not to let the title of this method give a false

impression. The policy is not a term policy during the first year. All
that is involved is that the reserve is established as though it were a term

policy the first year.

99

'Modified preliminary_term reserve methods.--Very few states authorized
the unrestricted application of the full preliminary term method for all
policies. Analysis showed that it is both justifiable and practical for
ordinary-life policies but not for endowment and other "high-priced" plans.1
Several modified preliminary term methods were developed, but the plan
known as the Commissioners Reserve Valuation Method, and embodied in the
Standard Valuation Law, has been adopted by all of the states and is the
minimum.reserve applicable to most ordinary insurance issued since
December 31, 1947.2

The details of the Commissioners Reserve Valuation Method are compli-
cated, but the essential feature is that for policies under which the
premium is not greater than that for a 20-payment-life policy, the full
preliminary term basis is permitted, while for policies with a premium
higher than for a 20-payment-life policy a partial reserve must be set up
at the end of the first year. The full reserve must be accumulated by the
end of the premium paying period.

Extent pfwypg.--One of the significant aspects of the modified pre-
liminary term reserve methods is that they have been generally adopted by
only the new and smaller firms where the dollar amount of surplus is a
problem. Maclean, former vice-president of one of the largest life insurance
companies and a highly respected actuary, points out in his text that
because of their substantial surplus funds and large volume of renewal

business, the larger and older companies are well able to finance new

 

1Maclean, pp. 132-136.

2MoCiu, p. 280.

100

business on the full net level premium reserve plan. Consequently, practi-
cally none of the large, strong and well-established companies have adopted
the Commissioners Reserve Valuation Method, even though "it would be entirely
sound, logical, and realistic" for them to do so.1

The Select and Ultimate P1an.--A plan which is based on another aspect
of reserves is pertinent to this study even though it is not now used. This
plan was devised by the consulting actuary to the Armstrong Committee, and
was incorporated into the New York Insurance Law in the general revision
which followed the Armstrong Investigation. It is known as the Select and
Ultimate method and is based on the fact that the mortality tables used in
establishing premiums and net level reserves are all ultimate tables. That
is, these tables ignore the fact that during the first years of a group of
policies death claims will be less than for a similar group of the same
ages which had been purchased several years earlier. This stems from the
elimination Of poor risks in the process of selecting life insurance
policyholders. A select mortality table, by contrast, takes this factor
into account and shows expected mortality by duration of insurance as well
as by age. The use of select tables would unduly complicate the computation
of premiums and reserves so are not used.

Even though death claims followed the mortality tables, there would
still be mortality savings during this select period since premiums are
based on ultimate tables. The select and ultimate method takes cognizance

of this and permits a reduction in reserves during the first five years of

 

1Maclean, Life Insurance, p. 140. Since the Standard Valuation Laws
specify minimum reserves, there is no legal objection to use of full net
level or any other approved method of reserve valuation which provides
larger reserves than the minimum.

 

101
a contract equivalent to the present value of the anticipated mortality
savings. By the end of five years, the full net level premium reserve must
be accumulated and must be maintained thereafter. However, experience
proved that, while the method is actuarily sound, mortality savings during
the five-year period are not adequate to absorb first-year expenses.1

The solution indicated 2y generally
paccepted accounting principles

 

A different set of criteria must be met by statements prepared in
accordance with generally accepted accounting principles. The goal is not
just the computation of legal surplus, but, instead, an accounting for the
funds which have been made available to management and fair measurement of
how well management has used these funds. This use of funds involves both
expenditures which have been made for the benefit of future periods and the
amount of profit which has been realized.

Under generally accepted accounting principles, it makes a great deal
of difference whether an asset is omitted or a liability understated. Two
wrongs do not make a right in this respect, even though the same surplus
figure is obtained.

As was pointed out in the chapter on historical development, the
income statement has assumed first place ahead of the balance sheet in the
financial statements of commercial and manufacturing firms. One reason
for this is that the income statement gives some indication of the earning
power which has been generated. In order for the income statement to be
an effective means of measuring and communicating this earning power, a

proper matching of revenues and expenses must be attained. The general

lMcGill, p. 284.

102

approach has been to take revenue up in the income statement when it is
realized and to then deduct as expense the costs which were incurred in
order to obtain that revenue. Expenditures which are applicable to future
revenue are carried as assets until that revenue is realized. For example,
the cost of a machine is considered an asset. This cost, net of expected
resale value at the end of its useful life (salvage), is allocated to
expense (depreciated) over the time that machine is used in the business,
thus matching the appropriate cost of owning the machine against the
revenue which that machine helps generate.

In theory, there is little difference between the cost of acquiring
a machine which will be used to help generate income over a twenty-year
period, and the cost of acquiring an insurance policy which will bring
revenue into an insurance company over a twenty-year period. The fact
that the machine is more readily salable has little bearing on the fact
that the expenditure involved is an asset, although it might be noted in
paSSing that it is not impossible that an insurance company might be able
to realize more on an insurance policy through reinsurance than a manu-
facturing firm could get for a special purpose machine. The manufacturing
firm would not write the special purpose machine down to what it could
get in a forced sale of that machine, but would allocate the cost against
the revenue which the machine helped to generate. Ideally, the cost of
acquiring an insurance policy by a life insurance company should be handled
in the same way.

Life insurance is not the only industry which has difficulty with
acquisition costs. For example, some oil production companies charge oil
exploration costs to expense, and some even charge the intangible drilling

and development costs of producing wells to expense. However, these

103

practices stem, not from a failure of theory to recognize these items as
assets, but from statutory provisions which permit them to be deducted as
expenses in computing Federal income tax. Furthermore, increasing concern
is being brought for improvement. At least one of the national public
accounting firms has made a plea for insistence on capitalization for
accounting purposes even though these items are deducted for tax purposes.
Arthur Andersen & CO. has taken the viewpoint that "the income-tax statutes
and regulations are not intended to and do not necessarily establish sound

accounting principles for financial reporting purposes."1

Nature pf the adjustments made

In order to obtain a reasonable matching of revenues and expenses,
it seems essential that the acquisition costs of insurance policies be
spread over the time revenue will be received from those policies. An
accurate adjustment would, of necessity, have to be based on records which
only the insurance companies have, and would, even then, be time-consuming
if not impossible, retrospectively. It is believed, however, that an arbi-
trary adjustment, which admittedly is not sufficiently accurate for practice,
can give some test of the significance of capitalizing these acquisition
costs and of the materiality of the effect on annual earnings. If the
results are significant and material, further research is indicated to
see if there are practical ways of capitalizing these costs and allocating
them to annual fiscal periods fairly. Such methods would likely require

the use of automatic data processing equipment.

 

1Accounting and Reporting Problems pf the Accounting Profession
(The company, second edition, October, 1962) p. 103.

104

Adjustment 49, First-year Life
Insurance Commissions

 

Why 3 five-year period was selected.--The adjustment made for first-
year life insurance commissions is completely arbitrary. Certain traditions
and factors of recognized standing by the insurance industry lend support
to the five-year period used, however. First, there is general agreement
among actuaries that, although the effect of selection of risks may be
felt for fifteen years or longer, the significance wears off after approxi-
mately five years.1 Not only was a five-year period used in the Select
and Ultimate reserve plan, but a five-year period is given indirect effect
in computing policyholder dividends under the Contribution method used
today. Maclean points out that this contribution method, in one or another
of its modifications, is used by practically all companies in the United
States and Canada.2 He goes on to explain how the select period enters
into the dividend formula with this observation:

The mortality factor of the dividend in the three-factor contribution
formula is . . . normally a percentage of the "tabular cost of
insurance," i.e., of the contribution to the current year's death
claims which would be required if the actual rates of mortality
experienced were those of the mortality table used for premiums and
reserves.

. . . It is also usual to base the percentages on the ultimate
mortality experience, i.e., to eliminate the experience under the
policies which have been less than 5 years in force. The extra
mortality savings under recently issued policies is not usually
reflected in their dividends but is gonsidered as an offset against
the extra expense of the first year.

In one of his widely cited actuarial studies, Maclean elaborates further

with the observation that, in effect, the use of ultimate rather than select

 

lMcGill, p. 141.
2Maclean, p. 148.

3Ihid., 155.

105

mortality tables in the computation of dividends means that the insurance
industry has adopted the convenient rule that select mortality profit shall
be applied toward payment of expenses and not be included in dividends to
policyholders.1 Since dividend computations are not controlled by statute,
it seems reasonable that the method chosen by trained actuaries as a fair
method of allocating costs against policies for dividend purposes is likely
a fair method for accounting and reporting purposes also.

The five-year concept is given further recognition in Great Britain.
Dividends are computed only once every five years by most British companies.

A second factor which reinforces the use of a five-year period is that
it is desirable to use a relatively short period in testing the significance
of the adjustment. If significant results are obtained over a five-year
period, the results must be highly significant if the acquisition costs
were Spread over the entire premium paying period of whole-life and
limited-payment policies.

A third factor which suggests use of a short period of allocation
is that the lapse rate is much higher during the first year or two than
thereafter. In any actual application on a policy by policy basis, the
unamortized acquisition costs on a lapsed policy would have to be charged
to expense in the year of lapse. It is quite possible that the combination
of modified preliminary term reserves with their high portion of premiums
taken into revenue in the first policy year plus a short period of alloca-
tion of first-year commissions to expense gives adequate consideration to

the lapse rate in the arbitrary formula used in this study.

 

1Joseph B. Maclean and Edward W. Marshall. Distribution p£_Surplus
(New York: Actuarial Society of America, 1937) p. 34.

106

A fourth, but important, factor is that no adjustment is being made
in this study for acquisition expenses on life insurance policies other
than first-year commissions. To some extent, the modified preliminary term
reserve methods can be considered as doing an eqUitable job of allocating
all acquisition costs other than first-year commissions over the premium
paying period of the policy. Since renewal commissions are ordinarily paid
over a nine or ten-year period, with occasionally a service fee thereafter,
these commissions are already reasonably allocated over a fairly long
portion of the premium paying period. If first-year commissions are then
amortized over a five-year period during which there is a select mortality
saving, the over-all effect might be fairly reasonable as compared to a
scientific policy by policy allocation.

Warning p_.pg arbitrariness pf the gdjustment.--Warning has already
been sounded that this adjustment is arbitrary, but the point is so
important as to justify re-emphasis. The purpose of this adjustment is to
test the significance of capitalization of direct acquisition costs and
amortization over the premium paying period of the policy. If such an
adjustment, made on an arbitrary but highly conservative basis, is signi-
ficant, further research at the company level is called for.

Qpinion pf actuaries and insurance accounting_§pecialists.--Several
actuaries and CPA's who specialize in insurance work volunteered the off-
hand opinion, when the proposed adjustment was discussed with them, that
an over-adjustment is definitely being made for those companies which use
the modified preliminary term reserve method of valuing all of their
policies, and that an under-adjustment is likely for the well-established

firms which have most of their policies valued under the full net level plan.

107

Effect pf reserve method used.--A1though investigation of a scientific
policy-by-policy allocation is beyond the scope and purpose of this study,
an observation is in order. An accurate computation of the amount carried
as an asset at the end of the first policy year would have to be based on
the reserve method used. If the entire acquisition cost were set up as
an asset on the date the policy is issued, a larger portion should be
allocated to expense in the first policy year than in later years when a
modified preliminary term reserve system is used. The same effect could
be obtained where the asset is set up by adjustment at the end of the year
by establishing the asset at that time as the excess of acquisition cost
over the portion allocable against the premium taken into revenue that
year. In this way, the effect of the modified preliminary term reserves
on legal surplus would not be affected. The over-adjustment which
actuaries see in this study would be eliminated.

Adjustment 41; Accident and health
insurance commissions

This adjustment, too, is arbitrary and would require detailed research
at the company level before it could be applied in practice. However, it
is undoubtedly more accurate than the adjustment for first-year life
insurance commissions.

Although there are several kinds of policy reserves relating to
accident and health insurance, the most significant from an accounting
aspect is the unearned premium reserve. This reserve is based on the total
contract or gross premiums paid,1 rather than on the net premium used in

the valuation of life insurance reserves, and is simply the pro-rate

 

lMehr and Osler, p. 597.

108

portion applicable to the period from the date of valuation to the next
following renewal or premium due date. Some companies find that a reserve
of 50 per cent of the gross premiums is sufficiently accurate. However,'
when premiums are paid on less than an annual basis, a semi-monthly or
other more accurate methOd is used.1

The actuary for one medium-sized company which specializes in accident
and health insurance pin-points both the accounting problem and the philos-
ophy of the insurance industry solution when he observes that, although
state statutes require a gross premium reserve, a pure-premium reserve
plus a reserve for the administrative expense that will be paid during the
unexpired portion of the contract term would be a more accurate measure of
the insurer's liability. When the reserve is based on gross premiums no
allowance is made for the commissions, other acquisition costs, and expenses
that are paid when the contract is issued. He contends that on first-year
premiums, theSe expenses may be as much as 40 to 50 per cent of the premium.
In renewal years they will be closer to 35 per cent. As a result, he
estimates that most insurers have an equity of 20 to 35 per cent in their
unearned-premium reserves, which equity acts as an extra margin of safety.2

InStead of reducing the liability, as suggested by Angle, generally
accepted accounting principles suggest that the extra acquisition costs

should be set up as an asset and amortized over the period of time revenue

will flow in as a direct result of these expenditures. However, since

 

1G. F. Michelbacher, Multiple-line Insurance (New York: McGraw-Hill
Book Company, Inc., 1957) p. 127.

2John C. Angle, "Reserves," Chapter 12 in Edwin J. Faulkner Health
Insurance (New York: McCraw-Hill Book Company, Inc., 1960) p. 410.

109

many accident and health policies are in effect one year policies, accountants
would likely go along with the conservative procedure of allocating the costs
over the policy year. The adjustment made in this study approximates such

an allocation.

The Convention Blank contains a special schedule (Schedule H) which
analyzes accident and health business in detail. The amounts involved in
Adjustment 41 are taken from that schedule. The net commissions for the
year as shown on line 28(d) of Schedule H are multiplied by a fraction, the
numerator of which is the unearned premium reserve shown on lines 45(a) and
45(b) and the denominator of which is the premiums written or renewed during
the year shown in line 7 of that schedule.1 The product is the balance to
which Deferred Accident and Health Insurance Commissions is adjusted.

Adjustment 4%, Accident and health
insurance direct acquisition costs

 

The accident and health insurance analysis which comprises Schedule H
of the Convention Blank asks for the total "acquisition and field super-
vision expenses (other than commissions)" on Line 29. The same portion of
this line is deferred as in the case of commissions.

Some companies include only a few types of expenditures on Line 29.
However, some companies include substantial costs.

No adjustment corresponding to Adjustment 42 is made for life insurance.

The reason for the different treatment is that life insurance reserves in

 

1A more accurate computation might use the pro-rata portion of the
policy period as the numerator of the fraction, but this would involve a
policy by policy computation whereas the computation used in this study
can be taken directly from Schedule H.

110

all except the large, well-established companies are usually based, in full
or in part, upon the modified preliminary term concept. Traditionally,
accident and health insurance reserves have not embodied this modification
although the report of a special Task Force recommending permission to use
a two-year preliminary term method of valuation for certain types Of
policies of the guaranteed renewable type, was adopted by the National
Association of Insurance Commissioners in 1954.1 As have been previously
noted, it is assumed that the extra portion of life insurance premiums
taken into income in the first year under modified preliminary term life
insurance reserves Offsets the extra costs other than commissions. Except
for a few types of policies, no similar modification of reserves is made

in the case of accident and health policies, so it seems desirable to defer
the appropriate portion of at least the direct field supervision and

acquisition costs which can be identified.

'Qppgp costs deferred

Some of the companies studied have special situations in which costs
need to be deferred in order to make the financial statements agree with
generally accepted accounting principles. These items are discussed in
connection with the analysis of the individual companies.

Qpppp.!: Place Non-admitted Fixed Assets pp the Statements
and Carry All Fixed Assets pp Amortized Cop;

As a general rule, most life insurance companies report real estate

at cost less depreciation, but charge other fixed assets to expense when

acquired. Many states have recently started to allow capitalization of

 

1Angle, p. 419.

lll

electronic data processing equipment. This treatment is often limited to
equipment costing more than some specified amount, commonly $25,000, and
is subject to a ceiling such as 2 per cent of admitted assets.1

The official instructions do not require that real estate be carried
at cost less depreciation, but, instead, limit the maximum value which may
be admitted to that figure. Apparently, if current market value is less
than depreciated cost, market value should be used in the Convention Blank.
The specific practices of the companies studied reveal more than the
official instructions and the literature regarding actual practice. These
individual practices are discussed in connection with the analysis of the
individual companies in the next chapter. I

One of the interesting general aspects of the reporting of fixed
assets in the Convention Blank is that the amount reported is a net figure
after deducting any encumbrances on the property. Since most life insurance
companies use cost less accumulated depreciation for the value of the
property, the net result is that the figure shown in the Convention Blank
balance sheet is the net effective investment of funds obtained from policy-
holders and stockholders in the asset. Encumbrances are relatively rare,
but the usual commercial accounting preference would be to show the encum-
brance as a liability and the asset at depreciated cost. This would provide

a more complete picture of the funds which have been made available to the

 

lBeardsley, p. 111-13. The official instructions for the Convention
Blank simply refer to state law by noting in the instructions for Exhibit 13
that furniture and equipment should "be carried at zero value in Column (4),
Net Admitted Assets, except for electronic data processing equipment which
may be carried at such admitted asset value as permitted by law, ruling,
or regulation...."

112

management of the company and what has been done with them, but the net
effective amount of policyholder and stockholder funds invested in the
property which is shown in the regulatory system is also pertinent
information.

Many of the adjustments pertaining to fixed assets are peculiar to
one or two companies, so are discussed when the company is analyzed.
However, a few items are common to several companies, so are given standard

adjustment numbers and are discussed in the following pages.

Adjustment 29, Record furniture and
eguipment, and

 

 

Adjustment 51. Record depreciation pf
furniture and eqpipment

A11 fixed assets other than real estate are included under the furni-
ture and equipment caption in the Convention Blank by most life insurance
companies, but a few segregate such items as automobiles and airplanes.
Except for the electronic data processing equipment mentioned above, the
assets classified as furniture and equipment do not qualify as admitted
assets for regulatory purposes. Some life insurance companies charge the
entire cost of these items to general expense when purchased. Other firms
carry the cost less depreciation as an asset in the ledger and eliminate
it as a non-admitted asset in Exhibit 13 of the Convention Blank.

Adjustments 50 and 51 are used only when the cost of furniture and
equipment is charged directly to expense. Adjustment 50 simply transfers
the cost of the items purchased from expense to an asset account. Adjust-
ment 51 records depreciation on the asset recorded by Adjustment 50. Since
there is no way of knowing how long each item is used by the company from

the data in the Convention Blank, an arbitrary ten-year period is used for

113
depreciation. When the cost has been fully depreciated, the asset account
is written off against the accumulated depreciation account. In practice,
it would be better to retain both accounts until the asset is actually

retired from use.1

Adjustment 22. Reverse entry for change
ip net book value pf furniture and

eguipment

Prior to 1949 life insurance companies were required to charge all

 

 

purchases of furniture and equipment to expense immediately. Starting in
1949 the Convention Blank was changed so as to permit capitalization and
depreciation of these items. The depreciation is then included in general
expenses.2 Up to this point, the procedure appears the same as that used
by commercial firms. However, a life insurance company is required to
eliminate the book value (cost less depreciation) of furniture and equip-
ment as a non-admitted asset. The net effect is the same as though the
asset were written off. This is easiest to visualize by examining an
example. Suppose that equipment costing $1,000 was purchased on January 1,
and that it is depreciated at the rate of 10 per cent per annum. In the

year of acquisition, $100 will be charged to depreciation expense and $900

 

1The mechanics of making Adjustments 50 and 51 are simple because
the cost of furniture and equipment purchases which are charged to expense
are listed on line 5.5 of Exhibit 5--Genera1 Expenses. This amount is
entered on a worksheet and spread over the ten-year depreciation period,
using a half-year's depreciation in the year of acquisition. A sample
worksheet is included as Appendix II.

The cost of furniture and equipment acquired during the ten-year
period prior to the start of the test period had to be obtained by corre-
spondence with foreign companies because the Nebraska Insurance Department,
in common with most departments, retains the Convention Blanks of foreign
companies for only five years.

2On the same line 5.5 of Exhibit 5 as is used when the entire cost
is charged to expense at the date of acquisition.

114
will be charged directly to Surplus under the caption "Net loss from non-
admitted and related items." The entire $1,000 is therefore written off
in that year. In subsequent years, $100 will be charged to depreciation
but is offset by an income item of $100 entered direct to Surplus under the
"Net gain from non-admitted and related items" caption. The Convention
Blank Surplus is therefore not affected by the depreciation entries, but
the net operating profit shown in the Summary of Operations on Page 4 of
the blank conforms with generally accepted accounting principles so far as
this furniture and equipment is concerned.

For the companies which have capitalized furniture and equipment
items, the write-off of the net book value is eliminated with Adjustment 52,
thus reinstating the asset to the balance sheet and eliminating the off-
setting of depreciation by an increase in Surplus. The depreciation rates

used by the life insurance companies are accepted.

CHAPTER _Iy_
THE COMPANIES ANALYZED gr DETAIL

In order to fully understand the Convention Blank, it is helpful, if
not absolutely necessary, to work with it. One of the first steps in the
research for this dissertation was to plunge directly into the Convention
Blanks of the Nebraska domestic life insurance companies which are on file
in the Department of Insurance of the State Of Nebraska. The selection of
the trial company was completely impartial. First, the companies with
extraordinarily simple statements, the mutual companies, and those concerns
which were doing little or no current business were eliminated. One of the
remaining firms had been formed seventeen years previously, so it was chosen
in the belief that it would provide a gradual build-up of complexity and
that it would also bring out the details of the major change in the
Convention Blank in 1951. It turned out that this firm had more compli-
cations than any firm studied, so the indoctrination was a thorough one.

A conventional financial statement worksheet was started for the
first year of the company's existence. The principal statements in the
Convention Blank were entered on the worksheet in trial balance form. Each
account was then analyzed to determine how closely the treatment of that
item corresponded with the generally accepted accounting principles which
are acknowledged as applicable to commercial and manufacturing companies.

This required extensive concurrent use of library materials on insurance

115

116
and insurance accounting and many hours of tracing items through the
Convention Blank. The need for, and the possibility of making, the groups
of adjustments discussed in the preceding chapter was gradually worked out,
and the worksheet was revised through trial and error until a standard
style was developed which could be used for all companies.

In order to show the exact procedure finally adopted for the detailed
analyses, the worksheet for one year for Firm F is included as Appendix 11.
Note that every adjusted balance sheet figure can be checked against some
item in the Convention Blank (since the revised form was adopted in 1951)
and that the entire worksheet embodies the complete integration of real and
nominal accounts which is inherent in double entry accounting.

The format of the revised financial statements which are prepared
from the worksheets was similarly worked out on an experimental basis.
These statements were outlined in the preceding chapter, but it may be well
to re-emphasize that the format is one which seems to the writer, as a
certified public accountant with several years of both practice and teaching
experience, to meet the minimum requirements for certification as being in
conformance with generally accepted accounting principles and hopefully
also meeting the technical requirement that it "shall correspond with or
include the corresponding items from its verified statement made to the
Department of Insurance."1 Whether or not the latter requirement is ful-
filled is a matter of law and no representation is made herein that the
proposed statements would or would not be acceptable under present statutes.
If they do not, the statutes could be amended. It must be emphasized,

however, that all of the information in the statements is taken from the

 

1Section 44-324, Revised Statutes pf Nebraska.

117

Convention Blank, but that some of it is from the detailed schedules deep
in the blank rather than in the summary statements on pages 2, 3 and 4.

There is no logical order in which the companies should be discussed.
With the exception of the trial company, the research was done in somewhat
the order of size. This is probably as good an arrangement to follow as
any because it will thereby permit the simpler statements to be discussed
first. It must be kept in mind, however, that the companies discussed
first are Specialty companies to some extent and are therefore not typical
firms. Although the data in the Convention Blank are public information
in the sense that anyone can go to the Insurance Department and examine
the Convention Blanks on file there is nothing to be gained by stating the
names of the firms, so they are given alphabetical designations.

The discussion regarding each firm calls attention to features of
the financial statements for that firm which have not been previously
discussed, and to adjustments which are peculiar to that company. Many
of these adjustments have intriguing aspects and reveal more of the under-
lying philosophy of life insurance accounting and reporting than do the

more routine adjustments discussed in the preceding chapter.

COMPANY A

History

Firm A was incorporated in 1954 as a subsidiary of a consumer finance
company. It is an unUsual company in several respects. It writes only
credit life, disability, accident and sickness insurance. It shares office
space with its parent company, and expenses are allocated between them.

If these peculiarities are kept in mind, it is a good firm with which to

start this analysis because its structure is simple.

118
Adjustments Peculiar pp_Company A.

The most unusual aspect of the adjustments for Company A is that the
deferred first-year life insurance commissions are small. The reason is
that all of the premiums are single premium term credit insurance. The
method of deferment is similar to that for accident and health insurance
rather than the five-year amortization method used for other firms.

The only other adjustment made for Firm A involves a correction of
the method of handling the accrual of Federal income taxes in 1957. No
effort was made to seek out corrections of this kind, but if discovered
the appropriate correction is made to the revised statements.

AS was pointed out in Chapter I, one of the limitations of this study
is that there is no way of making even approximate adjustments for Federal
income taxes on income which has been earned but which is not yet taxed
under the Special formula applicable to life insurance companies. In the
instance of Firm A, however, income taxes have apparently been accrued on
a sound basis by the company itself. The company was examined as of
December 31, 1962, by the Nebraska Insurance Department, but the examination
report simply observes that the company figures are accepted. However, the
liability reported on December 31, 1962, is $1,149,226.90 whereas the

expense for the year 1962 was only $773,000.00.

Ihg Financial Statements
The financial statements for Life Insurance Company A are the simplest
of any of the firms analyzed in detail. This permits the discussion to
move step by step from the general outline in the last chapter, to the
uncomplicated Statements for this company, then on to more and more compli-

cated Situations in the discussion of the other companies. Most of the

119

factors discussed in the following paragraphs are, therefore, essential to
the understanding of the statements of all of the companies.

Comparative Earnings Statement -

Exhibit‘l

The comparative earnings statement, as revised to conform with
generally accepted accounting principles, is an attempt to summarize the
essential elements of a fair measurement of the earnings of the firm. It
embodies both the earnings of the current year and the accumulated earnings
from prior years. The statement is, therefore, a combined statement of
income and retained earnings.

Tpg.current gperating concept.--A1though the term is not used, the
Convention Blank calls for the current operating concept1 in an extreme
form. Several items which commercial firms using the current operating
concept would always include in operating revenue and expense are entered
direct to Surplus in the Convention Blank.2

The combined income and retained earnings statement provides a more
meaningful presentation for life insurance companies than division into
two Statements. An annual accounting period is far too Short a portion of
the operating cycle of most life insurance companies to provide a satisfactory
measure of the "normal operations" emphasized in the current operating
concept.

The underlined captions in Exhibit I can be viewed as measurements

of flows which result in earnings. The final measurement is the net

 

1This concept is discussed and contrasted with the "clean surplus"
concept in all Standard accounting theory textbooks.

2See page 4 of the Convention Blank form in Appendix III. Many
companies are inclined to report all transactions which are not strictly
routine in the blank spaces in the analysis of the Surplus account.

120

addition to or reduction of retained earnings for the period. The inter-
mediary captions allow the reader to choose the point of measurement which
is most useful for his immediate purpose--net insurance income, net income
before income tax, net income, or the final increment in unrestricted
retained earnings-dwithout letting him ignore how the figure he chooses
fits into the entire picture.

Investment income.--One of the major changes from the Convention
Blank presentation is that of Showing the gross investment earnings as
revenue. The expenses are deducted as one of the items under the "Acquisition,
Investment and Administrative Expense" caption. This procedure is more in
keeping with the concept of gross revenue, 3 figure which may at times be
significant.

The taxes which are included in investment expenses in the Convention
Blank are reclassified back into the Taxes, Licenses and Fees item in this
statement and are not included in the General Investment Expense caption.
The mechanics of making this reclassification are illustrated in the sample
worksheet in Appendix II.

Transfers Ep_appropriated surpluS.--The only appropriation of surplus
by Life Insurance Company A is the Mandatory Securities Valuation Reserve.
The reasons for showing this account as an appropriation of surplus are

outlined in the discussion of the balance sheet in the next few pages.

Reconciliation - Exhibit 11_

This statement serves two important purposes. First, it proves the
accuracy of the revised earnings statement by explaining the differences
between the Summary of Operations and Surplus Account in the Convention
Blank and the Revised Earnings Statement in this report. Second, it reflects

the significance of the adjustments which are made.

121

Mechanics.--The first line in the reconciliation is captioned
"Gross Income." This figure does not appear in the Convention Blank, but
all of the amounts necessary to compute it do. ,None of the figures which
are used to compute gross income are affected by the adjustments made in
this report, so gross income is the logical starting point for a
reconciliation.

The Acquisition, Investment and Administrative Expense items are not
always the same in the Convention Blank and in the revised earnings state-
ment. They are, therefore, tabulated in the reconciliation so that an
item by item comparison with the Revised Earnings Statement may be made
if desired.

The "Net gain (loss) from operations per the Convention Blank" agrees
with the final "Net gain from operations" shown on line 33 of the Summary
of Operations section of Page 4 of the Convention Blank (see Appendix III).

Items entered direct pp Surplus ip Convention B1ank.--Those items

 

which are entered direct to Surplus in the Convention Blank are divided
into two groups in this study. Such items as dividends and transfers to
appropriated or restricted Surplus are shown under the "Dispositions of
Income" caption near the bottom of the Revised Earnings Statement. The
remaining items are taken into income. The latter then also become recon-
ciling items in Exhibit 11. Some items must be Shown as one of the "Items
Entered Direct to Surplus" even though they are cancelled-out in the
Adjustments Section. This is necessary in order to compute the "Net per
Convention Blank before Items Classed as Dispositions of Income," which

is in reality the net income that would be reported in the Convention Blank

if that form used the all-inclusive type of earnings statement.

122

The $5,945.00 "Change in Value of Assets Owned at End of Year"
illustrates these points clearly. This $5,945.00 is the "loss" in the
market value of common stocks owned at the end of the year.

Balance Sheet, December 31, 1292 -
Exhibit III

The balance sheet used in this study contains more innovations than
the other statements, so the gradual development from the relatively simple
statement for Company A to the more complicated Statements of the other
companies should be helpful.

An effort is made throughout the financial statements to reflect
basic concepts in a manner which will be understood by the reader who is
not a technical expert in insurance but is familiar with commercial
financial reports. Special care has to be taken in the balance Sheet.
Standard terminology which is familiar to the readers of financial state-
ments is followed wherever possible. However, when a specialized technical
insurance account is involved, descriptive captions are used so long as
they do not do violence to important technical relationships.

Format.--The basic Structure of the balance sheet used in this study
was outlined in the preceding chapter. This balance sheet is designed to
meet a number of essential criteria including: (1) It must adhere to the
statutory requirement that it shall "correspond with or include the corre-
Sponding items from" the Convention Blank; (2) It must list all of the
funds which have been made available to the firm, including earnings; and
(3) It must Show all of the assets these funds are invested in, thus
accounting for all that has been made available to the firm.

Important relationships.--Attention to certain key relationships

should help specify the manner in which the requirements stated in the

123

preceding paragraph are met. First, the liabilities and legal capital

are identical with the Convention Blank down to the caption "Total based

on National Association of Insurance Commissioners Valuation of Admitted
Assets." Note particularly that the statutory legal "policyholder surplus"
is clearly set forth at the exact amount computed in the Convention Blank.

Assets are stated at both the effective amount invested in them
(amortized cost) and at the National Association of Insurance Commissioners
valuation. The N.A.I.C. valuation is a memorandum entry. The difference
between the two valuations is used on the credit side to convert the
Convention Blank liabilities and surplus to the investment which has been
made available to management of the firm. The effective amount invested
in admitted assets is thus proved equal to the funds made available for
this purpose.

After reaching this mid-point balance, non-admitted assets are added
to admitted assets and the source of funds used to acquire them are added
to the legal investment so that a final balance is reached which includes
everything management needs to account for. The balance sheet now includes
the solvency concepts of the Convention Blank and also the going concern
concept of commercial accounting. No other industry can so easily have
both of these important concepts in one statement.

One of the most important relationships in this balance sheet is that
of the Statutory insurance reserves and the revenue-producing assets. The
insurance regulatory system has conventionally listed these items first in
the balance Sheet, and there is no apparent reason to change. These items
are peculiar to the life insurance industry and are the most important
items from the regulatory vieWpoint in most cases. The remainder of the

balance sheet is similar to the balance sheet of a commercial or manufacturing

124

business. The only real difference is that the assets are divided into
two groups--those which qualify as legal investments of insurance reserves
and those which do not, i.e. admitted and non-admitted assets.

Life Insurance Company A is unusual because it has no ordinary life
insurance or endowment insurance reserves. As a consequence the revenue-
producing assets are considerably in excess of the statutory insurance
reserves. This permits the current assets to be less than current
liabilities.

A final comment concerning important relationships is pertinent at
this point. It is often contended that the classification of current and
fixed assets is not significant for a life insurance company. When one
realizes that the revenue-producing assets are primarily the fund covering
the statutory reserves (granting that the reserves can also be invested in
certain operating assets) and that the remainder of the balance Sheet is
essentially the same as in any other enterprise, the amount invested in
working capital does have significance. So does the amount invested in
buildings and other fixed assets.

Descriptive gpptionS.--There is always danger in adopting the descrip-

 

tive captions mentioned in the introduction to this section. Technicians
who are familiar with Standard terminology are often bewildered when
different, and often imprecise, captions are substituted for terms they
have come to use every day. One of the important aspects of published
reports Should be strict adherence to the goal of having the same term
mean the same thing regardless of the industry or company involved.

An effort has therefore been made to use standard terminology when-
ever possible. The only departures used are those which are made delib-

erately for emphasis or when insurance industry terminology is so different

125

from commercial and manufacturing terminology as to be grossly misleading
to the reader who is familiar with the reports of commercial firms. The
principal departures are discussed in the following paragraphs.

The words "invested in" are inserted in each of the underlined sub-
totals and totals on the asset side. This is done to emphasize that the
balance Sheet assets are a historical record of the effective amount
invested in the assets rather than the market value which is theoretically
used in much of the regulatory system. These words Should serve as a
constant reminder to those familiar with insurance reports that this
balance sheet is based on cost.1

The caption "Assets Admitted As Legal Investments of Insurance
Reserves" Should help the non-insurance oriented reader understand what
admitted assets are, or at least prompt him to ask pertinent questions in
an effort to understand the concept. For internal reports, the caption
"Admitted Assets" would be sufficient. Similarly, the bOttom portion could
be labeled "Non-admitted Assets" in internal reports.

The term "Revenue-producing Assets" is not used elsewhere in the
literature. It may well be that someone within the industry will find a
better term should the industry decide to experiment with this type of
balance sheet.

The most troublesome captions are on the right side of the balance
sheet. Every effort is made to distinguish the double entry accounting
type of balance Sheet from the formula type used in the Convention Blank.

The Standard captions of ”Net Worth" and "Equity” both seem to denote value

 

1This wording might serve a similar purpose in commercial and
industrial accounting by focusing attention on the reason for use of cost.

126
to some extent, so are avoided. The caption "Investment" is used, but not
without some misgivings. The term has the advantage of emphasizing the
correlation of the "investment by" various sources as the funds made
available to the firm and the assets which those funds are "invested in".
The danger is that the word "investment" may seem to belong on the asset
Side. This caption is one which should concern accountants in all industries,
and if discussion can be stimulated someone will undoubtedly find the one
best caption. The important criterion is that it not carry the connotation
of value. This will be especially important if commercial and manufacturing
firms ever decide to seriously experiment with supplemental statements
reflecting values. It is important now in industries such as life insurance
where the primary regulatory statements stem from value concepts.

The importance of this terminology can be emphasized by pointing out
that the legal capital based on the Convention Blank shows eguity because
it is based on the yplpg of admitted assets, but the so-Called "stockholders'
equity" section of the commercial balance sheet does not. The latter shows
the amount of the investment in the firm ordinarily by contribution for
stock or through retention of profits.

One remaining caption requires comment. The typical non-insurance
reader of financial statements has difficulty understanding policy reserves.
One reason for this is that the word "reserve" is used in many ways in
finance and accounting in Spite of progress in limiting its use in financial
statements. The other reason is that he does not fully understand insurance
and the net level premium concept. It is hoped that the caption "Portion of
Premiums and Investment Income Held AS Reserves" might contribute a little

to such understanding, even though there must be technical reservations.

127
The Standard terminology of the insurance industry is used in the under-
lined caption for the subtotal, just as is done for admitted and non-admitted
assets.

Mandatory Securities Valuation Reserve.--This reserve is analyzed in
detail in the recent book by Professor Harold C. Fraine1 so a few general
observations are sufficient here. The purpose of the reserve, first
required in 1951, was to minimize the effect of fluctuations in the asset
values of bonds and stocks from year to year on legal surplus. A specified
minimum reserve must be maintained, but there is a rather wide latitude of
choice in the size of this reserve so long as it remains between the mini-

2

mum and maximum permitted by the regulations. The rules are extremely

3 but the essential feature is the attempt to build a maximum

complex
reserve which will equal 1 per cent of the admitted value of amortizable
bonds and 20 per cent of the statement value of non-amortizable bonds and

30 per cent of Stocks. Generally, 1/20 of 1 per cent of amortizable bonds
and 1 per cent of non-amortizable bonds.and stocks is credited to the
reserve each year along with all capital gains, both realized and unrealized,
after deducting income taxes on these gains. The reserve is reduced by
capital losses, both realized and unrealized. However, these amounts are

modified by the maximum reserve, the minimum reserve, and numerous other

technical factors.

 

1Valuation pi Securities Holdings 2; Life Insurance Companies
(Homewood, Illinois: Richard D. Irwin, Inc., 1962).

2Charles M. Beardsley, Life Company Annual Statement Handbook
(Winston-Salem, North Carolina: The author, 1962 - looseleaf).

3Fraine characterizes them as follows: "The rules for the valuation\
reserve occupy only two printed pages of the Committee publication, but
appear--at least at first glance--so complicated as to defy ready under-
standing." p. 17.

128

The regulatory literature treats this reserve as an "above the line"
item--that is, as a liability. It is given a Specific Spot under Item 25
on Page 3 of the Blank under the caption of "Miscellaneous Liabilities."1
It is not, therefore, permissible to list it on one of the blank spaces
under Item 27--"Special Surplus Funds."

Just listing an account among the liabilities on the Convention Blank
does not make it a liability, however. The term, "liability" has been
defined in various ways, but all of the definitions used in accounting
carry some reference, express or implied, to an obligation arising in the
past which must be satisfied in the future, either by payment or rendering
of services.2 The fundamental structure of double entry accounting requires
that all sources of funds be listed in the balance sheet, but that those
which have to be repaid in some manner be c1asSed as liabilities. There
seems to be no obligation to anyone in connection with the Mandatory
Securities Valuation Reserve, so it is not a liability in the accounting
sense. Only when the Convention Blank balance sheet is viewed as a formula
for the computation of legal surplus does the Mandatory Securities Valuation
Reserve qualify as a 1iability--because it is a deduction from assets to
arrive at Surplus.

The title of the reserve indicates that it Should be deducted from
an asset in the same way the "Reserve" for Bad Debts and the "Reserve" for

Depreciation are handled in commercial accounting. This treatment has been

 

1See the sample pages of the Blank in Appendix III.

2The American Accounting Association has defined liabilities as
"Claims of creditors against the enterprise, arising out of past activities,
that are to be satisfied by the disbursement or utilization of corporate
resources." Accounting Concepts ppp Standards Underlyipg’Corpprate
Einancial Statements, 1948 Revision, reprinted in the 1957 combined Pamphlet.

129

assumed by some. For example, a footnote in one of the brochures written
by a prominent actuary for the Chartered Life Underwriter (CLU) course
states that "accepted accounting practice would treat the Mandatory Securi-
ties Valuation Reserve not as a liability but as a negative asset to be
deducted from securities...."1 However, in the concerns analyzed in this
study there seems to be little or no relationship to expected losses in

the way the reserve is built up. The largest credits to the reserve for
many of these companies come from capital gains. For many concerns these
capital gains are unrealized--that is, they are simply the increase in the
market value of common stocks held. As a result, the legal surplus account
is increased by the unrealized increment in the value of the stock, but is
decreased by nearly this same amount through the transfer to the Mandatory
Securities Valuation Reserve. For these companies, the Mandatory Securities
Valuation Reserve is virtually an "Unrealized Increment From.Appraisa1,"
which account is always reported as a special item in the Investment by
Stockholders, or "Stockholders' Equity," section of the balance sheet of
commercial and industrial concerns. The extent to which the Mandatory
Securities Valuation Reserve partakes of the nature of an "Unrealized
Increment From Appraisal" type of account depends upon the investment
securities held, the nature of the market fluctuations, whether or not the
Reserve has reached the maximum, and other factors. In any event, this
Mandatory Securities Valuation Reserve is not a valuation reserve in the
same sense as are the "Reserves" for depreciation and bad debts, and should

not be deducted from securities.

 

1B. Franklin Blair, Interpreting Life Insurance Annual Reports
(BrynfiMawr, Pennsylvania: The American College of Life Underwriters,
1960), page 19, footnote 25.

v“

130
Since the purpose of the Mandatory Securities Valuation Reserve is

to minimize the effect of changes in the market value of securities on
legal surplus, it is really an appropriation account. This was well
brought out in the informal discussions at one of the meetings of the
Society of Actuaries soon after the Reserve was instigated when Mr. R. D.
Murphy stated that he very strongly doubted that the securities valuation
reserve would ever be treated as a liability if a company's solvency were
in question; its true nature as part of surplus would then have to be

recognized.

 

1Transactions, Society 2£_Actuaries, Volume IV, Meeting Number 8
(1952) page 143.

 

131

mm.mmo.oaa.~m

 

 

 

fl

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

COMuUDvmhv

 

 

 

 

 

 

 

 

 

 

 

 

mm.amm.moo.mm oq.-o.Naq.~m on.n¢a.~m~.aw oe.aem.amm.am am.mo~.m¢m N¢.~m~.a0a » mo.mom.omq as.aqe.om m
mm.amw4woo.~ os.-o.Nmm+w oa.a¢a.~m~«w oq._om.amm+w om.ooa.wom ~m.~m~«aoe mo.mon+mmq mq.aq¢+om -
mo.aoN.ao~ n ms.oma.nan m so.qoa.oq~ m Aca.mHo.m~V w am.aaa.mmm no.0mm.om~ am.noo.ae~ m on.m~a.asM as.aq¢.om a
oo.som.q m oo.qam.ooa m oo.onm.Omm m qm.mom.oOO m as.mmm.oAm na.omm.oon No.05a.00m m oo.oo~.oo~ oo.oo~ m

oo.ooo.ooa oo.ooowomm oo.ooo«ooo oo.ooo.omm oo.ooqroOM oo.ooo«o0m oo.ooq.oo~ -
oo.~om.s m oo.sam m 00.0mm m qm.aow m Ho.mmm ma.omm No.05“ » oo.oo~ oo.ooa »
mo.~om.asa w ma.mmw.0ao a sc.sao.~om m so.maa.-m m ms.m~o.emo ow.~as.amm ma.wmq.man » om.m~m.oen as.asm.om m
oo.oom+mN~ 00.000.0ma oo.ooo.mq¢ me.-a.mom a~.ek~«mo~ am.q~s.m no.oam.o No.0mo«~ ma.o¢~
mo.~on.emq.am mo.nmm.oos.am ao.e~o.smo.aw am.maa.a~m m ma.~on.~me aa.aam.aon em.em~.nmm m mn.~mn.amm ~e.moa.om »
oo.oa as.mmo.m~ es.mos«m - - - - - -
we.~aq.emq.am so.ao~.aan.am o~.ann.m~o.aw em.m~a.a~m m ma.~om.ame aa.aaa.mam qw.qm~.mmm w mn.~wm.~nn Ne.moa.om m
an.ass.mmm m sn.mmm.mmm m oh.osw.moa m an.amm.em~ » am.oqm.mma oo.wmo.nma m~.~nm.¢oa m an.msw.mma aw.oam.qm »
”n.4mm.m ~m.qu.q_ mo.-m«q on.ooa.n ao.mm~.n «n.amo.q q~.a-.n as.omm4s em.H~m
aa.~mn.a ma.omo.a mm.o~m.a an.mos.a na.omm.~ oo.oae.a oo.o~q.a oo.oaq.a oo.m~
sm.mom.moa ma.0~a.<aa ca.mnm.maa on.sma.o~a ae.wmn.aaa oe.a~o.aaa mm.oa~.maa oa.oen.oaa «e.m~a.ea
an.moa.qma m -.oma.qoa w mm.mom.am m mm.~on.oo_ » No.oam.sa 00.nmn.no oo.mea.~a m mn.maa.me mo.mma.ma m
o~.~om.~nm.am mn.amH.moa._m oa.amm.m~N._m Ha.aom.ona.am No.~a~.omo ~m.o~n.mme na.~o~.ooa » ma.~n~.ae~ m~.ma~.naa m
No.omo.0mm no.0maqoo~ ~a.onM«¢~s o~.omm«m~n on.mmaq~ws an.oam«mae an.qam.anm so.mmo.¢en wo.m-«oa
-.-n.m~q.mm ao.ooo.qoq.~m me.sma.mno.aw ao.ams.~mo.~m m~.~am.ooe.a» mo.awm.oo~._m oa.a~s.aaa.am mo.maa.oeo.a» an.hq4.aaa »

 

a~.mom.0m

No.o~o.~mm.mm

Amm.mo~«mmv

c~.~o~.nm¢.~m

 

a~.~om«_ma

qH.ma~.amo

~0.o¢¢.omo.~m

 

mo.oa¢.oo~

no.oo~.mmo

an.~mo.mmo.am

 

 

 

 

ma.mmn.oe Aoo.~mo«wmv Aam.aaeqnaq a~o.oam«womql ma.oms.m Aoo.aea+N~nv Amo.oea«aaaq
mm.oon.oan.am mo.o~a.~ea.a» n~.som.~ms.a» om.amo.oom.~» on.aam.aoa.~» mo.aao.maq.a» on.moo.mom »
so.qma.aa as.mmn.oo am.ama.an ¢~.eaa.nm oa.on~.n~ m~.omo.~a oo.ome
am.omq.~oo ca.aan.mam om.a~n.nas ae.am~.oms ma.oam.omm No.oao.n~q as.nma.ow
om.m~s.qam m ~m.emo.~mo.aw o~.mso.oqa » mh.aa~.aao » mo.eas.~mh » e~.~mm.owo » mm.qao.a- »
coma one“ mmaa “ma_ enaa nmoa «mma

 

:uofimwocfium wm4u990uu< noumwuo< NaHeuocmo: no“: showcou mm vemfi>ex
mwcfifiem a: use any

eucuuancH smug

 

unmieueum

« Ncammmo

 

 

 

 

 

mwcacumm
nochuom vouufiuumouca wcaucm
mewCLom
oocaeomm voDUauumouca waccawmn

 

massaged pmcamumu
mouowuummaca AMW
Mm coauanna suz

 

 

album“ we nc0wuwuoamwv Hooch

mueoAOLxuODu cu avoovw>flo

maflmuzm vouewuoopmau cu uuuqumaH
“sabocu wo mc0wuumoomwo

 

 

“oz
mouse esoocH

AmmoHv weoucw

 

 

.HMM whose“ mqumn
Ammofiv QEOUCW uwz
moaned man «swam Hogwamu

Ammoflv
secucw edemusmcw uez

 

 

 

 

HeuOH
Axon uiOucw cmnu
uozuov meow new noncoowa .nexeh
emcoaxo acmaume>Ca unbecoo
eucoeuo ooceuauca genocoo
uCOamuaano
"oncuaxm o>wBeuuowCHEv<
use uauaumo>cH .cOuuuuasou<

 

 

escocw mmouo
wuuouucoo so nucufizom can muwuecen

 

 

wscm>ou «mono
o>uommu
flowed ca owamnu Audavmpv pu<
HmuoH
euouauee>ofi co

vacuum monovu>wv van use» .uuououcw

Luanda can unovwou<
ow“;

"OUCUthCM uwvflku CO flHllogHawhm

"oaae>em

.3

Exhibit II

 

Life Insurance Company A

 

   
   

 

 

 

 

 

 

   

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

I !
Ao~.wwq.-V » nH.mmn.Nn w Ana.m~o.uv w mm.nwn.¢ w nm.mao.m m nau.oan.~v m Amm.o-.mv w m¢.nnm.mu m nn.nno.n m uaeaeueum mwcwakem usuapom
ecu use uaouca uoz no: xcofin cOwuce>noo ecu
pea unoHu-uueo scum eweu uez aeoauon mucouowwaa
3.8%”: w 353.03 .0. $38.23 » SASJS m 3.25.33. 8.3133 363.33 SANMJR» 3.13.8 » season: SEEM”.
. voma>eu HMN Ammodv mecca“ uez
Ao~.nnm.nv w qu.~on.- m Aom.~om.ov m mm.nmn.¢ m nm.mmo.m m Amn.o-.~v » Amm.omu.nv m mm.~mm.- m nm.mmo.n m nuauauaanvm Heuoa
. n u - o¢.nna.~ Am¢.nnm.~v - - - noxeu weeds“ veauuo<
Amw.m~m.aav an.~on.- non.mmm.mv mm.nmn.¢ cm.ooo.~ Aom.~onv mmw.onn.mv no.~no.- mm.nmo.n ence>ou ouafi coxeu one nasaaeum voyage»
one Loan) aw pawuoa cu vouuwuuv oceanuweeoo
oo.mqm.n m - m u m - m u m m u w u m - m uuoo cu Beau wnwcuauou «and .e:~e>
nexus: cu vocab execua uo unuauusune ouue>om
. "negnwucuhm wcaucb090< veunouu< mafleuecoo
seas ouoelhoucou ouCH wcaun ou auculumsnv<
nm.nno.nds w fin.o~o.cno m o~.ho¢.mmm w um.non.n~n » no.ooo.nsow mn.o¢~.¢dmw do.n-.4wnw mo.non.o~nm a~.ooo.~n » :uHOucH MN acofluauomuwa: MM commode
macaw seamen xcuan cOauco>coo Hum mum
A8635 a 3.20.2 m 3.8.»; m - w - m - a - m - a - m.
80.3qu - - - - - - - - :9» no
use on vocab euoune wo oo~e> ca owaenu
oo.om m ~q.~mo.ow m ad.moq.n m n m - m - m - m u w - m uHOe euoume co dunno" p:- ncaew deuameo
”unsouoe naaauam on» ou uuouup veueuee eSOuH
no.0mm.-m m cm.mme.<~o m on.mem.mom m Hm.non.uun m mo.moo.mnom on.mo~.¢an» Ho.nHN.qwn» no.non.o~n» «H.ooa.~n » Assam aowuco>coo mam
mum o60wuuummo Baum Ammo~v swam mum
-.~mm.meu.«m m~.~oh.mm~.dm q~.qmq.¢mo. m oo.ooo.mmo m oo.~¢—.~Hmw Nu.oon._m~m Nn.~om.nm~» mn.oo¢.¢-» n~.m~n.~< » sand: ocuuna>ooo non «convene "such
Hm.¢nm+o- ~o.¢¢wdadn mo.-mqnq¢ mo.qu.mom11 55.0mquHH on.o~m.oH o~.mmo.o~ Hm.m¢~qo h~.wwm Anna mecca“
wsdmswooav comm v:- uoesouum .auer
mn.~mn.~ m~.omo.~ mm.o~m.fi ~m.no¢.~ nu.omn.~ oo.o~q.~ oo.o~¢.~ oo.oH¢.~ oo.n~ convene u:0lun0>ow unneceo
cm.wom”mma nu.o~u.c- e~.wnm.~a~ on.¢mn.o- ma.mmn.HHH om.HHo.-H om.mu~.m- o~.onn.o~a ¢¢.m-.n~ convene eon-uses“ “unease
m~.mno ~n~ m oe.moe.nH~ m om.Noo.m~ m mo.oo~.no~ m mo.onm.om m on.q~o.no m ¢~.mo~.oo » ~n.onn.oo » ¢¢.¢na.m~ » «cowuewaaou
"uuaoaxo
o>uueuuaaoaafle use uoaluaebcu .oo«u«u«:uu<
o~.~om.~nm.~m wn.¢n~.mon.~m om.nom.m-.~m an.non.on~.~» ~0.~m~.owam ~n.onm.nmn» n_.no~.onno n~.~n~.~eh» mu.a-.n-m albucm neouu
"usuawah Aceun ecuuaobaoo
«emu doma coo“ mam“ wnoa nmmfi omm~ nmau amma
MW awnngu madman sOuuue>ooo mmm_mfl unsouo< enamuaw mmw ”mafia-swam MM nowuellnm saws
auauaeueum unmanned voau>ou MN :Owueuuaoaoouu
d Hmummmm.eooeu=edu swan

A.

 

Life Insurance Company

133

I
I
1

Exhibit

 

 

 

I
no»n~m.~oo.cm . . . . . ucuEuao>au use mowuwuwpeaH HeuOH
<~.nom.mm . . . . . uuoume vouuwaua-ooc aw uaovaonxUOu-

 

 

am nona>oum «vane mm so:
e>one Hanan-o e>ueuou HemuH a“ vsanuow newuuon unavoa

ucoaumo>cu
aN.nom cam.“

 

«usumocxoOua NM uoeauuo>au Heuoh
unuloueuu unease-e you--vouomuueouon
o>OAe

un--.ouoaham Headed. uow poo-annouun<
newswoheo venueuuu

xuoum Heuwn-o co Iawfluum

use cod» no scenes oom.~--xoou. aquaeao
"secuu Hauaeeo now caucuea unsold

uuuevfionxUOUm ma uanluueaaH

nn.won.nmm.~m
mm.mon~mmnq~

 

nm.mn0«@HN1M
00.n~m.m m

00.000 0n
00.000.0mH m

00.000.00N m

 

 

 

ao.onn.nno.cm . . . . . . scuaumo>ca Hausa Hmuoa
m~.mom.os¢«w, oo.nso«w ms.~aoraam.n use...
wouoav0unc0::e>eu uo pogo-9H9» .u.H.<.z
m¢.nfio.m~m.nm eueeee

mzaoavounueaoo>eu mo ueoo venuuuol<
30:03:» .0.H.<.z a“ aeoH Biz-023 vv<
aueaue vauuwive mo mogueaHe> uuoooHeewlloo
euaeuaucH mo ocuuauuoem< HaCOHuez no pecan Heuoh

o~.mmm.0¢m.~w
00.n~n.m . o>ueuou co«ue:He> newuuuaooo
uncuencea--uowoause Headed» new vouewunounne es—musm
:qummae usuaonNuHHmm: kueH Hooch
acofiueuuoouaae use xuouu Heywood .oowuuHaneua
uo>o summon vouuaSue mo eoHu-=He> .o.H.<.z mo unusuam

 

oN.ncn.Hnm.Nm
mm.man_Hmn_~

 

00.000.0nH m use 00H» ue «ounce 00n.H-u300uu Hanan-o
"gouge-0 “swag
oo.qom.mm~.u . . . . . . uoHuHHHnuHH Heuoh

00.0NN-QQH-d mUXQu 80qu HQMOGON HON COHOHPOHA

 

w¢.0H¢.n use mucosa cozy aunuouaeoweu oenhou<
on.NNo.n oHaexan condemns Heuocow mosuuu<
qu.mma.n oeuusuu we nae; no vdennuwa euc50I<
wm.0¢n.a w «awefiu uueuuCOo vu- MUHHom
"uofiuuHapeflA uueuuao
Hn.nnH.nmn m . . . . . uu>uomea codename“ Mucuzueuu Hench

HH

NH.¢wo_ow
a~.mo~.o<¢ o

eoaoafioa zufieen was uaekuue e0
uuueuucoo v:- aeonHoa swan uwvouu e0
“ue>ueeeu u< one: eaoooH uceflueeDoH use «abuaeum uo couuuom

:.M_m

N > x H

v a a m m H H H A H n < H q

.M_m

 

NomH

 

H

. aubusxm
< Nmammmu

 

 

no.n~o.Hmo.¢m . . . .

allfillqll . . . .
4N mom on

 

 

 

. . museum HHe mfl vouwo>c« Hauoa

 

 

 

saunas vouufiaoe-=oc mfl vouuv>o« Hooch

codename“ nudes: use uoeoauue co

 

 

 

 

o~.m-.~n » oucnuauca swag Savage :0
"cecauen eunuau ou vouuowov «sowanEEoo
"aubhuuum mucousncH hLOuaueum uo uuauaumo>CH
games «4 awaaaso “oz on agape a»u..< weasmtsao
mo.onm.nmo.q» . . . . . edema" noosase. mw vaum~>aa sauce
o~.nmn40mw wwnnhmqne o~ne>weoou uue»0uaw voauuu<
om.n~o.nn guano: nan unavauu<
am.onm.~na omaa
“Headquausw advouu
HHev o~£o>ueoou ulawloun ouceuaoaH
Nm.eon.mamm .uaaoaoe asap can ease

nauseo- usouuso
"unocowuuafluou ouoeusecH uo coma-«00:3
HedoHuez one ma vonwuuaeun nodueaueb
one onus ow coax: uaou ueuuuueee- maaueueeo
nuance unauovoumsoaco>ou MW

n¢.Nno.HHm.mm

 

 

 

ne.n~o.n~m.nm . . . vouuosaa "soon
:33 cowl—50
ouceuaecH we souueuoo-e< dosage-z
ha venuuoneun sewn-sues deuce
oueuao Hook no eaaoH ewmwuhol
axooum
«moon

0<.HNQ n
0m.NHm.oH
nn.hsh.w¢n.mw

ueoo veu«uumudp

o¢.-¢.~
on.how.o~
mm.anh.mma.m»
«was» .u.H.<.z
unusua- mowuavounneauwaex
unease-em ooceuaeaH no uuooluuobcH Henna q< neuuulfi< .uoen<

w H u n m <

.MN uoaaeumm
:uoumaoauum IMmuaaouo¢ veumoUWfl Had-aocow: new: luomoou
I succusueH swag

 

 

 

 

 

mm vooaouuu soonm «onus-u

 

134

COMPANY B

History

Life Insurance Company B was incorporated in 1953 as a wholly owned
subsidiary of a casualty insurance company. It shares home office facili-
ties with this and other related companies. Certain types of insurance
are written through a related company which has exclusive general agent
rights. This general agent owns all of the office furniture and equipment
and pays most of the office and administrative expenses in return for an
overriding commission and a payment for handling claims. Company B
originally wrote mostly credit insurance, but has expanded into ordinary
life and accident and health insurance. The increasing importance of
accident and health insurance is reflected in the first two lines of
Exhibit 1. Unfortunately, the principal exhibits in the Convention Blank
do not segregate credit insurance, so it is not practical to attempt a

segregation in this report.1

The Financial Statements

 

Since many types of expenses are paid by related companies, the
financial statements of Life Insurance Company B are less complex than for
other insurance companies. This relative simplicity, combined with the
fact that the company now writes most kinds of life and accident and health
insurance, permits the analysis of Company B to provide a good transition

from the statements for the highly Specialized operations of Company A to

 

1A special analysis of credit insurance is now appended to the
Convention Blank, but it is not integrated into the main blank. This
schedule was included for the first time in 1961 so was not available
as a means of segregating credit insurance transactions for the entire
period studied.

135

the statements reflecting the complex investment and underwriting activities
of the other concerns analyzed.

The three principal financial statements were outlined in the dis-
cussion of Company A. Those comments are not repeated, but only those
features not found in the statements for Company A are mentioned. The
major change is that the details of the adjustments are listed in Schedule
II(A) by groups and the Group totals are carried to Exhibit II. All of
the adjustments which are made for Company B were discussed in the preceding
chapter, with the exception of number 43. This adjustment is made in the
same manner as number 41 so needs no elaboration.

The balance sheet is discussed before the earnings statement in this
one instance. This is helpful in explaining one of the items in the

earnings statement.

Balance Sheet - Exhibit III

There are only two significant innovations in the balance sheet for
Company B which have not already been discussed in connection with the
description of the balance sheet for Company A, but both are important in
all of the balance sheets which follow.

Home office building.--Part of the home office is used by the Company
and part is rented to related concerns. The effective investment (cost
less accumulated depreciation) is divided between revenue-producing assets
1

and Operating assets in proportion to the rent the company charged itself

and the rent charged other companies in 1962.

 

1This rent is eliminated from investment income and from expense in
the revised financial statements, as outlined in the discussion of the
earnings statement.

136

The significance of reporting the amount invested in operating assets
is well illustrated by the balance sheet of Company B. The revenue-
producing assets are not only larger than the insurance reserves, a highly
desirable relationship for almost any insurance company, but are larger than
all of the liabilities. This means that the entire amount invested in the
operating assets--both working capital and home office--has been provided
by stockholders, either through original capital contribution or retention
of earnings. This is a type of factual data which is important to stock-
holders and the public but is not readily ascertainable in the published
reports based on the regulatory statements.

Reserves 93 life pglicies and contracts.--Life insurance policy
reserves in the United States are computed on the policies in force on
the assumption that premiums are paid annually in advance, and are based
on "net premiums" after loading rather than on the gross premium charged
the insured. Commercial accountants would assume that the reserve based
on policies in force would be adjusted for quarterly and monthly premiums
not yet due. The life insurance industry has taken a different approach.
Both unpaid premiums on policies in the ”grace period" and quarterly and
monthly premiums not yet due are merged, the loading is deducted, and the
balance is shown as an asset in the Convention Blank. This "asset" is not
the amount receivable for past due premiums and is certainly not a deferred
expenditure, even though the title of the account is "Life insurance
premiums and annuity considerations deferred and uncollected." It is
nothing more than a correction of reserves. Since the same legal surplus
figure is obtained either way, the designers of the Convention Blank con-

sidered it simpler to add the account as an asset than to deduct it from

the

Bea]

Lif

137

the reserves. This process has been so simply and concisely stated by
Beardsley that the best explanation is obtained by quoting him verbatim:

Reserves for life insurance policies are normally calculated on the
assumption that the insured pays premiums annually. This, of course,
is an assumption which does not always agree with the actual facts,
but it simplifies the calculations. Since many policies are paid
periodically more often than once a year, a company's reserves usually
overstate its true liabilities.

The method used to correct this (or offset the overstatement) in a
life insurance company's balance sheet is to increase the assets by
the amount of the premiums needed to justify the assumption. Some
of these premiums will still be in the course of collection (the
"uncollected"), while others represent the amounts needed to com-
plete the balance of payment up to the next policy anniversary (the
"deferred").

Reserves, moreover, are calculated by use of "net" premiums, i.e.
premiums which assume only mortality and interest elements and do
not consider the expenses of doing business. Therefore, an adjust-
ment is made to the "gross" deferred and uncollected premiums to
divest them of this loading.1

The extended balance sheets prepared in this study move the deferred
and uncollected premiums account to its proper place as a deduction from
reserves. This treatment is highly recommended by Wightman in one of his
few criticisms of the Convention Blank. His remarks are so pointed that
they, too, are quoted:

There is probably no feature of the annual statement of a life
insurance company which is quite as unintelligible to the typical
layman as this particular asset item (Deferred and uncollected
premiums). Inasmuch as it is introduced into the statement for
purely correctional purposes and is in fact an adjustment of the
amount reported as the policy reserve liability, it would appear
not only theoretically proper but certainly less confusing to treat
this item as a deduction from the policy reserve liability and to
show only the net amount thus obtained in the liabilities state-
ment. Under the prescribed method of showing this adjustment item
in the annual statement, both the assets and the liabilities of a
life company are clearly overstated.2

 

1Charles M. Beardsley, F.S.A., Life Company Annual Statement Handbook
(Winston-Salem, North Carolina: The author, 1962), Section III, pp. 15 and
16.

2E. C. Wightman, Life Insurance Statements and Accounts (New York:
Life Office Management Association, 1952) p. 580.

 

138

There is an additional complication reflected in the reserves section
of the balance sheet for Company B. This is the account which carries the
following caption in the liabilities section of the Convention Blank:

" 'Cost of Collection' on Premiums and Annuity Considerations Deferred

and Uncollected in Excess of Total Loading Thereon." This account is
really a correction of the deferred and uncollected premiums account dis-
cussed in the preceding paragraphs, and is thus a correction of a correction.

This "Cost of Collection ...." account arises when the loading which
is based on the statutory mortality and interest assumptions and is deducted
from gross deferred and uncollected premiums to arrive at the net shown as
an "asset" in the Convention Blank, is less than the loading which is based
on actual mortality and interest earnings used in computing premiums.1 When
this situation exists, "an accounting loss may be suffered by the company
when all of the respective premiums have either been paid or dropped from
the assets because of default."2 In order to bring such a possible loss
into the current year, a "liability" is set up for the excess of the cost
of collection over the loading on the deferred and uncollected premiums.
This is done on an aggregate rather than a policy by policy basis, so many
companies find that this account appears only during their early years.

This is particularly true of mutual companies and those stock companies

which issue participating policies.3

 

1Beardsley, Section III, page 148. A simple mathematical example
is included on that page which clearly illustrates the principle.

2Wightman, p. 583.

3Wightman, pp. 584 and 58S.

139
In effect, this "Cost of Collection ..." account is a deficiency

reserve. It represents a portion of the premiums on other policies which
is held out of revenue to cover the excess of renewal commissions and other
collection costs which will be paid on the deferred and uncollected premiums
in the future. It should, therefore, be reported in the Reserves section
of the balance sheet. Again, the analysis by Wightman is so pointed that
it warrants citation, not only because it supports this treatment, but
because it explains one of the unusual items in the earnings statement:

If . . . the deferred and uncollected premiums were (as herein

suggested) deducted in the calculation of the policy reserve

liability, the excess cost of collection might properly be

treated as an additive to that liability. In the latter case,

any change during the year in such excess cost would be taken

into the Summary of Operations as an element in item 17 therein

("Increase in aggregate reserve for policies, etc.") In such

case, also, the amount of the deferred and uncollected premiums

would be entirely ignored in the computation of the amount to be

reported on line 1.1 of the Summary of Operations. Under such a

set-up, there would no longer be any necessity for the inclusion

of line 25 in the Summary of Operations.

Note that the method of presentation in Exhibit III shows the "Cost

of Collection . . ." as a reduction of the net deferred and uncollected

premiums. This emphasizes the relationship between the reserves and their

source .

Earnings Statement - Exhibit I

 

Adjustment for expenses gg_increase i3 deferred and uncollected

 

premiums.--This is the item which is referred to in the above quotation
from Wightman as being entered on line 25 of the Summary of Operations.

Its exact title in the Convention Blank is "Increase in loading on and

 

1Page 588. Line 25 of the Summary of Operations is discussed in the
next section of this report.

140
cost of collection in excess of loading on deferred and uncollected
premiums." One of the items entered in this account is the change during
the year in the "Cost of collection . . ." account discussed above. This
portion of the account is, as indicated in the preceding discussion, really
an additional portion of receipts which is held out of revenue to cover
expenses which will be incurred next year. The other item which is
entered in this account is the loading in the change in the uncollected
and deferred premiums during the year. This stems from the fact that
premiums earned are computed on a gross basis, but reserves are computed
l

on a net after loading basis.

Rent for company's occupanpy pf its own building§.--The official

 

instructions for the Convention Blank require that the amount reported
as real estate income "include adequate rent for the company's occupancy,
in whole or in part, of its own buildings, and for space therein occupied
by agencies." Presumably this is required in order to reflect a proper
rate of return on investments, a ratio the regulatory authorities watch
carefully.

Company B charges itself the same rate for the space occupied as it
charges other tenants. However, some companies do not have such an

2 Furthermore, there is no flow of funds

objective basis for this charge.
into the firm corresponding to this "investment income." Consequently,

statements which conform with generally accepted accounting principles

should be prepared without such self-charge. The rent which the companies

 

1Wightman, p. 586.

Some of the bases used are commented on later in the analysis of
the companies involved. Several are quite interesting.

141

charge themselves is, therefore, reclassified out of investment income

and out of expense1 and, as noted previously, the cost of company-occupied
real estate is shown as an operating asset rather than as a revenue-
producing asset in the balance sheet.

No adjustment is made for the costs of operating the home office
prOperty, but the caption of the account in which they are reflected in
Exhibit I is changed to "General investment and real estate expense." If
these statements were to be adopted in practice, the companies would
undoubtedly wish to segregate the real estate expense so that the remaining
General Investment Expense would contain only those expenses which are
properly matched against the revenue in the Investment Revenue account.

The difference between the two accounts would then become the net investment
income from the assets classed as "revenue-producing."

Income taxes.--The earnings statements in Exhibit I are seriously

 

deficient in one regard. There is no way to estimate the income tax which
will have to be paid on the income which has been accelerated into earlier
years with the adjustments made in preparing that statement. Comparison

of the income taxes paid by Company B with the operating income and capital
gains shown in the Convention Blank (see Schedule II(A))indicates clearly
that there is no reasonable method of estimating even an average percentage
which will be applicable. The only way this could be done would be by
obtaining access to the income tax returns themselves. This is beyond the

scope of this study, but is something which would have to be done before

 

1The mechanics of making this reclassification are illustrated in
the sample worksheet in Appendix II.

142

Statements of the type proposed in this study could truly be considered
in accord with accepted principles.

In addition to the income tax on the difference between the Convention
Blank income and the revised income, provision should be made for the income
tax which will eventually have to be paid on the half of underwriting gains
which is not taxed as long as they remain in the "policyholder surplus"
account. Since the Convention Blank does not ask the insurance companies
to report the balance in this account1 there is no way to make a reasonably
accurate adjustment for deferred income taxes on this untaxed income with-
out going beyond the data in the Convention Blank. This aSpect of deferred
taxes, too, would have to be given recognition before statements of the
type proposed in this study could truly be considered in accord with

accepted principles.2

 

1This account is purely a memorandum account created solely for
Federal income tax purposes and has no connection whatever with the books,
records and annual statements of the company. For a pertinent criticism
of the title assigned to this memorandum account in the Internal Revenue
Code, see Edward G. Hearn, "Life Insurance Taxation Aspects of Phase III,"
Proceedings 1960-61 ngthe Conference pf Actuaries 33 Public Practice, p. 74.

 

2The basic factors involved in income tax deferment and allocation
are set forth in Chapter 10 of Accounting Research and Terminology_Bulletins,
Final Edition (New York: American Institute of Certified Public Accountants,
1961). All of the recent editions of standard textbooks on accounting theory
contain discussion of the subject.

Life Insurance Com an

14]

Exhibit I

 

 

“Hi-4!!

 

3355i

 

 

 

 

 

 

 

 

 

 

 

 

 

ne.mmo.smo.~w om.o~o.oqn.a meoaN.HHm.Hm Hm.mem.mmm.am an.os~.mae.am am.0am.amm.am No.mea.-H.am ea.oma.aom w so.aaa.oas w aq.osm.om w
am.0mo.osa.a am.oa~.aaa.a am.mam.mmm.a aa.ooa.nea«a am.oamqammqa No.maa.-a.a oa.ona4aoo so.~om.mas as.os~«am -
om.s~a.qa~ m Acn.os~.aaav m we soa.Nam w “on.qam.om~0 m o~.onn.amm w as.an¢.«o~ a om.m~m.nan m “H.9na.ann m no.0na.omm a aq.os~.am »
Ama.nom.maav w oa.moq.aaa a no amw.ow a om.asa.m~m m mm.ama.m~ w ow.oe~.0a w sm.man.n w ms.oaa.m m am.nqs.sH m - w
- - - oo.oom400m - - - - - -
Ama.~om.maac m oa.moq.aoa w ma.ann.om » om.hqa.m~ a mm.¢~a.n~ a on.oo~.oH m «m.mmn.m w ms.oaa.n m mm.ae¢.4a w - w
sa.s~s.ama a os.aam.om w na.sqw.mms a oo.mnm.~m~ » so.mme.mas m oa.a~a.nam » o~.mms.a~n » nn.nao.nmn w «N.mma.nqm » as.os~.am »
Asa.mm¢«soaM‘ ha.o~mqon oa.mqn«nm Nw.aa~«~a ca.eaa«oaa ma.mmm.~m Nm.asM4NH «s.oms«e aq.oam«m‘ s¢.shm
oo.ooa.aa w ha.oan.oa m m~.ooa.ows » No.ono.mon » «a.as~.moo » ea.eaa.aon » No.0ao.mnm » as.aon.ooe m mo.emn.onn » no.sao.mo »
0a.~na«ws sa.mne.a0a mo.nma.mm ~m.mms.- No.ao~.on on.q¢~«- mm.aam4a -.qnm«m nn.aaa.na -
nod.oma.o~v m Asa.~oa.nmv m o~.sxw.qns » oo.nna.aen m ~H.Nen.oqn m ma.oan.nm~ » oh.0ao.omn » aa.a~m.non a on.nan.onn a no.s~m.mo a
ea.a0m.oon.~w ma.aon.naa.am ea.qmo.oao.am mm.nmn.oes.aw on.ooq.qnq.aw an.oos.nsq.am oo.~nn.sas.a» no.aa~.oms » aa.nmn.non » Hm.ooo.ms »
- - - - - . Aqm.saa«nau qm.saa«na - -
n~.qno.oma we.a~n.nna No.0sa.sxa ~a.~na.oaa a~.anm.oo aQ.<an.~0a mo.soa.nm H~.owo.ea an.asn.nq an.ooo.aa
on.~ao.nn 4e.4aa.mn on.oae.oo ~m.nm~.~o «a.~qa.¢n aa.ono.~n wa.-n.he oa.~sa.nn - -
on.nao.qoo nn.ama.nas am.noo.mmn an.-o.on~ we.a~s.nsa no.mou.soa no.aoo.ao on.eon.ao ca.nms.oo qm.-q.a~
oo.aon.o~n.aw me.oo~.aoo.am ea.o~¢.oon.am an.nm~.omo.a» ao.44e.ana.am mo.nem.oo~.am ma.oAH.oa~.Hn on.sen.aoe m mn.osa.nne m o~.aah.sn w

 

Ho.n~n.omm.~w

0o.moH.om¢.Hw

oq.mm¢.nnq.~w

mn.0¢«.m~0.H»

 

~4.~00.H00.H»

o~.man.ann.a»

om.n~o.ncn.Hw

00.40H.0H0.Hm

 

~¢.0mH.~o¢ w

0H.nHm.nnHm

 

 

 

 

 

 

 

 

 

ms.~ns.~mnqw.. aN.a~w+nmq«~ oe.ooo.oeo.a aa.ooo.sao.a ~o.~ao.oao.a -.aa¢.ano.a oe.maa.aea a«.a~n.aoo ”n.0oomNoN oo.o~o.nn
nq.nao.a-.e» a~.ono.nna.4a om.qwm.qao.q» «5.04a.onn.~» q¢.qon.aom.~o no oae.nua.~» ma.asa.oHn.~» a~.o~o.nme.a» o~.aa~.qma.a» oa.nnm.~oa»
~o.ean.oo~ m nn.s¢n.~no » mo.qan.awe » o~.nn~.oHe » Ao~.~oo.ao~c A on.¢oa.oe¢ a no.4no.oam » no.~Ho.ono o o~.eam.~oa » Na.aae.nhea
mm.o-.nm oo.nan.m nq.qoa.a~ nn.oaa.o~ o~.~a~+¢ nwo.o~o.ne Aoo.uae«~0 on.~on«w‘ oo.ooe«n -
ao.mm~.aoa w nn.¢m~.mqs w ma.mao.aos » ao.qoo.amn » Ace.mmn.aa~0 w an.o¢a.mq4 » no.5ao.ama » on.oa~.onm » o~.han.omo » Na.aaa.nae¢
mm.oaq.-o.q» oo.oes.mma.e» no.wno. cm.e» ~0.Hnn.oq~.nm ma.~nn.q~a.~» an.oos.o-.nm oo.0an.nmo.~» -.~e¢.aan.~» en.qn~.amo.~» no.0oo.oooa
om.aae.no~ oa.mo~.mo~ o¢.o¢n«¢am s¢.san.aa~ ne.oeo.on~ mn.~e¢.no~ ma.oou4aaa no.mon.a~a as.s~nqwn nn.oan«4a

- oo.mos.n - - - - - - - -
a~.aaa.som.~ mo.maa.0an.~ oa.~m~.-¢.a mm.aan.50a.a n4.aaa.moo.a mm.aon.~mo so.mso.asa an.~oo.o~4 ~m.eeo.oae "H.ean.~n~
no.mmm.~mm.am Ho.ans.saa.am ma.men.oo~.~» n~.ooe.oma.aw on.~oo.mns.am mm.onq.amo.~w ma.-o.ama.~» on.oe~.mao.am ea.ann.~on.ao -.0a~.aonw

Nos“ Hood oa saga ones anma case one” we mama

m “asses“ =.oauaucam~ «mawaaouu¢ vosmouu< mas-tunes: new: uuouuoo.mw savanna um

 

unulouuum

ma

 

 

eunwcusu e>wu~uemmmm

«unannouH euaa

mwcacumm
pocamuox neuofiuuauuca weavcm
mwcaahmm
vecamuum oeuoauueeuab wchcauom
Mflfiflfiflflw mesamuvu
wouoHnomuusd
HMM coaooapeuv
Mm coasMusa mum

 

 

 

 

Heuoh
ocooa>ao goo“. scooped cod
--uuouHonxuoua on nvcuna>fio

caaauau
woumauAOHQAn cu nuawuamuh
"eaoucH wo uaouufimoauaa

 

 

AueoHv «Hausa mum
awash «aduaH Heuuvom
MMM wfibuaw seamen
ammmwv «sauna mum
non-04 pc- eoavo Heuwaeu
AmmoHv afibo:«
censuses“ uez

 

 

 

 

 

 

Hooch
nquouu cue» Augean nacho
Hue» escoca menu nonuov
«sou use uo-oouwH .eoumH

ueaeauu open-o
Hook use unulueo>ca Heuecou
oaaoauo eonduuaau Heuoaoc
snow-ago
"unsound o>wueuuuacasfi<
one unoauue>cH .c0auaeuauud
«loose nacho

 

 

ouueuuuoo no ouseahem was euawocom

 

 

e=a0>uu neouo

use» «as»
sandbuu no: acauuoa Hsuoh
alufiIUun vauuoHHouna
nae vehuouop ow seconds“
so mandamus yew usuauuanm<
ao>hoeeu HomeH aw masseusH
”ou>heoou
wovHoghoaHoo as space uem
"deauuoa enu uoavon
Hench
eudufluee>uu so
endopa>mu use use» .ueoueuaH
sou-unooo

hueuoulanmaa new asaueuova-coo

suHaon van usevauu<
euwA
Andean-hooaenOU
muaacnu use usualluh
headland

E
11

Life Insurance Company
Exhibit

144

 

 

 

 

 

 

 

 

 

 

 

oa mao mNH m as new. can a “N soN.NNm mm mo. Now. Non »Aoo moN. meat m mm sea flea » «N Nao Nma m ”N. one. mnN » HN cos omNm No. Nee. AN »
Eiiilllil

«N «Na. “Ne w os maN. oN m "a qu mnq m oo.mmm.NoN » s~.ooe.NHs » ma.HNa.mNN m oN.NNq.~Nm m mm.nNo.mon » NN.mma.qum HN.oeN.am »
xNo.mmN.osaV m NN.mmm.om m 0N.qnm.NqN a am.o~N.qu “HMN.N~q.omav » ma.mam.nsa m mN.nHN.mna m mm.HNa.mnN » No.maa.NmN» 0N.NNo.sN m

- - - - ma.NON«maH Amm.amoaao~ql Hmm.Nooaa0 - - - -
4N.Ns~.qm oo.NaH.HN_ No.0on.me om.maN.oNa Anm.Noo.oav oo.oos.ama ma.qu.osa nN.NN_.4mN No.mfim.NmN 0N.NNo.eN

A_m.nmo.oMNc amN.mNn.oNav ANm.NsN.ns0 Aoo.ooN.oNv ASN.0on.qav Ne.-N.NH ea.m0N.s Aoo.0va - -

- m - m - on~.onq.ONv » ma.0ms.ON » - m . m - a - - m
Hm.Naq.woN mem.4an.eNv » na.mmm.o_N m "H.N4e.oe » Nn.mmm.san » so.noo.NNa » Ho.ooN.Noa » oN.an.mnN » oo.mNN.No » ma.nao.sa »
Na.Nmm.qNN m Ne.aoN.ooN » am.oea.oN » so.Noa.No » Nn.ooN.as » oe.ooc.n~ » oo.NoN.q » on.non.e » on.aoo.ma » aq.0Ne »

. - - xas.4eN0 Aas.eema hae.seNu Aca.noN0 - - -
am.mmo.0mN mo.q¢o.~Na MN.aoo.cs oo.sme.as Aoo.msN.e_c Ano.soo.Nc Hoo.ooo.sv oo.onN - -
ea.Nmo.ns em.N_e.eoa oN.mNo.nN No.nae.NN ao.oea.om on.soN.NN Nm.maa.N NN.¢MN.¢ mm.ooN.na

» - a - mnNa.nmn.av nanN.oqu a oa.nNn._ a ew.noe axoo.maev mst.N__. » ae.oN¢ »
No_.mNs.ov mAsN.nNo.eanV » Ne.oea.ona mamo.omn.n~c » oo.amo.Nnm » 4e.NNa.aaH » _o.son.moa » «w.mam.¢na » ao.omn.aq » «N.Nma.4— »
mo.Nos.ewn.Nm Ns.mno.s~o.Nm Nn.Noo.aNm.Nw oa.oom.mno.am No.qos.oNs.a» No.NNo.qss.am an.Naa.own.am sn.s¢m.oea » oN.oaN.mmmm ac.NoN.mea»
- - - ham.saa.NNO sn.sao4wN - -
an.nNn._m “N.ono.noN on.oao.oma N~.NmN.q0m ma.naa.oNa 0N.Noa.nmx ne.Nnn.Na. no.sNa.No~ «N.Aqn.ms aN.a¢4.NN
on.Nom.Nm as.eao.on om.oeo.~o Nm.nos.No en.~oo.nn oN.nNs.N ma.NNn.Ns oa.NeN.nm -
«m.NNo.~¢o NN.mNm.an N~.NeN.Naq na.sao.oNN no.No~.Hn~ «N.oae.0a_ «N.q~o.MN No.Nnm.nN oa.nns.oo an.NNe.a~

«n.0mq.¢00.Hm ma.-0.mn~.~»

o~.nNn.Hno.H» ~0.44n.m-.~u

0N.Nen.oeo._» No.sao.osm.~m .n.NNo.NNe.a»

MN.o~N.~oo »

an.moN.omN» oe.enn.mo~»

 

 

oc.-0qm~wdww mo.m~0~00~4flw mo.onqq_n4.N» 0~.o~m4m¢wfifln sq.om~1Hmmsflw o¢.¢mwdmnmdww o~.N0n.0nndwo o~.nn<-00qfl» HN. mom moo» nu. «an snuo
0¢.ooo mm 05.0Nm.aH mn.HnN.m_ nu.~m-0~ 00.q4¢«n 00.Q¢o.n 00.¢d¢4n ~n.m¢o.a n
u - Ao_.ncN0 No.nnm.~ n~.o¢n A0~.n~n.Hv A¢0.no¢0 oo.o~¢ {H.HHH AH¢.0N¢V

H0.n~n.onm.~m mo.oo_.omo.~» 0Q.wwa.mm<.un mn.04n.n~o.~»

 

Noaa
mu sanaeum

HOOH

ooo~

onoa

 

oan

 

eased. newuce>oou ecu ca ucsouu<
euaeloueuma

 

anon

 

 

 

Muaecueu
.n Ncemmmo euceuaec

 

omm~

 

nnau

~¢.N00.H00.H» oh.o~n.~nn.~» 0n.n~0.n¢n.no 00.a0~.o~0.~»

amalgam.

h¢.oou.mooo 0H.nHo.sn~»

 

«nag

 

wwwm

 

voea>eu o newueuuwquuen

mmmfl

 

eon-lam Mllu :—

 

nueu

useleueum unease-u oomavem
one use vacucH on: use xcedn coauce>cou one
use ecofiueueao Scum cweo uez coeauen sensuouuwo
“cease-ye emcflcueo
you AquHV «fibucw uoz

 

 

 

 

uemw>mu

nuoulueanue HeuOH
seem uoaoun on» as
mumceexe use moaned caeuaeu humaneuh--H> encuu
cowueaueuneu new“ “moo
ue madame noxgw ”He mun-u use euauleueue ecu
co nuueme pexau couuaaue-uoc eue~m--> nacho
«moaned eunu9w ou
uuuou coNuNmaaaue mo cowuuoe e nouoaaupH macho
museum cweuuou
co meeuofl sapwmeoa New ooa>oum-uHHH asouu
ueoo venauuoEe
Ou Batu wcwcuaueu ennu .ee:~e> .0.H.<.z an
eeNuwhauee mo useluesnoe oeuo>om--HH nacho
Ab nsouu ca
ope sows) numeee vexwu menu uenuov euceleueum
ecu co eueeee nouuwaoeaao: suede--H nacho

 

 

 

 

 

 

"Haas-sou hoe A<VNH «anvoeum no.0 sueosumaflu<
neuoeuuoo mu
.:eIoUcH MN ecoNuNeOMmNQ: mu venuedu
elouw seamen xoeHn aowuce>cou Hum mum
”egos
meson
ednwww~0-aoc you aoNueNNuuole «o dogwoohuou
manna
vouedo» use pouumaoe-=on «o oaHee :N emcenu
week

mo was ue vocab eueeee «o 03~e> a“ eucecu
pace euoeee co eoeeoa use ecwew “eyed-o

unnooewv pee Bowie»: 0:03 «o sawueuwuhol<

Nassauoe esHauam «nu ou uoeuwu veueuce eleuH

Aaedn cofluae>coo “mm mum
MNMNMMMMNM Beau Heeonv mwufl mum
xeegn coaune>eoo use noncoaxe ”econ
euwooau one» mow~oa Asouo
album“ weauafiuch eoaw use eeeaeuam .uexeh
uecvaxu oueuuo ~eeu use uselueabow Heuoceu
unsound euoeusuca Heuocec
2.3 3.2500
Noncoauu ehwueuuewuwfip<

use unaluue>=H .COHuNewsvo<
naeHn nodu=e>aou new
muauuo «lo: we Nose you wave 0» omuenu
peace-«v nee IBNGUNA moon we cowueuauu0l<
uculeueue eunucheo veeabeu new

"elude“ eeouu

”eonswfiu needs sowuco>ooo

 

 

 

 

145

 

Life Insurance Company B

Schedule II A

An0.mmn.o¢va

Nn.mwn.0n m 0~.amm.~¢~m mm.

oHN.neNm

o~.nHH.mnHm mm.HNm.nan No.0Ho.~mNm

RNN.Naa.omH0» me.man.Neam oN.NNo.eN» «scone co sung-sesfiu< HN< No suoemm assoa

 

a . m - m - m 0H.

mH.

~0H.0HHm

New.0HHm

Amm.amo.H0~vm Amw.Noo.mV m - m - m a o

mm.Nooqm

AmH.N05.0Hva

Amm.Noo+mV - - -

u m euauluesnne H> mzouu "each
- neon mo
o=~e> confluuole waaueau ca uouum .Hc
eaoucw mmmu
co neg sleuew u>wuueouumm .oo
hues» honoua use cu momceaxe
vce eeeeoH aNeuuou uewuceuh--H> enouu

 

:oNuewuouaev eauH uuou us assume
cuxaw HHe mused use eucuaoueuu one no
museum poxwu vouualueaco: oueHm.-> nacho

 

00.
nm.

«N.Ns_.em m oo.N~_._Na m Nn.oan.mme
AoN.oom+qul Aoo.mom«Nv we.mo~«Ne

~0.mna.mm nn¢.0Nn.~v mo.nnn.mo co.

mo.Nmm.mNH m Ns.nmN.Hma m aq.oom.NNHw

hm.

meN.oNHm
ommqam

mm®.0¢

own.nm m

AnN.Nom.oav m am.aos.anam
Ama.moN.Nmaw

~n.0m~.~m

Amq.Naa.mv

m Amm.HNa.oV m Amu.mna.qv

N0.0H@.NmNm
oo.ooaqH¢~

mn.HNH.enN»
ma.anH4NNN

nH.Nn<.aQHw

nonmemqum H¢.Hmm«m~H

oH.oqw.¢o 00.000.0n Q0.Hma.MH mo.mn0.mm

m 0m.~mo.HH » mo.~n¢.w m

euceauesnue pH naouo Heuos
“Ha BuuH we
Nausea eEem cw neupuuuuv ecouumwaEOU
assesses“ ewHH uwveuo fiaaaoua eHwaHm
- AHa BouH ea weasel
«lee ca venueweov eueou cowufiewavoe
uooawv accesses“ nudes; use ucekuo<
A0>L0eou azaleum weakens: Ou
coHquQONA :H ueuueuevv edoNeefialod
oozeuoeca :uHeo; use uoekuo<
Audauea nesz-e>«w e ue>o A~ae>u
voueuoHHe hawueuuapuev edoqeeNand
accessed“ ewNH wee» ueuwh .od
"evoHuoa euauaw cu eueou
cowufieaavue mo cowuuoa e women-->H nsouo

NNo.eN»
mNa.No

.mc
.NQ
Hm¢.NH

.H¢

 

eueeee aaeuuou so
eoeeoH oHANueoa ecu epu>0umu-HHH nacho

 

AHw.nmo.0mmvm me.w~m.o~va Amm.~q~.mqvm A00.

omN.oNvm

AqN.00m.eNV »

ae._aa.Na » 0N.moN.s »

Aoo.onN0 » - »

eucaluennve HH maouu HeuOH

 

- om.nam.a nN.om

- - oz.moN
nam.qu.oan xNN.oam.HNav Amm.qu.aev
Aen.oan.0Nv m Aom.mN0 w ma.mNN.m

as.
Ame.
m mN.

ssN
amN.MNv
mmN.N »

”H.0mfi

H4.Qdm

Aom.moN.sN0 m oo.Nom.oa » oo.ooo.e m

Ho.44N 0H.no~ - .

A00.0n~0

. macaw ease cu eucelueanve uenuo mo
uHseou e on eaaew Heuameu nu emcezo
u :eHANwHHe you: emcee so segueuauuoa<
- assaum .HN
- m evaon .0~
uueoo vouwuuole ou
823 95.53»: «any :03: .u.H.<.n ou
eeauwuauoe we aoNue=~e>eu oeue>e~-oHH nacho

.nN
.MN

 

m Had.

0mQ.0Nvm o~.0mq.0~

- a «uselueaave H nacho Hausa

 

w AoH.

Nom—
~<HHH m—auwsom

ooaH

 

onq.0N0» aN.om««oN

mmmH

:ueduwuowum ammunaoou< veumouo< Nuaeuus .

wan

ean

HmaH ommH nan

 

 

 

 

.ucussssqv¢ mm oaavoeum seas-son
m ummmmmm euaeuseam ouwa

 

neon-Hen aunoc .euauu< .e
"Hp macaw cu one scan:
euueee panda aesu aucuov euceIOueue
at» so ouoeee veuuwame-eon ocean--H naouu

- »

nnoH

.33 5880 32.53% :38. glad .34 fl mu

146

 

Exhibit III

 

Life Insurance Company B

om.omn.m0H.nw

mm Hao. mmo mm
IllIIIJIIII1I

mmw 0mm H

.Illllldlllid
n00 c

.HNm.Nmn.mm

«p.004
oh

 

 

ucwEams>cs 0cm moANNH.DwNH Huuon

 

nummmm uwouar on :0: an unwoaozxooum
NM pavN:0km aucsw mo ucmEumw>cw out

 

o>one Heuaaeo e>uummu Ammofi cw ouoafiucw cofiueoa gospen

 

mnunfiocxuoum Hm “ceeuma>un HnNOH

 

0n.Hnm.hmm+~

00.000.00N.~w

“cosmoeue ewcwckme use--ouuuNNueuucn
~>0Lm we

unnumoauza Hmfiuwmm you neumauaouaa<
Newcflcumu pscfieuum

xu;au “mafiamu co £3N6Uum

as «when. oco.sq--xuosm Hmuaasu
uxuoun Hmufiamu new cN-uNea uc3024

”eumnaonxooum in unwauee>cH

mN.nmo.qmo«~
ma.NHs.Non m

00.000 00m

oo.ooo.ooo.am can mNm

 

 

acmaueo>cw HmmuH Hmuow

 

 

co.

No.¢mN.moo.nw

omqqmoo N

nn.m¢mqmq

Ho.0¢H.¢mo.Hm

mumeme wcaonvONQ
-o:ce>eu mo coNu~=~e> .U.H.<.z
nuance unasavoum
-eaco>ou «0 Neon peNHuuol<
"eueeee mo coaomsae> .0.H.<.z c“ meod wouaaeeucd uo<
eueome nuuswfloe uo noNue3He> muucoNeeNaloo
eodeunecH mo coNueNUOee< Headaumz co ocean HmDOH

mn.on«oo~4n

o~.om~.n~n.nm

 

mo.an.~om

oo.~Nn.ono.Hw

Nq.omnanoH o>ueeuu xucuwcaucoo cacao
mm.~n0.nma m u>Leeeu cowumdfie> mowuweauen xuouepcen
”meeoausa Headed. Now neomaum0uamm eanaham

:QDHNMDD HOUHMMHUmeu: ”Quad «muOH

 

 

 

NN.nHN4qam«w

mm.¢Nn.moa.n»

on.aam.NN
oo.oma.e

o~.~n~.o~m.mw

MNJMMMJMNMII enouueaueouaae use docue “roamed .eefiuwHuneNH
uo>o eueeee neuufiape mo noduenfiu> .o.H.<.z-ue:Hnu:m
oo.ooo.ooo.am use me a. mouse. ooo.os--xu0s. ”assume
u~euameo Heweq
. . . . _. auasaaapusa asses
HH.q~nq¢oN nuueooHHm soc eeuseuuaaux
no.n0n.~ sanazem eeueu HHohxem
nw.n~n.~ wEOUcM ucoEueo>CH eschews:
4H.q~m.mnm nexus voshuo<
nn.mHm.nN mmucuaxo Hmuucuw New anexea eun300u<
ao.onm.om~ m_nezee acoaeeeasou ooauoo<
No.n~¢.o~ mewpceueuno euueuo BHeHu

oq.mom.nnn m

Hn.nnm wan H

nu.nmn.nnn.wm
mH.ono HNN

04.nao.non.Nm

M

mENeHo Nomuucou use aoudom
"eoNuNHNnewg uceuuau
. . uo>u~eou uu:ou3mca mucusueuu «each
nucau “daemon ESHEUum
meaocowcaocoo
ouNH uaonuwz mouenucOU HeucuSUHenne so o>ueeom
monoNHoa nudes: use ucuuwuue so
oesoeHHoo e8:«aeue co e>hoee¢
efldwauua uuwnu no meapeoH «o eeeuxu
:N :cofisueHHOU «0 Once: pageaauem
. mN.ono.mmN a Amcauuo_ do ”one “each
"eaawluum venueaaoocn use pouueuep co e>honeu gunmen
ee>hoeou Heuueauue HeuOH
“auoeuucou pee newuaaoa euaH c0
Hue>uoeeu auaaom uueuouuw<
InfloucH Nauaueu>cH use Qaaflauum no neauhom

m m H H H A H n < H A

 

mmsmmmqwmluu

.ee>ueeea e4 an;

m E H m u> >2 H on

Nm.Hao.nmo.ww
oo.Nmm_on.a

 

 

 

(.3
A

mousse Ham uaNmo>cN HmuoH

.UUum9DCH HNUOH

 

museum pouuaaoe-coc

L‘
r.

lllilnlll
\QIXu H 0‘“

am. Nqo.u,m
0n. Hmn own w

«neweedhaoo suceusuca ufivouu fluuaeun «cham
macaumNEEoU sudeun vce uconNuu<
aneweedsaoo oucmuaeca ewaa use; Nana»
"encased museum ou veuuouov munou
.muuem< vouuwau< e< ANNHeso uoz on Loan: euoem< wcaumumao
nuance neuunsov 5N oeuee>ua HeNOH

 

o~.mNN.noH.Nm

 

o>one eueeee wagostNQcoaue>uu ca unmanned on
.uuenuo 0» wooden uuea on aneowHane defiance Nospoa
eoamuo «so: am peueu>nN unseen 0>Nuueumm
sawuewueumev o» newness coauHOA e>wuwHafisu
deco

Nucavaap euawmo Mao:

HH.4~¢«nnn HH. am: mm

-.w<0.¢n0.Hm
4¢.wm~ mN
oo.omn.n0H.Hm

am.n¢o.nnm.a ~e.ono.oe mane>auuou uuuuuuaa voatuu<
~0.nnm.nNH ane>Neueu elaaiuue euaeuaenu nuHeu: can ucepauu<
00.nmn.oo newceafioa peoeNwaue Iowa eeHne>Heou¢
oo.~no.H eaves-nauu loam eane>weoex

zeeo
Neuoeee acouwau
"auocOAeemllou euceuaenH mo ceauewuoee< Heoofiuez unu
an monwuueeue coflueaHe> one oeHe ea news) .cOHNewueuaup
use ooNuaNauuole uOu veueanve ueoo ueoaeueeee unauwuoao
«Donne uflmmmmmmmuummufluw.MM neuee>o« Heuoh
m«.oHo.ooN.nw A.o.N.<.zv
«Menageedieou ooceuaecH uo abaueuuoee<
. Hessian: an veawuueeun aoHuesHe> Hench
HH.4~o nmm AaoHen eeev
meapaasn soauuo «Ion mo oouuuoa Hanan“

wn.HH¢.H@¢ m

 

 

 

o~.on~.an.nm .

 

HH.<N¢ Hnn

on.Noa.oa om.N0a.ma .auoa Noaaom
00.00n.¢~ 00.00n.a~ eueuee Heep so eoeoH eueuuuox
oo.oon.nao oo.Nno.NoN .xuoum
an.Nnn.aNo.nm Nw.oNo.omo.mw arson

 

ueou vouwuuol< unHeD U H < z

“eueeee udaoavOunueaoe>em

Nee>heee~ eueeuaeeH no eucuaueu>aH Hanan e< veuuwsv< eudee<

m H u m m <

NooH Hm Monluoon

:eeauauzaum unauesouu< venueuu< Nameueauo:
m.Nmummmm

 

 

 

 

mummummm.muumm

gnu: luouaoo MW eudeHen

 

euaeuaiuH smug

147
COMPANY C

History

Growth

Life Insurance Company C is a relatively small stock life insurance
company which has followed highly conservative policies and has grown
steadily over a fifty-six year period. The following tabulation summarizes

that growth by ten-year intervals:

 

Premiums Total

Written Insurance Total
Year During Year Reserves Assets1
1912 $ 154,000 $ 233,000 $ 428,000
1922 459,000 1,907,000 2,336,000
1932 539,000 3,782,000 5,058,000
1942 564,000 4,589,000 5,772,000
1952 1,603,000 8,016,000 11,093,000
1962 4,006,000 19,279,000 23,433,000

Underwriting and reserves

 

The company is authorized to write insurance in twelve states. It
writes the usual types of life insurance, including eight Special policies,
and accident and health insurance. As can be seen in Exhibit I, the
latter comprises a relatively small but nevertheless important portion of
total business. No annuity contracts are written. The ordinary life
insurance reserves at December 31, 1962, as summarized from Section A of

Exhibit 8 of the Convention Blank, were comprised of:

Modified preliminary term methods:

 

Illinois Standard 19.2%
Commissioners Reserve Valuation Method (CRVM) 35.7
Special modified 11.3
Total 66.2%
Net level methods 133.8
100.0%

 

 

1At N.A.I.C. valuations but including non-admitted assets
through 1952. The 1962 figure is the total invested in assets as shown
in Exhibit III.

148
In view of this extensive use of modified preliminary term reserve
methods, the possibility of over-adjustment on first-year life insurance
commissions, which is pointed out in the discussion of Adjustment 30 in
Chapter III, should be kept in mind as the statements of Company C are

studied.

Stockholders and stock prices

 

There were 186 stockholders on December 31, 1962. The price range

of the stock during the past three years was:1

Year High Lg!
1960 48 39 3/4
1961 90 62
1962 111 82 1/2

The company sends a printed condensed financial statement to each
stockholder and policyholder at the end of the year, but more detailed
multilithed statements containing a three-year comparison are handed out
at the stockholders meeting. A detailed financial analysis is prepared by

independent CPA's for management each quarter.

Special Study
The foregoing data indicate that, unlike Companies A and B whose
operations are specialized, Company C is a typical regional life insurance
company. It was, therefore, selected for special analysis. The financial
data in the Convention Blanks for each year were summarized into compara-
tive worksheet statements from the date of incorporation in 1906 until
the start of the detailed worksheets in 1953. This process was time con-

suming but helped provide an understanding of the development of the

 

1Best's Life Insurance Reports - 1963 (New York: Alfred M. Best
Company, Inc., 58th annual edition)

149

Convention Blank and forced a detailed scrutiny of the specific changes
made year by year in that blank. This material is drawn on extensively
for the historical review in Chapter II, but there is little to be gained
from inclusion of the revised statements for the entire period at this
point. The same ten-year period is, therefore, used in the financial
statements included in this chapter as is used for the other companies.

The analysis for the entire period served another purpose also. It
substantiated the methods used to compute the January 1, 1953, adjustments
which are required in order to have an accurate starting point for the
revised and extended statements. Such items as furniture and equipment,
for example, were scheduled on a depreciation analysis sheet for the
entire fifty-six year period. The methods used to obtain the January 1,
1953, balances for the other firms were also completed for Company C and
compared with the detailed analysis. The same balances were obtained,

thus substantiating the method used.

Adjustments Not Previouslijiscussed

 

Adjustment 2, Returned checks

 

 

This non-admitted asset belongs in the extended balance sheet so long
as circumstances are such that the company expects to collect from the
makers of the checks.

Adjustment 19, Miscellaneous suspense
debits '

This item encompasses small items of expenditures which pertain to
future periods. As such it should be included in a balance sheet which

conforms with generally accepted accounting principles.

150

Adjustment 24, Stock i3 subsidiary
corporation

For purposes of the Convention Blank, stock in a subsidiary corpora-
tion is included with the stock of other corporations and is carried at
the net book value of that stock.1 This net book value is arrived at by
subjecting the subsidiary company to the same valuation process used in
computing the Convention Blank balance sheet of the parent company.

Company C wrote down the book value of the stock in its subsidiary
to $1 in 1945. In 1961, the examiners convinced the company that this
stock should be carried on the books at its original cost of $10,000 and
the stock was written up to this figure. The offsetting $9,999 is entered
in the Surplus account and is part of the "Other Adjustments of Book Value"
shown in Exhibit II herein. The stock continues to be shown in the
Convention Blank balance sheet at its computed market value, as recommended
by the examiners, and the change from year to year is included in the
summary of the Surplus account as an unrealized capital gain or loss item.
The adjustments in this study are designed to state the stock at the amount
invested in it. This is appropriate for Company C because, although the
subsidiary was originally created for the purpose of carrying premium notes
from the agents of the parent company, it has been largely inactive during
recent years, its only assets being cash and securities and its only income
the interest and dividends on these securities.
Adjustment 53. Reverse write-up 2:
33123 2: land and buildingg

Since the fixed asset accounts are stated at cost less depreciation
in the revised statements herein, any later.adjustments in the book value

by the company must be reversed.

 

1This method is urged in the 1960 examination report on Company C.

151

Adjustment 54, Reverse p1acing_p£_!glpe
pf furniture 329 equipment 22.322.2225E
21 the company

Company C charged the cost of all acquisitions of furniture and
equipment to expense until 1960. At that time, all of these items were
inventoried and entered on the books. Since the revised statements already
show these items at cost less depreciation, the company entry must be
reversed.

The flat 10 per cent depreciation rate used in this study naturally
does not exactly agree with the inventory value recorded by the Company
in 1960. In order to have the net value on December 31, 1959, agree with
the amount recorded by the company on January 1, 1960, the difference of
$2,344.51 is spread back over the preceding six years. This makes the
revised statements and the Convention Blank agree at the time the firm
capitalized its furniture and equipment. The company's depreciation is
accepted thereafter.
Adjustment pg. Eliminate excessive
accrual p£_income taxes

Company C followed a plan of estimating its Federal income tax
liability at a round amount of $20,000, then $25,000 and finally $50,000
at the end of each year from 1954 through 1959. When the estimate was
reasonably close to the taxes actually paid in the following year, no
adjustment is made herein. However, $50,000 was set up as a liability for
Federal income taxes at the end of 1958 but only $639.05 was paid in 1959.
A small refund was obtained in 1960. So, the excessive accrual is reversed

for those years.

152

Adjustment 9;. Past services portion
pf_pension plan

 

 

Company C transferred $175,000 from Surplus to a special Reserve for
Employees' Retirement Plan in 1954. In 1962 the plan was extended and a
Surplus charge of $72,555.99 for past services was made. The required
addition to the reserve is charged to expense each year. This is acceptable
accounting.

The method of handling the original contribution to the reserve and
the increase in 1962 for past services is another matter. Under the compu-
tation of Surplus concept of the Convention Blank statements, the charge
to Surplus is perfectly proper. But, from the point of view of measurement
of income which is inherent in the accountability type of statements upon
which generally accepted accounting principles are based, a serious question
arises.

The minimum level of accounting which is acceptable to the accounting
profession, as expressed in Accounting Research Bulletin 43 of the AICPA,
is clearly stated in the following excerpt from that publication:

The committee believes that, even though the calculation is based on
past service, costs of annuities based on such service are incurred

in contemplation of present and future services, not necessarily of
the individual affected but of the organization as a whole, and there-
fore should be charged to the present and future periods benefited....
The committee accordingly is of the opinion that:

(a) Costs of annuities based on past service should be allocated
to current and future periods; however, if they are not
sufficiently material in amount to distort the results of
operations in a single period, they may be absorbed in the

current year.

(b) Costs of annuities based on past service should not be
charged to Surplus.

 

1AccountingResearch and Terminology Bulletins, Final Edition
(New York: American Institute of Certified Public Accountants, 1961)
pp. 117 and 118.

153

The Internal Revenue Code permits deduction of contribution of the
past service portion of contributions to a pension plan over a period of
not less than ten years.1 This provides a convenient period of time to be
used in this study, so the original and past Service costs of pension plans
are capitalized and amortized over a ten-year period. This ten-year period
might, or might not, be a reasonable period for a particular firm in actual

practice.

The Financial Statements

 

Although Company C is the first company which can be regarded as
typical, most of the factors which need to be explained about the format
and method of presentation of the financial statements have been covered
in the discussion of Companies A and B. These statements reflect the
results of the analysis of Company C better than an expository explanation.

In many respects, Exhibit II is the most significant statement
because it reflects both the earnings data of the Convention Blank and the
revised data. The portion of "earnings" which is reflected as an operating
gain and the portion which is entered direct to Surplus in the Convention
Blank is particularly interesting. Another item which warrants special
attention is the bottom line of Exhibit II. The adjustments made in this
study increased the net income as compared to the net gain from operations
shown in the Convention Blank during the first few years, but this difference
gradually decreases until the revised net income is smaller than the net
gain from operations reported in the Convention Blank during the last three
years. Conceivably, this might indicate that the earnings of the firm are

tapering off but that this trend is not reflected in the regulatory statements

 

1Section 404(a)(1)(C).

154
because so many costs are charged to expense when incurred rather than
being matched against the revenue which those expenditures help to generate.
This is only a possibility which cannot be verified except through the
passage of time, but is quite evident in the next company discussed

(Company D).

Some Interesting Side Issues
During the process of summarizing the Convention Blank statements
into comparative worksheet statements and reading the examination reports
on Company C from its inception in 1906, some interesting procedures were
noted which, while not followed today, shed considerable light on the

underlying philosophy of insurance accounting and reporting.

Extreme conservatism

 

Most companies may not have been as conservative as Company C, but
the 1945 examination report calls attention to a procedure which indicates
how far conservatism can be carried when it is over-emphasized. That
report calls attention to the fact that for several years prior to 1945
the company valued its bonds at the lower of (1) book value (amortized
cost), (2) cost, (3) market, (4) call price, or (5) par. Such valuation
practices would, as is now recognized, result in "income" when the bonds
are brought back up to a more realistic basis or when they are sold, thus
giving a non-conservative earnings computation at that time.

A startling practice was followed for several years prior to 1945.
Any dividends in excess of 3 1/2 per cent of the cost of stock were applied
against the book value of the stock. In 1943 that adjustment amounted to

$19,336.75. While admittedly conservative, this type of procedure certainly

155
did not provide accurate reporting from an accountability point of view,

and fortunately has been abandoned.

Depreciation apd_£gp£ charged gglf

Although depreciation is currently being recorded in a conventional
manner, a former home office building was not scientifically depreciated.
Instead, it was carried at original cost of $380,000 for several years,

then was written down as follows:

1939 $30,000
1941 20,000
1942 30,000
1943 50,000
1944 50,000

The building was carried at the remaining $200,000 until it was
remodeled for rental purposes following construction of a new home office
building.

Prior to occupancy of the new home office building, the company
charged itself no rent. After moving into the new building, an annual
charge of $32,000 was made until, in the words of the examination report,
"in order to develop a more realistic charge, the rent was increased by
taking 3 1/2 per cent of the mean book value of the Home Office plus
depreciation expenses and taxes." Insurance companies are required to
report as income a rent allowance for space used, but in the hands of a
less conscientious management in a situation where the home office comprises
a sizeable portion of total assets, the door is opened to manipulation of
the rate earned on investments. In the revised statements in this report,
as previously noted, this "rent" is eliminated and the home office is

transferred out of the revenue-producing assets classification.

156

Exhibit I

 

Life Inaurance Compapy C

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

mwcwcumm
pocuwuum veuuNuumohca Can u
nmcfiaueu
unneeded vuuuNuueuucs wowacwmom
mdmmmmmm vuaflmuwu
uwooauumsucs
Gum CON“ unmihv
mw.mmwwmwmm mum

 

 

 

seesaw mo muofluaeonmau Hmuoa

muenHOAAUOum cu evGQUN>Np xUOum
muonHOAJUOuu cu mpcopw>wo ammo

madmune
neonauaouanm 0o muewmceuh

"neoueH mo maOHUNaoneNQ

HMMMMV mucosa mum
eonen eeoucH Heuevoh

MMM albusa uneven

AMMMNV secuaw mwm

eeeeOA one «came Heuwamo

AeeoHv «abuse
ouceuaucw uwz

 

 

 

 

 

 

 

kuoh

Anna uflduaw cmnu honuov
meow use neucoowH .eome
eunueuo euwuee
Heuu use udufluee>ow Heuocuu
oedemuu codename“ Homecoo
unaweuwaaou

"endomxu e>uueuueaaufim<

use ucuaueo>cH .oONuwewauo<
aloud“ eeouo

 

 

eueoouuusm
use elweao huNHom no eueuamem
wdnu>eu eeouo
use; menu
esco>uu “on coauuom Hooch
enduva>wv mo BHOw any

 

 

ow euovHonhoNHom ou pecunuum

elSnleun veuuuHHooc:
one pouheuov a“ oeeeuoca

no evacuees Nam useluesnu<

om.on.NHn w eosheeeu HewuH a“ eeeouuaH

 

 

mo.HNN_maa.am oN.aan.Non.am so.aweanm.Hm on.qew.oom+aw on. can aw No.NN os aw Hm.wwmquu«1«» naimuuaaauaaw mundanuqmnuaw NuauduuuunuaW
oN.aam.Nonqa «c.0ws.on.N on.eem«oooxw oo.mnN.mmn«a No.NNN.mos.a an.anm1wmsqa nq.nnm.mnn.a mm.Nsm.oon.a Nm.Nmm.Nnmqa q¢.m0N«NmN.a
Nm.HNo.nNa » AwN.oww.aasv » «n.ass.NNH » so.mmo.mNN m Aoa.oao.aNc a aN.Nam.naa m A¢H.oaN.snv w om.Nas.qu w Nn.00m.mq m mn.NNo.na m
so.NeN.os » an.mmo.sso » ms.aoN.NN w mn.oas.nN a nN.ome.nNH » so.Nna.Nn » No.9mo.oe m so.qu.ms a aN.an.nN a 0N.Nsa.qm a
- oo.ooo+oon - - - - - . - -
oo.ooo.os oo.ooo.ns oo.ooo.as oo.ooo.on oo.ooo.on oo.ooo.on oo.ooo.on oo.ooo.on oo.ooo.om oo.ooo.on
Aoa.NnN.aav w mn.mmo.ao~ m ne.ooN.NN m mm.o~q.om a «N.oee.Nm » Aem.Neo.nv w No.omo.e » oo.st.N » oN.qu.mN m Aom.Nmm.av m
om.naa.aoa m an.NmN.NnN » Na.omq.nqN a NN.nom.naN m mn.nNs.N0a » Nm.0NN.oQE m .ooa.n » No.oMN.mNa » mN.mNo.aaH » MN.¢NN.mNH m
oH.moN.mN No.0ma«a mN.ana.m - on.ooNq¢ “N.q4a+NN mm.mno.aN om.mam.NN HN.noo.nN aq.HAN«NH
oe.owo.eaa » wH.QMN.aeN » oN.Non.meN » NN.non.naN » oe.aNa.Noa A mo.nNo.mNH a on.omn.nn » wa.nnfi.o¢a m am.eea.qea » ca.owa.aea »
4m.nan«M‘ am.qu«a No.ano oo.ann 0N.~ann Aoa.oaaq4aq Ho.aoN.H ow.monqaa on.naa.Na mn.mNN.N
No.omN.Noa » Nm.qoo.on~ o ee.omN.n¢N » Nn.nno.NaN » oa.a4o.aoa » so.oNa.Nma » an.ono.nn » ma.Nno.smH m as.HnN.HMa w 0N.NNN.mna a
No.qen.oNN.H» oo.moo.meo.N» No.eae.Nnn.H» nN.nNo.noa.H» o¢.n~n.¢~n.am ma.aon.son.am Ha.ono.sna.aw ne.nmo.oNo.a» oo.on.omm m NN.nmm.nmN m
oN.Hnn.mca Nn.0nm.oaa an.ono«m¢ an.Noo4an Na.oan.moa ao.o qMN. oo.NoN.oN on.NmN.mn NN.oao.as oo.NoN«¢e
mm.seN.NNa oa.Nno.Nea ne.oso.~ea om.oN¢.aoa un.ona.No nn.noN.Na do.NHn.nu Nm.nna.wN nq.NNm.on oo.saa.SN
mm.nmN.noN ON.Nmo.¢ne. nN.Nne.NNo aa.Naa.oan oN.¢o¢.aon 0N.oao.aNn oN.NNo.nms mm.ONa.one an.nom.NNs q<.moN.omm
nH.NnN.osN » an.nmn.oNN » oo.oNN.aoo w Na.naN.e.o » oo.oaa.mNn » oo.uNe.Nan » sn.ono.Nms a mo.mnN.mns » nN.nms.Noe w No.oNn.nnn a
. . l1l1ll1 . . . All..l.ll1lll1 III-1'1 .
on mNm ea a» ma Nam.mNm.aa Na «N» was a» ow HNm.on .a» nN Nme.mmn.w» we a Nos a» as Non HHN a» e«.Nno sea a» an mNm.nmm »
NN.Nmo.st.N ms.nNN.nes.a oo.Ne4.omo.a Nn.wmo.nom mN.nnn.wom «N.es¢.an Nm.Nmm.ooN NN.noN.0NN mq.mon.mmo
oo.Nna.Nme.n» on.oNN.ean.n. no.nea.-o.n» MN.oNo.NnN.N. n~.ann.a.n.N» No.noN.NNn.N» mm.oeN.oeo.N» on.oaa.NNa.H» oo.Nea.an.~» oa.onN.non.aw
so.NNa.Nan.a» aq.osn.uon.a» mo.e¢..oae.aa o¢.N-.omn.~o on.oNN.ooa.~» no.0No.oNH.a» aa.aaN.oaa.a» no.nno.Noo.H» Nm.Nao.nm¢ » NN.NoN.st a
llldlII-Il. lulqlllillllll . . . . . ‘1II1II' . luluI-IIJIIIIII
no owe oNa 0N can nNa oN and “N «m4.uma «a «ea.Nom an. H a no omo.Nea Na can «as No oew.moa as «on No
AHN.moa.qv AmN.nNa.N0 AnN.omo.an0 oo.ee¢.na «o.oae.aa Aoo.oaN.oa0 n~.nNn.oe o~.ooo.aN no.NNm.Na ao.omn.aa
NN.noo.aem.a» oo.omm.oon.aa NN.eNn.Hnm.aw no.nNn.Nma.a» o4..oe.oea.aw Nn.eea.ooa » no.nNe.Nma » oo.nma.oea m No.oon.ssN w
ma.ena.ooo.n» NN.NNo.noo.ea .m.¢no.aon.qo na.¢aa.n¢a.sa me.aoo.aoe.n» .e.oon.ooc.n» He.mas.oaN.na ao.n¢N.eNm.N» Nn.oos.omo.N» nN.qNo.nos.N»
- Ne.ma un.o~q HN.oea ma.oH oo.HN N«.HNn ca.maN no.0nN so.HsN
ne.oom.nNm ne.anq.oNa No.e¢o.aoe ee.oo¢..nN ea.een.vo an.Noo.uen -.aaN.aNn oo.eNa.nN¢ Nn.noN.Nae NN.Hao.Nmn
ae.Non.N~N «N.ooa.N«n no.o~o.NnN e~.aen.NN~ oo.au~.anu Nn.ona.neN an.nnN.sAN un.nsa.o- me.NeH.MON «N.qu.o~N
me.Non.uoo an.nNo.one am.a~n.NNn “N..n~.¢ea oo.NNN.Hee ma.omo.nnc oo.oeN.n~¢ ne.nNs.MNq Na.ooo.mNe mo.NNN.nNm
oe.oNO._eN.n» «N.Nen.nce.na a~.eae.noe.N» mo..nn.eno.No n~.noa.an.N» mN.oMN.onN.N» no.¢oe.eeo.N» Nn.nao.uno.a» aa.emo.nno.a» an.eee.nns.am
Nam" a a oeoa mama onoa Nnoa onus «mad snag nnaa
”.mmmwmmm squauammmuu.enmmmmmmm«.mumummm«.ummuuuuums_mmmm:mummmmm.mm.muumnmm.u«

 

 

ueIlOuuum eumasheu e>uueuemumm
ooaeuuean

 

.m.umuummm

 

«mmm

 

 

uue>ueeeu

uuvHononHoe ee eoaee uom
"coNuuoa ecu gunmen
Heuoa
e=s0>eu uswueueno wonuo
euoulueeaca so
unflu .ueoueuaH
euoeuuuoo

.uauua>ae use

hueunuseHnnse you nowueuevmeuou

nudes; use uaevaoo<
swag
"eaowueueuweaou
zuwadae one elndauum
Nuznusuu

9

Life Insurance Company

II

Exhibit

EEEH

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Asm.mmm.oNv mAwN.NsN.NNc macs.onm.NNc m m,.qu.n m mmwmmm.oN m nN.oNN.mm m as.mm_.Ns m No.nNo.on m No.Nmo.moH m om.NNo.om m saunas-um .mnantum nosa>oe
ecu non esoucH uoz vce xceHn cowuco>=ou «no use
ocoaueaeno Beau cNeo uez ceoauen eocououmwo
E E E fl! I l l I
om.m~o.n0a m am.NoN.NmN m Na.0ne.nsN m NN.non.MON m mn.an.Noa m Nm.oNN.oea » o4.o¢a.n » No.onN.mN~ a 0N.oNo.aaz » NN.4NN.aNHm saunas-u. sucactumu
vomfi>ou mum hamoyv waoocw no:
Noo.Nmm.oszc mawo.Nmo.momV mao_.one.nav mamm.ama._oav Axom.mzN.HHNv » oN.no..Nma » nq.soN.ooa axao.ooa.nmc «Amo.mas.nsv » NN.oms.NN » .ucues.=“u- "ance
on.oom.Ns Aoo.00n.Naq‘ Aoo.oon.Nov Ama.oom«sav ma.oom.zm Aoc.oon.Nav Aoo.oom.N~0 oo.oom.Na0 oo.oon.NnH - s-oN remote on. as
. moeCoaxe nee «cocoa caeuuoo noueceuh--H> nacho
AoN.Nsn.mV o_.m<n.q AON.qan.Nv amo.mno.ov Ho.Nam Amo.one.ov an.oan.a0 aNN.Nno.av Nem.aNo.nNN or.woN.w . “was vouoauataoc
um muoeee vuxau "He payee use nuceeeueum
one so wuemae vexwu veuuwave-coc oue~m.-> gonzo
Aom.aNa.Nsv Amo.mmm.Nav .m.os_.ao oo.man.0n No.0nN.Nn No.Noa.am no.Noo.mo aN.NNo.HN mN Nmo.nm ao.Nmn.mo .voaaoa orgasm on
uuuou coNufieaavue mo coauuoa e house-->H nacho
AoN.Naqu me.qu.mv aNo.NnN.sc ”mo.mom.av “om.mHN.sv Ama.Nma.qv Aoo.eNn.ev an.osN.a0 “no.0ae.Nv AmN.omav .uo... caeutou
co noeuom «Hagueoa you emw>o»m..HHH nacho
flNo.mmo.No~V Aom.mon.monv A~o_am~.mnv Anq.mam.sNac ANa.Ns~.aamV AN.oao.ao Na.oos.oa As¢.noN.ooHc Amo.nas.noNv Asa.nmo.o~v n.0u couaunoa.
. oN Benn newcuaue» oneu .eeameb .0.H.<.z
o» mowuwusoee mo “columnave eeue>em-uHH macho
an.s_m.n m Ns.n~o.em » MN.qoa.ms » aN.mmo.ma m oo.mm~.Ns » Nn.oNo.zq » so.meN.nq » aN.noo.NN m os.osa.sN w 0N.Non.q m as aaoto as
one nods) euoeee panda cenu aunuov eucufioueue
unu co eueeee veuuwaueoaoc euefim.uH nacho
"Awaweueo now A<VHH oHavozum «any euculuuznv<
No.oon.0Nm m oa.aso.non m No.oom.ooN m az.mas.qon » ms.Noo.nan mxas.nNe.oev nano.moo.ea0 » no.0NN.s_N » am.NNn.eoH m an.wNo.mn a nu quWorcou mu
. eEOoCH mo acoNuNuomuwo we poemeHu
n. I I
eaeufi euOmoA xceHn coNuco>cou mum uoz
No.smm.mn~ a Nm.amo.onn mamm.Noo.m0 » so.NNo.oo~ » 0N.ao~.NmN nano.Nno.Nsav ”Asa.nan.nnv » no.nao.ea m no.omn.nna a mN.amn.m n aesoa
Ho¢.-o.an. Ano.e0mv ¢~.~Hn4nn . - - . . on.nnn.mm - eoafie> noon uo unseen-save kenuo
Amo.NNN.Nc an.n0N.onv AnN.nnN.oNav AoN.ooo.mav Aoo.on_.Nev an.mNm.aeV Aso.oeN.nsV AaN.nno.N~0 nos.ooa.st AON.Non.sv sauna
vouefieu use vouualfie-coc mo 05He> cw emcenu
No.nno.No_ om.oon.oon aa.~ma.an ms.nao.sNa No.Nea.oan NAN.o~o.aa0 aao.woe.0a0 4w.naN.ooa oN.nNn.nmN cz.nno.oa he.»
no one ue vocab eueeee uo os_e> ca one-:0
sm.mon.N an.saN.a Nw.amo oo.ann 0N.anN.n aoo.oaa.e~0 .o.aoN._ om.non.aa oo.Nno.aa on.n_N.N vac. «usuausuo. co .o..oa on. .aagu “nuance
. m - m - m - m . a . a . m - wHoo.ooo.nn~0 » - a gene newecem «nu «o ucoareafinesam
. “auscuue eaflmhnm ozu cu uueuwv voyages eaeuH
ma.zNN.Naa m mo.ooa.n0N » ms.Nmo.weN » No.mao.mmN » NN.ooA.an » No.mns.No_ nxao.ooN.snv » oN.oao.o_a » o_.Naa.o » nN.Noo.Ne » sans. aoascu>aoo mum ”mm:
mammmumumm scum HeeoHv add” uoz
0N.nqo.sNa.~m on.omo.mNo.a» on.naN.Non._m oo.a~o.oss.a» on.oNN.one.a» Ho.noo.ozn.a» Ns.s¢a.onN.H» "a.ooo.n~a.am Nn.ooa.nno.N» on.ann.nso» acean coauaupeoo son .o.c~ax. Noun»
mm.aaz.mm~ «N.Nom.aza No.Noo.mn om.aso.on N~.ooo«mna No.enN«oo SN.oNs4m0a oN.HHN4oN os.nNm«sN Ne.mao.on flung
ulbu:« wcuoaguCNV eeou use eeeeouw_ .mexeh
no.40n.oma MN.neo.ena as.oso.zsa on.eNo.~oa om.on4.Nm mn.noN.Nm ao.Naa.se No.nna.om ms.aNa.on oo.¢na.qN usages. cues.» anon on. sea-u.o>cN .acocoo
H_.aNN.mam _o.n_a.Noc ma.oNs.aoo 0N.nNo.Noo oo.NoN.oNn oo.Nmo.~Nn oo.MNN.wmo Nn.non.saq Nn.ose.Noo oN.mmo.Nsm o.auauo assurance Nutucuo
NN.oso.omo a NN.MAH.ocN » No.mn~.onN » Nm.Non.0No » so.ooo.Nao » os.nan.oan » no.NNo.nnn » No.eno.Nan » seuNNN.eoe » no.oom.naea sacs..aueOo
hence xm

 

~n.me.o~o.~m

on.osN.mea.a»

«n.n0~.oom.~m

no.m~o.0wh.no

on.~n~.~04.~o

nN.NNe.mae.~» oe.oam.oaa.an

Ho.non.n¢~.aa

0¢.~no.ooo.~a

nn.omu.nom»

o>NueuueacwEm< one uoeluee>cn .coNuNeaavu<
xzean couuco>cou aem

 

00.n~m.oo
o¢.NNo.0N

on.nnn.0~a.~m

 

Nos“
w. “.220

mn.mwo.no
no.40n

no.~nm.ouo.dn

mm.nnmsmn
No.~00.-

n~.mo~.oo~.~»

coma

00.000.~n
no.0Nm.ooo.~o

mnou

oo.ooo«Nn
om.aNN.ons.~»

mnmu

 

 

00.000‘ow

n~.HN¢.~on.Hw 04.000.50H.Ho “c.50n.HHN.Hm

HmoH

 

ouceaeueum

axe-- cOauaebaou us» ca unsouu<
eunucueu
m nmuammm euaeuaeau swam

00.0004nn

mmww

 

veew>e¢

00.000qmn

 

muo—

«a

I.

we.~n0.ooo.—»

 

anmu

 

nn.o-.nm0»

mama

ummuumm mud «mouueuuuu wm mouse-lam sue:

oowueuuuonoeu

eoauuo use: no “can ecu ugoe o» owsezu
ease» geuaaeo
ne voueouu eesHe> soon we uceaueanv<
unaluueue eunucuee veefi>ou New
nelson“ eeouo
Neeuauuh aseHn coauneaaoo

Life Insurance Company 9

158

l A

Schedule

 

Noo.Nmm.ooN0mNmo.Nmo.mon0»NoN.ama.n_vaom.omN.Noavmxao.m~N.Nanw NN.moN.Nm~» ma.aoN.ocNmNao.ooo.nnV mano.nms.nav » NN.oao.aN »

 

 

 

 

 

 

 

» Auauuuen 0H ue vow-laueov eouceuea uuAOt

alcocH co eucelueaev< ~H< mo uoowuu Heuoh

eunulueanue H> nacho HeuOH
cede aoNecoa mo aoNuuoa euuH>Loe uuem .mo
mmxeu escocw «o Heauoue o>Neeuuxu uuecNENHu .Nw
Nunez poncho on“
0» meaaoaxu vce eueeou oweuueo pounceNHIIHp nacho
euculueaaue > aneuu HeuOH
aceeEOU onu he exoon one so uculaaaco

use euauuchau mo ea~e> mo wawuefla eeau>ex .an

mwcmvflwan one used no 03~e> mo n:-euah3 venues: .mn
unufiawavu use unauwchaw

«o 03~e> 3009 us: ca owaeno ~00 Abuse eeuu>om .Nn

Naulnwavo use ououwauau mo coNueNooanev mucosa .Hn

Neeee ce ee acuiawovo use oeauuchaw vuooem .om

names
voueaouuawo ue uueeee vexww HNe naked one «uses
-oueuu ecu no nuance poxwu venuNBve-soc eueHAIID nacho
euculuesnve >H asouu Hench
nae inuH ee yucca! aloe aw vuuhouuvv «ance
coNuNuwauue uuouwv eoseuaecu :uHeon use ucuowou<
Au>hoeou
aflaaeun madness: 0» eowuuoa0um ca venuuwepv
eooweeNIIOu eoaeuaeaw nu~q0£ one unsouuo<
AvoNuua Neva
eewu e uo>o zaaebu woueooHHe szueuuNANev
«dawned-loo eon-uses" emwu bee» unuuh .oe
Newswuea eaauou
cu eueou eowuwewacue mo nouuuoa e hemoOII>H anouo

.om

.mq

.Ho

.euaow<

"uueeee :«euuuu co eoeeoH eHnweeoa Now evwboumnaHHH aaouu

 

 

 

 

 

 

om.oom.Na mNoo.oon.NNv «Noo.00m.Novano.oom.oav m no.0em.an “Noo.oon.NNOaxoo.oon.NNV»Noo.oon.Nay » oo.oom.NmN » - m
mm.ooqua Aoo.oom4NN0 Noo.ooN«~m«.Noo.o0n NNqIINoo. con NNM|,Noo. oon NIH Noe con wam Aoo. con NNV oo.oom.NnN -
- m - ”Noo.ooo.onV» no.0mo » me. can. as m - m m - m - m
NON.Nsm.Nv w oa.mam.a mNoN.ean.Nv wana.mmo.ov » aa.NNn mNmm.omq.ov “ANN.mam.NV mNNN.Nmo.av mNaa._No.NNO » oa.moN.m m
- - oo.aan.NN - - - - - - -
- - - - - - NNm.nNN.sw_v -
NON.Nea.mV o~.mqm.s AoN.mmm.eN0 - - - - - - -
- - - Noo.maa.oav NNo.Noa.av Nan.NNN.mv NNn.nas.av NoN.NNN.a0 NNn.oNo.oc Nom.eam.a0
- m - m - » MN.mmm.m m mo.sNN.oN m co.NNN.N » NN.mNN.N » an.oao.a » oN.m0N.Ne » so.mo_.nN m
Now.aNa.NaV «Ano.nnm.NNV o am.oe_.ao » oa.mam.on » No.0mN.Nn » No.Non.an » no.NNo.mo » NN.NNo.NN » oN.Nmo.nn ».oo.Nmn.ao »
No.ao_.m No.aNn.N ae.NoN.N Nan.aav NNN.nNmV NN.Nwa«N Noo.oNN.Nm NN4.NNN.N0 Noo.aom.N0 oo.oNq.m
NN.sNN.N am.aaN.N Nau.noe0 NNa.QNN.oV aN.NNo.N ao.anN.N Nao.aNn.nV NNN.NNo.N0 oe.NNn mN.NmN.N
NNo.nNe.mnv «Nm_.aeo.o_0 » oN.aNN.No » NN.mo_.oc » qm.omo.on » on.NNm.HN » oa.ozn.NN » an.oNn.oN » aa.NeN.Nn » nN.ooo.mm »
NoN.Naav mNNn.qu.nV ANNa.NnN.eV »Nnm.ooo.av ”Noe.oNN.a0 “Ano.NoN.av axoe.aNn.av mNNm.ooN._v naao.o_a.N0 »NNN.onav
“No.mNo.Noavaom.mon.oeanN_o.Nos.Nanfimq.nao.aNNV»NNm.Naa.onV» “N.oao.aa » .o.ooa.oa was».nmN.oo_0»NN0.NNa.noNV»NoN.nno.o~0»
- - Nom.Nmo.nmu NN.mma.o an.mooqm - - - oe.nNN.N -
- - ANN. Noe. no No. mes. m an». Noe. N0 on. Nae. N no.oa Hmo.NNN.nv Ann.oNN.ev mo.oan.N
NNo.- mmo. Nose Now. non come Noe. Non. NNV aNm meN. NNNV NNo. awn. oNNv Na. «Na. co mN.qu.oN NaN.NNo.nav NoN.on.NoNv Nao.oNn._a0
m a a m w a - m - o - m - »
an.aam.n » Na.nNo.en » mN.a¢_.oa » aN.ono.e_ » oo.oma.Na » Nn.0Nu.Ne » ao.oaN.na » NN.mmo.Na » oa.ooN.eN » oN.Non.a »
NN.NN - - - - - - - -
no.oaa ANN.ao_0 on.¢no - - - - - - -
Nn.NNo.a oo.NNn.an No.oNn.Ne aN.eeo.n_ oo.eeN.Na NN.oN». so.eeN.na NN.neo.NN oa.ooN.qN oN.Non.a
Nn.nne - - -
oo.ooN » oo.oon » - m - n - a - a - a - w - o - »
Noa— Noea oooN one. unaN NnoN omoN anoa anoa «no
~<uHH suavenum :eouuuuauufi umIIIIIwm«.mumuumm« N :eu . sud: aboueou easeleueum Heads-nah mule
Inflauuflfiv 0 3 u v Dug
m NMMNMWWo leuaeusmmm euww ,

 

 

 

 

 

 

 

 

 

easelueanne HH Abouu "each
each» ewsu cm eucaluezave

eaow>eua uo uHaeou e ee ecu-n Heuwaeo nu sneeze .n~
couueuonhoo huewuwenae a» locum .QN

eceoH emenuhol .Nm

execum .HN

«neon .o~

Beau vacuole
ou luzu 055.50.» 2:: ‘02:» .u.H.<.z
cu newuwusuoe «o oONue5~e>ou eeheaeuauHH Abouu
eunulueanve H assoc Heuoh
eumpev undone:- eaooeeaaeuewx .o~
exquu moans»: .m
uses-Hen guano .ouaeu< a
eHAHeeHlveaN veuepaeeou aces; .m
undone use eueuwuuo ou eeo¢e>n< N
"Ab ensue ow see
news) eueeee maxim sane kenuov easeleueue
yea so eueeee veuuwleeuooo eueamIIH ensue

£109

159

E
1

Life Insurance Com an

II

Ethbit

mahwum_mms.NNw
IIIIII1III1I.
N m

05.noo mmm

IlJIlldlllill
me How cam H

NN.Naa.mcz.m m

 

 

ucoeumo>cz was mvNNNHNnaNH HauOH
magmas oauuafios-:oc CH

 

 

 

 

 

muouHozxuoum NM uouN>oum mucsw Mm ucwEuwm>cN uwz

 

NN.Nmo.Noa.N

oo.oon.oao m

 

mm.mnm.ONH.mmw

00.Hmmqmoch

ma.oNN.NNN m

mmqmmmqmmIIIu

oo.ooo.ooo a

 

 

 

o>one Hmufimeo o>uunmu HmwwH ca uuquocH coNuuoa uoauwa

. . muouHochONm Hm Naufiumw>cN Hench qw.qmm.mn
unwabueua mchcueo upma>ou uenu-uouuauuuuuc0
u>Lumum ccaomaHm>
wmflufiunoom HpOueuomx you uouewun0unem coauuom Nn.mmq

nechcume uocNeuum
Hmuofi cu NoNun
upshsueu 00m.HHw Ho umcv AUOuu Hmuwaeo co EBHBUNH
uma on um mwumne 000.00-:x00um HeuHme

oN.Nqn.a¢N m

"HmucouH>Nu xuoue wcfiusHoch JUONe Houaneu uoH cNIuNma udsoa<

e e e

”mueuHonxuoum an “coaueo>aH
- 1
ucufiumm>cH HeuoH Heuou mm mom ONH NNw

 

 

 

 

N¢.aam«osm4H

nN.NoN.aNm.ONa

0N.moH«mmojw

mo.ooN.oNo.N a
.IIIIIJIIIIII

mH.omw mHn.

oq.qmm.nNN.N m
me.qma.nHo.N

oo.ooo.ooo a

 

0a.H00«Q¢n

nm.oom.o~n

No.mon.mn~.an
40.an 00¢

mm.NNo.aom.NN»
oN.NNa.aoN
mm.Nmm.cme.N
«a.NNn.NqN.NN»

 

H

H

H anHaNm

MH.mn~4o~m
qo.omm.no
mo.mn¢.an m
mn.oon N
00.000.00n m

"Awuwcauuoaao usufluee>ow uo oueuce>ue exeu cuv sanexen eeuoz

0n.~00 moo

ea.NNN.NaN
ms.ooN.oon.on
oo.Nmo_NnN
mo.Nno.nao.NNm

museum wcmuauoum
Ho ueou uMNNuuoE<
euuemm wcwuauoun
-s:ce>eu Ho coNumaHe> .u.H.<.z
"mucous
Ho coNumsHe> .o.H.<.z cu Noeauuucw ueeNHe0uas uuouan
euoeee ueuuwaue mo aoNueaHe> .u.H.<.z co ueeen HeuOH
o>uwamd cowueaHe>
eoNuHusoom Huoueudex you eaHausm Ho coNuewua0hna<
:Mmfimuae neuHocmuNHom: HeueH Heuoh
ecoNueHNAONQQe uce Jeane Heuqaeu .eeNNNHNneHH
ue>o eueeee uouufiaue mo coaueaHe> .u.H.4.z.oeanham
nee on ue eouene ooo.oo-unooue Heuaneo
"Hananeu HeweA
newuNHHneNH Hench
neNuNHNneNH uoehusu huuase uni eoHnexem
nooH ca oHnezen encased use euauuN>Nu neuHonsouHom
eaaeHu uueuucou ucu zuNHom
NuoNuNHNneNH udeuusu
Neeuouew uosuou<
eouoc Ho unseen euem

00.nxm1mmmsHN
Ieace>eu

om.<¢n.00¢.-w

 

 

00.nm~.nmn

 

 

m~.0nN.Hmn

"nuacuaanuaa mass-none oo nNn Non NNw

eo>uoeou eoaeuaecu Nuouaueue Heu0H
eucow< use eooonolu Haw euauecom new huwHwnewH

 

 

 

 

 

. . e0>hoeou HouHoghowHoA Mucuaueue Hench .

eucsw uNeOAou adfia0Nm nH.con own H

encaueHalbuue noeaoo use uceuN>Nu .eueuHoshuNHom Hn.nnn.0nn

eowucowawuaou
euuH unonuaa uuueuuaou HeucuEuHeene no e>hoeem
.oNuNNoa season can scouauue no mm.qu.NNm.N
ueuueHHoo eaawaeun co e>h0ee¢ 00.000.0H
eaflwluum ueuueHHooqn uni uouueuou so e>hoeou uosuon ow. n¢.o¢a

0
eo>heeou HeNueauue Heuoh H<.omo.o~«.on

mm.oom.Nm
m4.mmN.NN
on.NNa.ns
sN.qu.maNm

0N.Hom co

0H.on.mme

qw.~mq H

0H.oHH.mo~w

oo.NoN.NoN
8.898...»
mmlmmmammm
Nm.NsN.Non

ca.No mNa
No.Non.oom»

 

"euueuucou use uoNuNHoo euNH so
Neu>hoeeu muNHoa eueuouww<

Neesheeex e< uHom secucH uaeauee>cH use «saweuum mo newuuom

H z u I H m u D 2 H

 

 

 

 

 

 

u a e m u H H H H H n < H A ll
Nooa .Nn Nunsuuua .II
:eonauoaum uflwuo50uu< uuumoumx NHHeuoaoo: seam anomaou 0»
0 Hummmmw ouaeuaenH euHH

 

uuoo nouauuon<

 

 

 

 

 

. . . WM mwumm>mm Humoa
CH uMquDCH HmuoH

wuemmm HHM
muoemm umuuwfium-coc
cmHa
concun cu GONuanNuNcoU Hmauwaw wo ooNuuoa nuoN>uom ”new
mumou cofiuweasvom uocmusecN suHmoL ucm ucuuHoo<
econJNEEOU oucduaeca uunon use useoauu<
mcoamudaaco unseeded“ ouNH emu» umuam
”mucauwa ousunw cu unknowou mumou
secuake coNumNueunou om uewumnu :oHuuoa o>HumH3550
”moo
"uaofiaaaae use muauflcuam
muauaoom HmCOnuea co mcmoA
museum ocuuuau muucaa one ueHne>Nuuuu Nucuo
uoNuuoa mHnHuuuHHoucs uuumfiaumv museum
muquHmpNuNpou .uucuwe HHm Ho uumwouwmm
"mequHmn uanuu .mucew4
"museum “cuuuau
Neueee< uuuuaau< m< awaHaao “oz on moan3 museu< wcaumuomo
museum uuuuHEum MM umumm>cH Hmuoh

'1'

mm.mmH mm
Hm.mm~.Hnm m

 

weaoaue coHueHuouAeu cu uemuenu GONNNOA u>HumHaadu
aeoo
“waavaaan uuNNNo seam
euoeee uoeuhau Auuoae use eoHne>Neuom
neeu
Neuueee “avenue
..co.C.31> .u.H.<.z ecu
oeHe aw Loan: .oouuewueumeu use ooNueuNuuole
New uUNesnue neou ueIIeumuee wawumuoao
euoeee dmdwmmmwm
mfl ueueo>ca Hence
N.u.H.<.zv
euoaoNeeHanu ooneuaeoH Ho noNueNuoen<
HecoHuez up uonuuoeeun nodueaHe> Heuoh
eceoH mowHom
newueaueunou cu uuuuesu oeuuuoa e>wueHaaso
ueoo

 

 

 

 

003n0>0k

 

om.qem.oms.NNm

nH.oon mnn H

Hn.mns.n- Neueuee Heck Heuaea
nm.¢mn.-o.n queues Heeu no eaeoH eweuuuot
00.00».nn aoHueuonuou Aheuuwenae 6N locum
o~.mnm.noo.~ exooum
Hq.ono.o~4.oH euoon

  

eaHep o H < z
"queeee acaosuoueneauebeu

"eepueeem euoeusuaH Ho eucuauee>aH Hewoa u< usuuaaud euoee<

m H u m m <

 

ueuoeuuu peonm eodeHen

160

COMPANY D

History
Highlights

Life Insurance Company D is the only company studied which suffered
substantial decreases in business. These decreases provide a limited test
of the effectiveness of the revised statements as a measurement of earnings
when volume is decreasing.

Although Life Insurance Company D was formed seventeen years ago,
growth was slow until 1957. At that time, several district offices were
opened and the accident and health business was expanded. As can be seen
in Exhibit I, this expansion was financed through "surplus notes." In
1958 it was necessary to close many of the district offices and generally
to curtail expenditures, with a corresponding decrease in volume. A sub-
stantial block of new stock was issued in 1960, the surplus notes were
paid off, and the company expanded into the credit insurance field. Volume

has tripled since that time.

Underwriting and reserves

 

Modified preliminary term reserve methods have been used for almost
all reserve computations, only 1.9% of the reserves being computed on a net
level basis. Consequently, warnings sounded previously about the probability
of over-adjustment for first-year life insurance commissions and about the
effect of the reserve methods followed on earnings are esPecially pertinent

to Company D.

161

Adjustments Not Previously Discussed

Adjustment 11. College Plan notes

 

These notes are a special feature of certain policies. Since they
are not included in the categories of items which are Specifically approved
as legal investments of insurance reserves, they are treated as a non-
admitted item in the Convention Blank. For purposes of statements emphasiz-
ing accountability, the amount invested in notes of this kind should be
included in assets so long as there is reasonable belief on the part of
management that they are collectible. If experience indicates that some
losses are likely, a valuation reserve should be established for managements
best estimate of the likely loss. Adjustment 31 includes such provision.
Adjustment 12. Deposit i3 industrial
p225

The company has $122,000 on deposit in an industrial bank which is
in financial difficulty. The entire amount is non-admitted. Under
generally accepted accounting principles, by contrast, the amount on
deposit should be shown in the balance sheet but a provision for the
expected loss should be established and be deducted from the asset account.
In this way the stockholder has complete information regarding both what
has been done with company funds and management's estimate of the probable
loss. This adjustment reinstates the deposit to assets and provision for

loss is established with Adjustment 31.

Adjustment _g, Mortgage loans

A mortgage loan was written down in 1961 but brought back up to face

 

value in 1962. These entries are reversed with Adjustment 22.

162
Adjustment 31, Provision for loss on

non-admitted current assets

 

Provision for possible losses in connection with the deposit in the
industrial bank and on other non-admitted current assets is established
with this adjustment. Since the purpose of this study is to test the
feasibility of methods which are acceptable under generally accepted account-
ing principles, the amount of the provision is an arbitrary figure selected
without consulting management of the firm. In practice, the amount of this
provision would be determined by high-level management and should be their

best estimate of the probable loss.

Adjustment 3;. Provision for loss on

gppgk.ip other insurance companies

This adjustment is of the same nature as Adjustment 31 in that it is
arbitrary in amount but is intended to demonstrate a method which could be
acceptable under generally accepted accounting principles. Instead of
considering the entire stock issue a non-admitted asset, the cost of the
stock is reinstated to the balance sheet in Adjustment 21 and the expected
loss is deducted through Adjustment 32. As in the case of Adjustment 31,
the provision is an arbitrary amount selected without consulting management
of the firm.

Adjustment 5;. Record depreciation pp
home office building

 

Adjustment 2g, Reverse cogpany's write
down ip_lieu pf depreciation

Company D purchased a building during its first year. However, this
building was carried at cost during the first four years of the company's

operations. After that, the building was written down each year, first at

163

the rate of $1,000 a year, later at the rate of $500 a year. Under
generally accepted accounting principles as now applied, the cost of the
building should be charged to operations through systematic depreciation
charges without regard to the profits of the particular year. Adjustment 55
records such depreciation, using a 3 per cent straight line rate. Adjust-
ment 56 reverses the company's write downs.

Adjustment 51, Change lp_cepital gains

23.§_result p£_previous adjustments 53
this group

 

The difference between the depreciation recorded through Adjustment 55
and the write downs made by the company changes the capital gain when the
home office was sold. A similar adjustment of capital gains is necessary
when the furniture and equipment in the offices which were closed in 1958
were sold.

Adjustment 55. Record cost 25 credit
insurance agencies 3§_gp_asset

Adjustment 55. Record amortization 95
cost 25 credit insurance agencies

‘Method used lp.Convention Blank.--The regulatory system requires that

 

expenditures of the nature covered by these adjustments be charged to
Surplus, either directly or through the process of considering the expendi-
ture a non-admitted asset. Company D amortizes the cost of the agency
purchased in 1960 at the rate of $6,000 per year. The balance is con-
sidered a non-admitted asset each year. Consequently, the amortization
each year is offset by the gain from change in value of non-admitted assets,
and Surplus is not affected after absorbing the entire cost in the year of

acquisition.

164

The portion of the cost of the agency purchased at the end of 1962
in excess of the value of specific assets acquired was charged directly to
Surplus rather than being set up as a non-admitted asset. Since it was
purchased at the end of the year, no amortization is involved.

Generally accepted accounting principles.--The purchase of these
credit agencies is really a purchase of goodwill. At one time it was not
uncommon for commercial and industrial firms to show intangible assets such
as goodwill at a nominal figure of $1 and to charge all the rest of the
cost against Earned Surplus. Today, the cost of purchased goodwill is
universally recognized as an asset.1 However, accountants are not in full
agreement as to whether or not such costs should be amortized. Until twenty
years or so ago, the prevalent accounting philosophy was that purchased
goodwill should remain on the books forever unless the excess earning
capacity was clearly diminishing. There seems to be a strong current

tendency, however, toward amortization over a reasonable time.2 For

 

1For example, Chapter 5 of the AICPA's Accounting Research 222
Terminologijulletins, Final Edition concentrates on questions of amorti-
zation and disposes of direct charges to Surplus with one short paragraph:
"Lump-sum.write-offs of intangibles should not be made to earned surplus
immediately after acquisition, nor should intangibles be charged against
capital surplus. If not amortized systematically, intangibles should be
carried at cost until an event has taken place which indicates a loss or
a limitation on the useful life of the intangibles." p. 40.

2The Securities and Exchange Commission may have been instrumental
in initiating a change of attitude in favor of amortization. The then
Chief Accountant of the Commission was co-author of a chapter in Contemporary
Accounting in 1945 in which the following observation is made: "The
Commission has adopted no general rule as to the amortization of goodwill.
However, in those cases in which a registrant has retained 'goodwill'
indefinitely in its accounts, the staff has inquired into the propriety of
this accounting treatment. As a result of an analysis of the nature of
the account a number of registrants have undertaken programs of amortiza-
tion...." William W. Werntz and Edmund B. Rickard, ”Requirements of the
Securities and Exchange Commission,” in Contemporary Accounting, Thomas W.
Leland, editor (New York: The American Institute of Accountants, 1945)
Ch. 38, p. 5.

 

165
example, one of the accounting theory textbooks which was published in
1963 notes that "the amount invested in intangible assets should be care-
fully determined and this cost should be related to the revenues that are
produced as a result of the investment."1 A few pages later the arguments
for amortization are summarized as follows:
The amount paid for goodwill represents the purchase of an unidenti-
fiable source of superior earning power which has a limited service
life. As superior earnings emerge, it is argued, they are not income
to the new owners but merely a recovery of investment. Amortization
of goodwill is thus a measure of the gradual erosion of purchased
"momentum."
If expectations were exactly realized . . . the result of amortization
would be the reporting of normal earnings during the amortization
period. This squares with reality since the payment for superior
earnings makes their ultimate emergence a return of capital, not
income . . . . Amortizing purchased goodwill is consistent with the
accounting assumption that net income is the return after the recovery
of actual investment.

When one remembers that the underlying structure of double entry
accounting is that of a report of accountability by management, amortiza-
tion of the amount invested in goodwill is logical and consistent with
generally accepted principles. The purchase of these credit agencies
provides a sound illustration. Since the agencies are purchased in order
to obtain the revenue generated by them, the approach outlined by Meigs,
Johnson and Keller results in a proper matching of revenues and costs.
The older accounting concept of leaving such purchases on the books unless

there is clear evidence that the goodwill has deteriorated is as extreme

in one direction as is the still older procedure of writing goodwill down

 

1Walter B. Meigs, Charles E. Johnson and Thomas F. Keller, Intermediate
Accounting (New York: McGraw-Hill Book Company, Inc., 1963) p. 606.

2Pages 624 and 625.

166

to $1 by a charge to Surplus when acquired in the other direction. The
insurance regulatory system follows the latter, except that not even $1 is
retained in the balance sheet, but it must be remembered that the regulatory
system is primarily concerned with legal surplus as a protection to policy-
holders rather than with the computation of annual earnings.

Adjustments.--Adjustment 58 and 59 place the statements on the basis
recommended by Meigs, Johnson and Keller. This is consistent with the

Company's policy of amortization even though the assets are non-admitted.

The Financial Statements

 

The format of the financial statements is the same as for the companies
previously discussed, so needs no specific elaboration in this section. The
statements for Company D are especially important to this study, however,
because they reflect the significance of the adjustments being made insofar
as they permit earlier reporting of decreases in earnings from a leveling
off of volume. This effect can be traced by comparing the "Net gain (loss)
from operations per the Convention Blank" with the "Net income (loss) per
revised earnings statement" in Exhibit II. The years 1950 and 1951 are
particularly interesting because the revised earnings statements reflect
dramatic drops in earnings to a loss situation whereas the Convention Blank
shows only a modest drop, particularly in 1950. This is the year in which
stockholders and other users of the statements should have been alerted to
the trend of earnings. At the same time, it should be noted that the
Convention Blank figures do show a decrease in earnings, not an increase
as casual observers sometimes assume would be reflected under such

circumstances.

167

The earnings for 1957 and 1958 are also of considerable interest.
Both the Convention Blank and the revised earnings statements reflect
substantial losses in 1957 during the time of rapid expansion of district
offices and other activity noted in the opening paragraphs of this dis-
cussion. It is possible that the Convention Blank earnings figures were
discounted to some extent in the minds of management and stockholders
because of the publicity which has been given to the fact that the regula-
tory system results in decreased earnings when a company is expanding.
However, if earnings statements which are accepted as a fair measure of
actual earnings show substantial losses, most users would pay considerable
heed.

One of the most significant aspects of the financial statements for
Company D is the size of the earned deficit. Under the regulatory system,
only one Surplus figure is shown. The accumulated deficit reached nearly
$750,000 in 1959 at a time when the outstanding capital stock was a little
over $300,000. The fact that this significant information was not apparent
in statements based on the Convention Blank should concern stockholders and
others interested in full reporting by management.

An item which does not appear in the Convention Blank financial
statements themselves, but which is revealed in a question which must be
answered, is that a positive surplus was possible in the Convention Blank
statements only because funds were obtained through the use of surplus
notes. These securities are so unusual and so peculiar to the insurance

industry that they are discussed under a separate caption below.

Surplus Notes
The first reaction of a person who is not familiar with the formation

of insurance companies is apt to be one of shock when he first encounters

168
surplus notes. However, when the reason for the use of this security is

understood, that feeling tends to subside.

Primary reason for use

 

The primary use of surplus notes, and related securities such as
guaranty certificates, and debentures, is in the formation of mutual
companies. Mutual companies have no capital stock. Many states require
all companies, including mutuals, to have a minimum legal surplus before
they can commence business. Even if this is not required, it will ordinarily
be several years before a newly formed mutual company will have sufficient
earnings to cover all of the items which must be charged to expense or
against surplus in the Convention Blank. Consequently, they must obtain
a legal surplus from some source before they can commence business. The
only way to do this is to have someone give it to them. Securities such
as guaranty certificates and surplus notes permit this gift while, at the
same time, providing a means whereby the gift can be returned, with interest,
to the donor at a later date when the company has built an adequate surplus
of its own. The original issuance of these securities is closely controlled
by the state insurance department. Repayment is just as strictly regulated
and can be made only when specific relationships and surplus balances have
been established and then, ordinarily, only with the express permission

of the state insurance department.l

 

1‘Wightman does not mention surplus notes but his discussion of
guarantee certificates is quite revealing: "It is a practical necessity
for a newly organized life company to have at the inception of its insurance
operations a sufficient amount of surplus . . . . In the case of mutual company,
it is quite impractical to secure such a contribution from the original
policyholders. In a few instances, companies which must be temporarily
regarded as of a somewhat hybrid character have been organized. While

169

Other uses

Some states permit both mutual and stock companies to issue surplus
notes, or similar securities known by titles such as contribution certifi-
cates, for selected purposes. For example, the Nebraska statute permits
issuance with the permission of the department of insurance when needed
(1) to defray the reasonable expenses of organization, (2) to provide
special contingency loss funds, (3) to provide additional surplus funds,
(4) to make good any deficiency, and (5) in the case of certain mutuals,
maintain certain required surplus balances. The state insurance department

must set a maximum amount of the issue.1

Treatment lp_the Convention Blank
The statutes provide that these surplus notes are not liabilities.

For example, the Nebraska statute stipulates that "Except as provided

 

fundamentally mutual in character, these companies have been sponsored by

a group of 'guarantors' who in some respects resemble stockholders. These
guarantors contribute to what is commonly designated a 'Guaranty Fund' upon
which they are allowed a limited return out of earnings but which is
generally cumulative. Such a fund is not regarded as a '1iability' in the
usual sense of the word, since it can only be returned to the contributors
out of future surplus earnings. In some such cases, the entire control of
the management vests exclusively in the guarantors until such time as the
entire amount originally contributed by them together with interest thereon
at the agreed rate has been repaid, at which time the control of the manage-
ment passes to the policyholders in perpetuity." p. 393.

Beardsley discusses surplus notes briefly in explaining question 6
of the General Interrogatories: "Before a mutual company has grown to a
size where its surplus from retained earnings is large enough to finance
additional expansion, it may be permitted by statute to make special
borrowings for this purpose. Any surplus note certificates issued in this
connection will be subordinate to other claims on the company and not
appear as liabilities in the financial pages." p. V-5.

1Section 44-220, Revised Statutes of Nebraska.

170

herein, such notes and indebtedness shall not be a liability or claim
against any of the assets of the company."1

The Nebraska statute provides that guaranty certificates "shall not
form a part of the legal liabilities of such company or association, but
all statements published by such company or association or filed with the
Director of Insurance shall show the total amount of such guaranty capital
certificates outstanding."2 The section relating to surplus notes provides
only that "the amount thereof outstanding, with unpaid interest, shall be
stated in each annual report."3 This could possibly mean that answering
Question 6 in the Interrogatories in the middle of the blank is sufficient.
In any event, no account balance for these surplus notes appears in the

financial statements. The present Nebraska Insurance Department officials

do, however, insist on footnote disclosure.

Specific provisions 25 the notes issued

13y Company _D_

 

Contributions to surplus for which a convertible surplus note was
issued totaled $551,250. Three separate contributions were made over a
period of about ten months during 1956 and 1957 when the rapid expansion
of district offices was being made. The examiners report summarizes the
terms as follows:

The instrument bears no interest at any time. Because of the
applicable Nebraska statutes, the primary amount of the note does
not constitute a liability of the company until such time as repay-
ment in whole or in part is authorized by the Company's Board of
Directors. Repayment can be authorized only when the Surplus of
the Company over all liabilities is double the unpaid balance of
the note.

 

lSection 44-221.

ZSection 44-219.07.

3Section 44-220.

171

Reporting procedure demanded py_
"generally accepted accounting
prinpiples"

 

In order to achieve the complete report of accountability upon which
generally accepted accounting principles are based, the Surplus account
should be broken down in a way which reflects the major sources of surplus
which have been made available to management. Notwithstanding the fact
that surplus notes carry a title which sounds like a liability, analysis
of the circumstances under which they are issued and under which they may
be repaid indicates that they are really a part of surplus. They should,
therefore, be shown as such in a balance sheet which bears the label of
"generally accepted." Footnote or parenthetical disclosure of the fact
that the contribution represented by these notes may be repaid along with
"interest," if any, is obviously mandatory.

It would not be difficult to show surplus notes in the type of
balance sheet used in Exhibit III of this report. The Investment by Stock-
holders section of such a balance sheet for Company D would appear as
follows at the end of 1959:

Investment by Stockholders:
Amount paid-in for capital stock:
Capital stock--612,112 shares at
50¢ par $ 306,056.00
Premium.on capital stock 430,383.17 $ 736,439.17
Contributions to surplus:
Convertible surplus note-~not repayable
until legal surplus is double the
amount of the note. When repaid,
holder may elect to take capital
stock at $1.575 per share 551,250.00
Total contributions to capital $1,287,689.17
Retained earnings (deficit):
Appropriations for special purposes:
For policyholder dividends in 1963 $ 9,000.00
Mandatory securities valuation

 

 

 

 

 

reserve 24p377.03
Total $ 33,377.03
Unrestricted retained earnings
(deficit) ((718,020.92)
Total retained earnings (deficit) (684,643.99)
Total investment 5y stockholders $ 603,045.18
Deduct portion included in legal capital above 476,053.69

 

Net investment lp_non-admitted assets $ 126,991.49

 

 

172

By contrast, the Convention Blank balance sheet shows the following

capital section:

 

Capital paid up . $306,056.00
Unassigned surplus* 169,997.69
Total $476,053.69

 

*Surplus note $551,250 under authority of Sec. 44-220 and 44-221
R. S. Neb. 1943 as amended.

The footnote is not provided for in the blank, but the company
inserted it. The two items classed as appropriations in the extended

balance sheet are shown as liabilities in the Convention Blank.

Observation regarding basic philosophy

The handling of surplus notes pinpoints certain differences between
the basic philosophy of the Convention Blank and of generally accepted
accounting principles. Since the Convention Blank is basically a formula
for the computation of legal surplus, which in turn is the criteria which
is used to make preliminary determination of the protection for policy-
holders, there is no need to show the surplus notes in the Convention
Blank balance sheet because they are not a liability in the legal sense of
constituting a claim which ranks ahead of policyholder interests. Further-
more, the state insurance department is charged with the responsibility
for guarding these policyholder interests. Since surplus notes must first
be approved by the department and since they are called to the attention
of other insurance departments through answers to the general interrogatories
on Page 17 of the blank, their existence is fully known and controlled.
The regulatory scheme is founded on the concept that the policyholder can-
not understand complex insurance transactions so the insurance department

must watch out for him. So long as the insurance departments, both of the

173
home state and those states which have only the Convention Blank as a
source of information, have the data necessary to guard the interests of
the policyholder, the minimum requirements of regulation are met. Indivi-
dual departments often do, of course, require footnote comments or other
means of disclosure.

The generally accepted accounting principles approach to the financial
statements is different. Concern here is with a fair report of accounta-
bility by management. Management is asked to set forth the source of all
funds which have been made available to them. Since these surplus notes
are one of the sources of funds, they must be shown as such. Furthermore,
a huge operating deficit is a fact which management must report if it is to

meet the requirement of full accountability.

174

21

9
t1

III

.P

EITthI

Life Insurance Com

 

. IV “.11".

 

 

 

 

 

 

E

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

useseueume eumHsueu
d.Nmuummm

 

 

 

m>Hueuuummw

assessesH swag

 

 

ms cam no a as 1N1 sN a Na. ass. seem so Nam. swam NN. NNo.MNsm om.wmo.amsm ea.nom.aNNw aN.Nms.sa m mm.ooN.NNw
so.aN_ HN Na.aqo aON mo NON Has NN NNo NNN on mmo.mma as.mom.mNH oN.Nms.qe No.00N.NN -
. - Amm.eNq0 -
Nsm.nNn.mV m AnN.NNn.man Noa.N_N.asvm HNm.NNN.anm HNN.0mo.o~vw om.nmN.mn » mm.Nom.ee m Hm.oNN.Ne a ma.ooN.NNm
eN.NNa.e » No.mm a Nqo.NaoV » mN.NNN.~ » oo.mao.s » No._mm.a m - m - m - m
- - - oo. mmN. m - - - -
sN.NNa.a m No.on a Ase.NaoV m ANN. Nan. NV » oo. mas a » Ne.Nmn.e m - m - a - m
Noo.NmnV » Nan.Nms.mmvm Noo.nse.Nevm NNn.oae.aavm ANN.Nmm.eNv» no.nmm.ss a mm.Nom.eo » an.oNN.Na » no.0oN.NNm
os.mNs.a ae.Nos.s mm.Nmm NN.NoN - - - - -
om.NNo m HNN.aNN.NNO» NNN.NNn.Ne0m Nom.NNN.mN0m HNN.NNN.eNV» mo.nmn.s¢ » no.Nom.ao » an.oNN.Ne » om.ooa.NNm
oo.sms - na.NNs.N - oo.mNs.e as.sma.N - - -
on.mmN m NNm.aam.NNOm xNN.aea.aavm Nom.NmN.msvm ANN.ooe.mavm ae.moN.No m nN.Nom.so o. NN.oNN.Na » ma.ooN.NNm
an.NNN.Na m Nm.nmn.naam Nn.omo.soam Ne.amm.saam no.Nma.ao_m sw.mmN.no » mN.ema.ao » NN.noo.on » oN.NoN.NNm
mm.amm.m sm.NNN.N Amm.som.av - - - - - -
NN.NNm.n NN.oNo.o ea.mea.m 0N.qse.m oo.omo.n mm.noe.N oo.moo.a am.aam ae.oms
ms.som.n NN.¢NN.N Nn.nms.q NN.ooN.q oo.eoN.a nn.aom.n oo.nmN.m oa.oao.a ma.oeN
No.0as.mq ae.aNa.NN oo.Nmm.mm aN.maN.am mN.mNm.aN NN.N4N.NN 0N.omm.ea Ne.moe.oa NN.qao.o
sa.qu.Nm a Ne.oam.en » NN.mmo.No a NN.qen.No m mm.mso.NN » NN.NNN.ee » no.MNN.Na » an.oaN.NN » an.mon.n »
Ho._a_.wm » mo.eNN.mon oN.oNN.oNN» mo.ooo.eo » sa.NNN.om » mo.Noa.mna» s¢.NNm.oNN» no.ono.NN » 4N.oNN.enm
Nq.oNqum ne.wmn.0n ma.NNe«mN aN.nsN.eN oo.oNo.e oo.emaqe no.nNN.n - -
ma._mm.Nmsm Na.NNm.NnNm NH.Nmn.omam sm.aeN.oNNm aa.HoN.aa » no.0Na.oea» oe.ono.NNN» No.0ma.uN » aN.on.em»
NN.NNN.N_N» mm.eos.oNNm Na.NNN.NNN» oN.oNe.ama» ao.mmm.nasw om.ONN.NmNa mN.nNo.mN » oN.~NN.NN » Ne.Nno.m »
mN.oos.mN oe.mmm.aa NN.Nmm.aN us.eNo.MN oo.mquNN "n.4maqms oN.moo«w an.amoqs -
ANN.eN~0 HNe.mom.NV No.mNe.e ea.mmn ao.nms.a mn.ome NN.NmN mo.qwa -
"n.0so.qasw aN.eNm.Naam am.nsN.NoN» mm.NNN.eNH» oo.mem.oNN» nn.ama.oNN» 0N.NNN.No » NN.NNN.aN a Na.Nmo.n »
ON.oNN.Nmmm Hm.asa.sonm om.seN.Non» an.maN.ooNa oo.ono.ooN» NN.NNN.aoN» NN.NNN.noN» nN.NOa.oaa» oo.aoa.NNm
- - - - - - me.an Nn.NNN -
No.0ms.mm an.ooo.oe em.NNN.NN om.NNN.NN oo.Noo.eN ee.aam.os Nm.noe.e ne.NNn.N oo.eam
on.NNo.wa NN.NNo.o~ No.ema.oa NN.NNN.NH oo.ose.sa oo.Neo.N so.nwm.N ae._am -
mm.Noo.sN AN.Nae.ma om.ooN.m
NN.mno.omNm no.NNm.NaNm no.mma.Nonm on.NNN.NNN» oo.mNm.NoN» no.ooN.oNN» se.NNo.mma» No.nqn.noao oo.Noo.Nmm
«mas mass Nnaa Haas cams seas mesa Neas wees
M uHastu :eeHNHosHum usHussouu< ueumouu< NH ;eues :3 Iuoug luoeubuu Id

mwsHsumm uosHeuox umuuHuumousD wsHusm
mmswsuem uesHeuom ueuuHuuuousD wsHsuson
eHmen Hmsuou<
ou uomsezu xsmHn soHusu>sou s05: usuauesfiu<
uwmwsseo uosHmueu uouoNNomuus:
ANN soHuuaueuv mm soHuHuue mum

 

 

 

Heuow
msouHosxuoum on museuH>Hu sumo
msHausm uoueHuaosmae cu muewuseua
“secosH Ho usoHuHmosmHa

 

 

AmmoHV escosH uez
moer unbosH Honouum

 

xmu osoosN
usOwun HemoHv eBOUsH uez
neemog use usHeu HeuHamo

 

 

 

 

 

secusH ooseusmsH uoz

Heuoh
Ahue>00msv “ecu museusasHou umz
Axeu oEOusH
sens Necuov ovum use mwusouHH .ueer
oesoaxe eueumo Hes» use usuauao>sH Heueseu
emsonxe ouseNsesH Heuoseo
esoHeuHaaou
"eesunxm
e>HueuueHsHEu< use ususueebsH .soHuHeHsvu<

 

 

elousH emouu

nuoeuusoo so eusuahem use euHuesun

 

 

oaso>uu euouo

see» «Hsu ossu>uu Nos soHuuoa HeuOH

museuH>Hu ee esouHosmuHHom ou uesusuem
masHSeus uouooHHooss use uouuouou
sH uueouusH so munseAXu sou usuauesnu<
me>uomuu HeweH sH oueeuosH
“mmeuwmus umuHosmuNHoe we ouHee uom
"soHuuoa any uusuon
Heuoh
essu>ou wsHueueao nozuo
so mucouw>wu use uses .ueouousH
thossSeHannu sou soHueuouHesoo
suHees use usouHuu<
. ouHA
”msoHueusosmsoo howssse use elswleum
Nessoauu

muceflume>sw
muueuusoU

175

D

 

 

 

"fig

 

 

 

 

 

 

 

 

 

 

Life InSurance Company

1.N0m.oNa.ost m Hom.smm.amsv m me.Nsm.soNv m NNa.ONo.wNNvm HeN.Hma.woNvm Amm.omo.nNme ms.aMN.HH m oN.sqN.Nm m
m Hom.smw«mwew. Nmm.qu.soMHI. NNm.oNo«mN~H NeN.Nmo.mo~H Nam.oNa.mva ms.aNN«wN oN.asN.Nn n~.omm.mo
m
so.mmm.aaa m No.NNo.moN m Hoo.on.oqv m Hma.moo.av m A_a.oNo.mmme Nam.oNo.Nman NNN.a0m.nsvm Amo.qNN.mv m
N~.moN.ma m oo.wnm.m m Nem.oqo.asv w am.Nma.m a oN.eoe.oN » am.0Nm.s m Hom.mNo.Nc m om.mso.m m
mq.smo«oo - - oo.ome.o - - - . - .
No.NNN.s m oo.mmm.n » qu.oee.ss0 a am.Nms.N w 0N.ooe.oN » em.eNn.N m Nea.mNo.Nc m om.meo N m
ms.oNN.maN » No.HNN.on m Noo.Nea.mnc » AaN.NmNV m NmN.eNm.NNm0m HNq.mam.ommvm Amo.NNm.Nsvm Aao.eoN.mv a
oo.ooq«m - - oN.NHN - aN.mHm.m NN.OON.N Nm.oao
ma.oNH.Nom m No.NNm.oaN m Hoo.NoN.NmV a Nm.amm m NmN.an.Nvam HoN.an.Nmmvm Hom.NNN.msvm nNn.moo.eV m
NNe.moewI Noo.nmN«Hv Noo.ooo.ooNv - Hso.Nmo.qm0 - Ns.mmo.Ns mm.Omm.a
ne.NNN.Nom » as.eNs.NHN m oo.mmm.~es m Nm.amm m Nun.aam.Nvam HoN.NNq.Nwmvm Nma.mam.vam Nos.omm.av m
Nq.aNa.eNs.Hm os.aeo.nmm » No.00e.nqq m No.moo.mmm m Nm.Nee.mmo m No.NNN»NmN m NN.NNN.NNN» Na.Nmo.oN m
- - HHN.mNm«s0 AHN.sN0400 mN.smm.oN ma.Nsm.m Nam.maN.NNM Nua.oNo.mH0
aN.omm.mm Nm.oom.om mo.oso.ma Ms.aom.a MN.mnm.mn mo.NoN.mN oN.smo.a ON.on.m
Nm.oae.aa No.Nan.NN No.eNN.uH MN.oeq.o mN.Noo.o o¢.0aN.oH mN.noa.m oN.Nsm.m
an.an.omN om.qNN.mNN on.NNo.ooN NN.maN.Nm~ sq.aam.Nwm mm.qu.non Nm.omo.mms No.0NN.on
so.ooo.mom m Na.ooo.omm m aa.Nmm.NNN a ma.mse.mma m oN.oNe.mmH » Ho.nso.NmN m mo.mmN.mm m NN.HNs.MN »
NN.NNH.NNQ.Nm oe.naa.NoH.aw am.mmN.Nmm » am.omo.mmm » em.mmN.0mm m Ne.NoN.qoe m sm.qu.omam mm.eme.oo »
No.00m.mse«s No.mNo.NaN.N ae.eqe+sas mo.moe«Nem oe.NMN.anm em.ammqaaa Na.qNN.Ne NN.NNoqms
Na.mmq.nmo.mm NN.aoN.eom.Nm oe.osm.moa » ea.mmN.ooo m 0N.~oo.eoN » mN.Noo.qmn m NN.NNN.qum ae.msz.aoam
mm.nmo.n0N m ma.NnN.mmm m mm.msN.eam w NN.Nmo.mNN m mm.NNa.moN » om.NmN.omN m an.oNo.omNm no.0ms.mNNm
No._oN«mN Nm.nmwasm oo.oqe.am MN.mNo.qN NW.ONN.NN ao.wnN.NN Na.NmN«NN Ho.mNs.oN
mm.omo.m Ne.mmo.ms mN.aqa Ho.msN.e Aeo.mem.nv NN.Noa.m em.Nom.N NN.sN
mm.cae.mms a oo.Nmn.moN m oN.ooe.mom m Nn.osm.omN m mm.ONN.n4N m aa.mae.NmN m oN.ooH.NmNm NN.seo.mmNm
an.mms.~em.mm 0N.NNe.mNN.Nw mm.oao.mam.sw mo.maa.qu m so.mea.moa » no.0qN.oaw m Nm.mmN.oqa» oe.aqn.aNNm
0N.sam.q No.NNN.N No.so~.a cm.on ma.eso NN.mom«a No.Nqo+wN -
Ne.eae.mNN cm.nmN.omN oa.man.an~ me.omn.NoN mn.qme.oN MN.Neo.oe oe.eNm.mn Na.Nsa.mm
No.moN.NN ea.soe.ma as.aao.ma so.NNe.oa oN.s_N.NN NN.sNa.mN oN.ooN.Nm oo.aoN.NN
mm.msN.seo.N me.NmN.Nom.a mm.0ss.NNm ma.Nom.mme oN.NNN.aon me.mHN.aoa mm.NNm.on mN.oam.q
No.0NN.eom.am on.oNo.sNo.H» NN.oon.Nmo » Na.nmm.eae a em.eoN.oaN m on.aNN.eNn m sm.eno.mmNm NN.Nms.qum
Nam" News coma sass mama Nnma ens“ mass
M ananm :muHuHosHum umHus50uu< uoumeuo< NflHeuoseo: suH: showsou mm uouH>um
usosuumum awsHsheu o>Hueuemmmm
m Hsemmoo ouseusesH euHH

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Md

mwsHsLem uosHeuem uwuuNNummss: msNusm
mwsHsuem uosHeuox usuuHuumuNs: mstsHmem
wwmam Henuoo<
ou uuwseso xseHm soHuse>sou cuss usmfiumsnu<
mwsHsseu uosHeumN umuowuummscs

Awm soHuuauouv mm soHuHuue Nwz

 

 

 

Nmsoe

msouHonxUOuu ou musuuH>Hu nmmu
msHessm uouewunouaae cu muwwmsmuw
"uEOUsH Ho msoNUHuoamHo

HumoHv uEOUsH umz
meer oEOUsH Hmuoumm

 

 

 

xmu mBOUsH
muOmmn AmmoHv wfiousw Nam
weaned use msflmu Hmuwnmo

uwz

 

 

 

 

 

«Ecusfl musmssmsfi
HmNOH
Ahuo>0uwuv umou ousmuschwu uwz
Axes uEOUsH
sen» sense. mmeu use wwmsuoNH .muxmh
emseaxo mueumo Hem» use Nceasmo>sN Hmuesmo
mwseQXe mosmusmsN Heswswo
mcoflmmNEEou
newswaxm

e>HueNumHsH6u< use usuaums>sH .soNuHuwsao<

 

 

maousH mmoNU
muoeuusoo so museahem use muawosmm
usso>ms macaw

 

 

seer oHLu essm>es Nos sofiuuoa Hmuoh
museuH>Hu we uuuuHoconHoa as uesssumm
masHBoua uouuoHHouss use uousuwuu
sH umeeuusw so mouswaxe ecu usfleuusnu<
mo>uomuu HewwH sN mmemsusH
"mu>smmuu suuHocmoHHoa we musmm sum
”sowoson ecu ousuoo
Hooch
ezsm>es wsHuesoao Nenuo
musoeuwe>sH so musmuH>Nu use uses .umoueusH
euoesusoo useusQSoHasnn Now soHueseansoo
suHees use usmuHoo<
. owHH
“msofloeueuHmsOo euHssse use uBsHBoum
"oasu>om

0

Exhibit II

Life Insurance Com an

176

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Hmo.mom.mv m Amo.sso.stm NNm.NNN.aNVm NNo.sam.NNvm ANN.mNo.omvm so.Noo.om m sN.mos.Ne m Ne.mmo.Nmm oe.NoN.NNm “cusuumsm mwcscsmm soma>sm
ecu sea oEOusH umz use xsmHm soHusm>soo one

son msoHumueso Souk sweo “oz sooaowm moswuowwfio

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Aoo.~mmv m HHm.qu.mme Hoo.qu.qum HNm.oqe.aH0w ANN.Nmm.qH0m mo.mmm.<o m mm.Now.so m Hm.oN~.~<m mm.ooH.mmm usasmswum mmcsssma
uomH>ms sum AmmoHv BecosH uaz
Hmm.~mI..qu Ham.qfim.HHVm Hem.qsm.mva Hmo.mom.nmvm ANN.muo.mme nm.nmo.wm m mm.¢Hm.q¢ w ~m.mH~.Nmm oo.NoN.Hmm musuaumsnue Heuoh
- . III - - - ma. Nm.sm as. - - sense as” ea

muouuv NosHS uuosuoo use New» umaoNn use up
mwmcwauno nCm wwwmoH Ckuhmu uwwamNhIIHNw QDONU
Hmo.mom.Nv Ns.mms.s oN.nos.s no.nmo.N oa.oss Acm.omov New.NmoV NmN.NHoV Ame.ommv “moo ssswsussams
us assume umwa HHm asumo use mostmumum as“
so assume uoKHu ueuuHEueIsos wueHmII> macaw
NNa.oea.Nv NNs.aoN.oNV HNo.mao.eNV NNn.omm.an Haw.mem.mmv we.qNs.Nm Na.mmN.Ne 0N.moe.NN em.Nms.NN accuses manage as
mumou soHuHmHsvue Ho soHuson e uuwoaII>H macaw
I muummm sNeuuwo
so mommoH eHnHmmoa New wuH>oumIIHHH macaw
Hem.NNs.qV No.aQN NNa.NNv oo.oms.N mN.mNs.s oo.ooo.N Nmm.mmn.Nv mm.mms - “was asuassosm
cu Eunu wsHsusums menu .mosHm> .U.H.<.z
cu mmHuHssoom mo usmaumsfiue wmsu>oxIIHH asoso
ca.mon m no.ose.o a mm.mNs.m m oo.ooa m - m - m - m - m - m A» snore an arm
LUHLS mumwme uexum secs smsuov musuEuumum
use so mummee umuuHEumIsos wumHmIIH assuu
"AeHHmuou haw A<VHH mHsuesom wmmv musgsumsnus

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

mo.aqm.mH m ANH.mNo.omvm Hom.Ho~.mN0m mm.mom.m w oo.mmo.mm m mH.mmm.mm m oq.mqm.o~ m oo.0mo.m w o~.oom m II :wEOUsH Mm
wsoHuno mNQ: me ummmmHu gsmuH
.I mucus» aseHm soHuso>soo mum mmm
mH.Nom.m m AHN.mmH.mV m qu.mmm.H0 m Hoo.omm.mv m oo.Nem.H m oH.HN m nm.mwm.m m Amm.mmHv m I w Hmooa
I I I I I I I I I uemesuuss mosmwm uHuouo
em.Hmm.H Hem.ome.mv Hmo.on.nv A00.ooqv Hoo.N<H.Hv I I I I wsuss uuueHos
use ueuuwsueIsos mo wsHm> cw owseso
cm.mHH.q HHq.ooNv Hmm.HHv Hoo.omH.~v Hoo.omo.Hv Hoo.ooo.mv mm.mmm.~ Hnm.mmHv I News No
use ue uosao assume no esHm> sH mwsesu
I m I m mm.m~q.m m I m oo.m~H.q m oH.HmH.N m - m I m I m uHon eueaae so someoH use usHem Heufiseo
“ussouue uaHsusm as» ou sueuwu uusmusu msosH
mq.Nqn.m m Nos.mNs.Nsvm ANN.ssN.NNuw mm.mam.m m oo.ssN.sN » aa.NNm.mN a Ne.aoN.NN a sm.ams.n » 0N.¢om a spasm coNscu>eou «mm mum
MMMMMMHMNN seem AmmoHv mwmm mum
om.woq.~m w Hm.Nmm.mNHm mm.ooo.quw w~.mmo.oo m Hm.omN.0n w mo.qoo.HmHm mo.mnm.oHHm oH.Hoo.an mm.oom.¢nm useHm sowuse>sou Non uemsuaxu HeuoH
mm.mww.m Hm.HHm«MII Amn.H0w4le I I I I I I Axue>0uus0 Neou assessesHo» umz
mm.~nH.o Hq.~mm.n No.own.m on.~mo.q 00.0mo.n mm.oeu 00.m¢o.H om.qu no.0N Axes usoosH
wsHusHust meow use mousouHH .mmxmh
0m.Hmm.o sm.nmm.m um.mmm.u ¢~.ooq.q oo.qo~.q H0.om4.q 00.now.m om.ooo.H mm.aom uesuAXo assume Hess use useaueo>sH Hesosuo
mo.nmo.Hn nN.omm.mN mm.mmn.qm so.omo.qs Hm.oNN.nN mm.mqm.m~ mo.ome.mH nm.Nm¢.¢H mo.qmn.o musesxu ouseusesH Hesosuu
Nu.nmm.¢~ m 0m.Ho~.am m mH.ooN.om m an.mmc.nm m oo.oN~.mm m mm.m¢m.qum oo.aNm.wm w mo.noH.nmw 00.00n.nmm msonmHsaou
Neosemxu
o>HuesouHsHaue use ususuue>sH .soHuHuHsao<
so.ssm.oosm no.eso.ossw ON.msm.mNNm ne.»a¢.ma m aa.NNm.Nm » mo.NaN.NmNm as.NNm.szm no.0ws.om» eN.on.emm sense cosuca>coo use
oo.oo~.~ 00.00n.~ oo.oo~«~ 00.00qam oo.oom«H oo.oow«w. 00.00m1H oo.on~.H I oonmo use; He uses Nam HHua ou owueso
H0.HHH.ma m no.4HN.mon 0~.oHH.oHHm no.0o0.om o Hm.H~N.0o » mo.mmq.mnHm <¢.N~m.o~Hm no.0nm.wnm c~.onm.<mm assesses» nwswsuee uoufi>eu sum
“cacosH nacho
"nouamHm xseHn soHuse>soo
aan nmmH mmaH Han ommH mam" memH MmNM oeaH
HH uHastm xseHn soHuso>sou mam mfl us20uu< uaHmmsm mad usoHueummm mm.meH»eaasm suHs

 

 

 

nuseEUueum umsHshem uoeH>mm Mm soHueHHHosouem
m usemmoo ouseusesH oHNH

 

 

177

Life Insurance Company Q
Exhibit 11

q_.qmo.mm

0H.0mH.mo~ w m0.—Nm.0~m m H00.noH.wmv m A

IlIIIIII III

Ill-ll. III"
I.

 

 

IIIIIIIIIIII "H a

m mm.amm.x: m Ass.sma.smsvm Noe.mma.smwm NeN.Nao.va m me.Noo.sm m qm.st.qm m NNN.MNN.mV m

I II III... I E g "H
II III

sN._m_v m HmH.eNm.NNnV» aNe.mem.ommvm Hmo.NNn.qu m Hoo.ooN.n0 m

 

H

 

as.omo.mNn m NN.smm.Nqs m sm.mom.mON m NsN.ssm.smvm ANN.NNN.NNV » na.eeN.Nss » NN.omN.No m

mq.meo.aoe Hon.mms.n0 so.
me.Nme.om mo.mNo.mm me.

I I Noo.
Hoo.NNs.N0 oo.ooo.N oo.

NNa.NN NMN.mma.ac NNm.aNe.aav N_.oas.om ms.eOe.sN
omN.Ne NNN.ssn.eec Ame.sqo.osv sw.aNm.No o~.oom.ma
coo.ooNv . - - -
ooo.ooN - Noo.Nso.ev oo.NNs .o.NNo.n

m_.Noo.aN » mm.~mo.Nm m Na.m0N.mms m sN.mNe.os m Nmm.moo.nV m Ham.mmo.Nv » om.soo.m m

Hom.onn.mva

HNm.~mov

ANN.NNN.NV

mm.0Nw.N

HqH.¢so.NHOm

 

 

 

Amm.mom.mNNV m mN.asm.Nos m Nam.Nmn.moNvm ms.nmm.sm m NNe.nmo.meN0» HNo.oma.momvm Noa.mnm.essvm Nm.0Na.ms m
NNm.smo.smcv m NNN.ssN.aac » NNs.NqN.NnN0m Nmm.0ss.msvw an.sms.es » NNo.qu.NoV » Na.nma.os m ee.mno.na »
Noo.oonqwomwl I I I - I - I
NcN.Omn.NNV Ano.ene.mas I I o¢.mon.sn NNo.NeN.No0 HNN.oas.as0 ea.eeo.Na
so.nsa.s Noo.ooo.Nv NNs.Nan.NmmV Ana.0ss.ns0 oo.NNo.e Hoo.NNNV I -

Nq.mos m Nao.nnN.sV m I a I m Now.mos.on0 » I » an.nme.om m oN.ooN.N a

 

so.as_.moN m Ns.smo.N_N m mo.ssm.ma a oa.Nom.oe » Nso.NNN.aoNva Nao.nmn.sqevm NNN.aam.snss»

Hho.N0m.Hv »

 

 

 

 

mo.NNo.sNN.sm Na.aes.mmo m mm.mNs.Nae a as.mNm.omN» NN.Nen.nNo » on.omo.oas » oo.Nnn.oNN » on.aaN.eo »
- - HHN.mNNIm0 HsN.amo.00 nN.qnn.0s ms.Nsm.n Han.nNN.Nss HHa.oNo.nNH
so.NNs.mo Nm.oon.en No.on.mN aN.NNo.n NN.nnn.on ae.NNN.mN Nn.~NN.o ao.oNo.n
om.NNo.ss No.Non.Ns ne.eNN.sN NN.ooq.o NN.ooo.o oa.aos.NN oN.oaN.m no.Noo.o
no.mao.mNN sa.mma.MNN oN.asn.N0s Nm.eno.NnH an.msa.onn as.Nms.oNn oo.eno.NNN oa.mon.Nn
Ns.NNn.nma a NN.NoN.oms m mN.eoN.ooN m an.on.aNHm Nm.omo.me_ » NN.NNN.eNN » _N.Nam.q¢ m en.maN.na A
Ns.mms.NNq.sm oo.nas.Nos.Nw sa.mmN.Nmm » om.oms.nmmm om.mnN.onn a aa.NoN.eoa m aw.Nm<.mna » nn.on~.mo m
- - I I I - oo.nNo.N oo.ooN.N
Ns.nns.NNe.sm oe.mms.Nos.s» sa.NoN.Nmn » mo.omo.nnn» so.NNN.onn » ae.NoN.eoa » ae.Nne.oma » mm.oms.oo m
Nose seas ooas mama mass Nnaa onus nous
MN anstm xseHn soHuse>sou mmm MW ussouo< mmwmwmm.mmu.ummwmummum.WM eoHueIism

 

 

 

 

 

 

unseleueum musHsueu ueeH>eu mm soHueHHHusOueu

 

 

m usemmmo ouseusesH ewHH

 

”sysoueum mwsHsusm umms>om
osu Nun QEousH suz use xsmHm soHusu>cou ecu

sea wsoHNeNono Eon sweo uoz seeauem ousmNmHuHa

 

uswEuomum mwstueo
uomH>mu you AmmoHv oEOosH uoz

assessmseue HmNOH
xsesm use sN

 

 

 

muouuo sosHE uumuuou use see» annoys sea as
nemsuaxu use eeeeoH sHeuuoo sewesesHIIH> aaoso

ueoo uoueauousou

ue assume uexwu HHe huseu use assuaeuesm ecu

so auoeee uexHu ueuquueIsos ooeHmII> asosu
euoHson season as

euuou soHuHeHsvue Ho soHuuoa e NeuooII>H msoso

unease sHeuumu
so eeeuoH eHnHeeom ecu euH>oumIIHHH ssosu

Nuoo ueNHusoae
0» Base wsHsusues mass .uesHe> .o.H.<.z

cu ueHuHusuoe Ho usufiueanue oese>emIIHH nooko

Ab nacho sH one
sous: euoeee uowa sesu sosuov musesoueua
use so euoeee ueuuHEueIsos uueHnIIH nsouo
Hausa-sue sou N<0NN ossuunum yams .scuauaafin<
:uaousH mm
mmmflmwmmmmmm: mm ueeeeHu seeps
shone: useHn soHuseesou Hum mum

 

 

 

 

 

 

Heuoh
uoeesussn Assume uHueuo
eleuH uuueHes
use ueuowlueusos no osHe> sH ewsesu
see» no
use ue uesao eueeee Ho esHe> sH umsesu
uHoa euoeee so eeeeoH use esHem HeuHseo
“ussOoue msHshsm any so uoouHu uoueuse eleuH

xseHn soHuso>soo «mm MMN
esoHueuwNo loam HeeoHv sHuu mum
useHn soHuse>soo use eeesoeke HeuOH
H>u0>oueuv seen ooseusesHos uez
Hues nebusN
usHusHusHv soon use useseuH_ .wuxeh
eesoaxe oueuee Hes» use uselueo>s4 Heuusou
ouseaue «useususa asuosoo
usoummssaou
”ousosxe
opHueuueHsHlue use usnlueebsw .soHuNeusoum
AseHn soHusm>sou hum
ouHuuo alas Ho uses Now HHee cu.owse:u
useseueue ewsHsLee ueuH>eu pom
“alsosH omoso
Neuuswwh xseHn soHuso>sou

 

 

 

 

LHHJ

178

 

Life Insurance Conpagy 0

Schedule II(A

ANN.Nos.ssvm Ham.qsm.ss0m N

Illa.“

um.sH~.¢va Ams.m0m.m~0m Hmn.m~0.wmvm mm.nmm.mmm

 

am.on.¢sm Nm.mHN.Hmw mu.non.H~m

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

mEOusH so musuluuSHu< HH< Ho uuemuu Hosea

 

 

. m - a - - m 9... m 3.; a 2. a - I. - a, as: 35... 38:53:: .$
NxseHm use sN uuouue Nosaa Noosuoo use seem seeoun
as» oo masseuse use nonwo_ sHeuueu usuaseuHIIHb nacho

Hwo.wem.~v w N~.mmH.H m 0N.mos.H no.mmo.m m os.qu w Hem.omov w Hom.~moV m HmN.~Hov » Hmo.mnnv m assessesnue > esosu HeuoH

I I I I I I I I I eeHusewe
mosessmsw uHueuo Ho once 00 soHueuHuuofle uuouom Ian

I I I I I I I I I uueee

so me eeHoseme museusesu Nauesu Ho uuou usooea .mn
oo.qu I I I I I I I I ssouw uHsu sH easesuesfiue
wsos>usn «o uHsnou e we esHew Heuaseu sH omsesu .Hn
00.00m 00.00m oo.ooo.H oo.ooo.H oo.ooo.H I I I I soNseNuuusou Ho soHH sH saou ouHua a.mseasoo oese>ex .om
HoH.oHov HeH.onv Hm~.womv Hom.nowv Hem.mNNO Hom.nHNv HmH.mva HHo.smHv Hum.onv wsHuHNap ouHuwo aloe so soHueHuesmou uuouom .nm
H00.oqm.HV 00.0s0.H I I I I I I I useaAHsae use ossufissnu
so e=He> xoon ues sH ewsesu you whose oeue>em .Nn
qu.Non qu.nmos me.Noev Nam.oNsv Nos.mNV Hes.mNV NNN.oov Hms.oev Nao.o_0 assassauo use massacres No nauseaoossue vacuum .Nm

I m o~._om m nn.omm.H m 0m.o~0.~ m I m 0H.mnH m HH.00~ m 0e.HH~ 0 on.oaH w women se me usulanve use ousuHshsu usooem .on

“swag uuueHoossou ue use-me uume HHe museo use
masseuseuw we“ so eueoee ueeHH ueuuHSueIsos ooeHmIIb ensue
HNo.ooH.mV w HNH.00m.o~Vm HNo.mmo.o~0m ANm.omm.oNvm Amm.msm.omvm wq.qu.Nnm No.nmn.new o~.moo.nn» an.HnH.N~m assessesnue >H asouo Heuoa

I I I ~N.oom.oH Hom.~owawa. Awn.oosqmu. Aen.unm«MM Ho~.nHo+MH As0.o¢www Huusscoe we: xseHn soHuse>sou Ho spew 30s
as“ masses when» sHV esoHeeHBIOu uosauue usouem .sd

I I I I I I I I I Hu>uemvs isesesn uesueess oN soHuuososn sH

uouuuwwuv esoHuuHIOu 3:3ng :33; use useuHuu< .3
Hum.ooH.mv m HNH.m0m.o~vm HNo.moo.oNvm HoN.oNq.ocvm Hmm.mmq.onvm o~.Hmm.mnm -.qoo.0m» ~n.oHn.o¢» mn.nnm.-m HuoHNea sem> e>Hm e ue>o aHso>o uoueuoHHe
meueuansev esonmNEEoo assessesw euHH see» ueuuu .oq
. NeuoHuea unease
ou uueoo soHstHsvue mo soHuuos e NeuoaIIpH guano

I m I m I I m I m I w I m I w I . m ease-aesnue HHH ssouu Heuoh

I I I I I I I I I eoHseal—oo ousehsesH bonus 5 vaum .~m

I m I m I I m I m I w I m I m I » euouee useuusu uuuuHIueIsoz .Hm

Nuueeee sHeuuoo so eeeeoH «HAHeeOA now euH>6umIIHHH macho
Asm.mN~.sV m mo.aeN m xNa.va m oo.oma.N w nN.NNs.N » oo.ooo.N » Amm.mmn.Nv» mo.nn~ » I » .uaaeuusqe. NH asses Nance
I I I I I I I I I eseoH anemone: .NN
Hem.NN_.qv me.oeN NNa.NNO oo.om_.N AN.mNs.N oo.ooo.N Amm.mmn.NV nu.NNs I axuoum .HN
- m - a - a - w - a - a - a - a - a .23 .2
"peso uoNHuuole cu lesu wsHsusue» essu .eesHep
.o.H.<.z cu eeHuHusooe mo soHuesHe>ou ouueeeuIIHH ssouo
0H.mon m mo.on.o m mo.n~c.m m oo.oos m I m I m I m I o I » ease-ousnue H asouo Heuoh
I I I I I I I I I Ase: HeHuueausN sH uHeosea .NH
I I I I I I I I I eeuos.seHn eueHHou .HH
oH.wom 0m.ewn.N mo.Hmo.n I I I I I I eeuseHeA aneu .eusen< .q
I ANN.ms0 N~.oc I I I I I I eHAHeeHIuesH ueueuHesoo eased .n
I m Hoo.m~N0 m oo.m~m m oo.ooe m I m I m I m I m I m eueoHuuo use easeue ou eeose>u< .N
Na» nsouo sH use soHsD eueeee uoxHu sesu nesuov
eusuIUueue as» so eueeee ueuunlueIsos eueHHIIH shone
smoH nmmH «an Han ommH aaoH osmH NsmH osoH
~<VHH oHsuesum :eonHosHum usHusaouu< ueumeuu< NHHeuosou: suHa luousou easeleueum HeadsesHH mam axe: MM

nose- ennu<.wm

u
I NIHNHMI

n

 

 

 

 

«savanna uoNNquos
s u euseusesH oHHH

—

Schedule II(A

 

Life Insurance Company D

179

 

 

 

 

 

s_.omo.mNmm NN.smm.Nssm sm.mom.moN m NqN.o_m._va HMN.mmm.vam mm.oqN.Nssm NN.oNN.No» Neo.oNN.msvm access so mucussmafiu< ss< No assess sauce
I m I m I m I w I m I m I m I w msmuw Noswa msooseHHeomH: .mo

“xseHn ecu sH msosuw NosHE uuouuou use use» sauces
use Ou masseuse use sommoH sHeuNeu semmseuHIIH> msoso

me.moo.soem Hom.mms.mv » oe.NNe.NN w HMN.mmo.ev m HNm.oNa.anm ms.eas.om » ms.eoo.asw NNN.NNmV » uucuesmaNua 9 users assoa

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Noo.oooquI Hoo_oco+eq1 I - - I I I mmaucswm
ouseususH uwuosu mo “moo No soHuenHusoEQ usouom .mm
00.00n.moq I oo.ooo.o~ I I I I I sommm
se me meHusuws musessmsH owumuu Ho umou uncuum .mm
I I I I mm.omm.q I mm.nun.~ I spasm «Hus sH mususumsnue
wsoH>uus Ho uHsmou e we usNew Heufisso cw wwseso .Nm
I I I I I I I 00.00n soHueHuesseu «o ssHH sH snou euHuh u.zsesEOo omse>m¢ .om
I I I I I I I Awm.o~ov wsHuHHsb vowuuo use: so soHueNuusseu uuouum .mm
Awo.omq0 How.mNN.HV Hoo.omm.mv HoN.HHN.q0 Hmm.~om.msv oq.nNH.qu mm.mon.oH I usuEAHsuo use unsuHsssw
Ho osHe> :00: Nos sH ewseno sou muses mwso>mm .mn
HNs.oeN.nv NeN.oes.ns New.msm.Nv Ham.sss.mV NNo.mNe.NV Hmm.aNa.NV HmN.son.sv Nem.sonv “cussaaso use manuscusu No sass-sumssuu arouse .sn
w~.mom.o m Nw.mH~.n w on.~mH.m m om.omo.m w I m I m I m I m sense se me usesawsve use ossuwsssw usouex .Om
"smou ueueauosaeu ue mueewe uexsu HHe >Nseu usm
musuaoumsm use so euoume uuxsu ueuuwaueIsos wueHmII> ssoso
mq.~ms.om m mo.mmo.mo w mq.omn.nq m HmN.HHm.oqvm Hms.Hso.mva Hm.HHo.mo m o~.oow.mqw Hmn.N~N.HV m musmsumsnue >H macaw Hausa
Hoo.omv Hm~.nmm_HV oo.mH~.H HHm.wmm.mn% HmN.HmmINNM mm.HoNNoN ~H.Honwm I Huussoue me) xseHn soHusu>sou No Show nos
ecu eNoHNA mums» sHv msomeeHaBOU uoasuue uncumm .ms
nu.nno.H Hn0.00n.ov .om.mHo.oc Hmm.omn.mH0 NH.oHN.H mN.umH.o~ wH.an.H ~¢.ooH Hu>uumus aswsoss uesseess on sosssos0ss cw
uotuuuuv esoHueHiuou mosesswsw suHeos use usmuwou< 3
so.nom.wm m No.0Hm.oon Hon.~ov m mo.qos.q m nH.00m.H m HH.n~q.NH w HoH.umc.~vm Ans.Hmo.H0 » HuoHsus seem o>Hu e se>o aHso>e uwueooHHe
32:39:: esoHaosE—Ou easesausw 8.: New; use; .0...
“muoHsoa seesaw
Os ounou soHuHmwscue Ho soHusos e smuuoII>H macho
I m I m 80.08.83» I m I m I m I m I » «unusual? SH 996 :33.
I I A00.000.00HM I I I I I meHsmsBOU musessusH sesso sH xuoum .Nm
I m I » 80.80.83» I m I w I m I o I a 33.3 83.25 uuuussuméoz .2
"mousse smeuseo so wummoH prHeeos sou ous>oumIIHHH cacao
Hoo.-H.N0 m oo.ooo.~ w oo.ooo.oo~ m I m Hoo.~Ho.¢v » oo.~HH w 00.n~0.n m nm.o~a.~ » massagesaue HH snouu Hench
A00.000.Mw| 00,000+N I I I I I I asecH owmwuuoz .Nm
Hoo.-H0 I 00.ooo.oo~ I Hoo.~H0.sv 00.~HH oo.n~o.n mm.0~m.~ wxuosm .HN
- m - a - a - m - a - a - a - a I28 .8
"NeOo usNHusosm as sure wsHsusueN ease .mm:.e>
.o.H.<.z ou onuHssuou Ho soHuesHe>es eaueboaIIHH ssouo
0H.Noo.qm m mw.Hwo.~m m H¢.mo~.an w s~.w~o.mH m Hmm.mow.mv m Hom.nmo.~0 » em.H0o.m » AeH.44m.NHV» esseluesnue H asoNu HeNOH
mm.mum mm.mmm.HH 00.000.0H I I I I I meHsenBOu Nessa sea“ ane>Heue¢ .mH
I I 00.000.N~H I I I I I asap HeHsunsusH sH uHeoeen .NH
Aw0.HnH.~V Ann.owmv A40.Hnnv 00.04H.0H I I I I euuos seHA oonHoo .HH
I AHu.ooHv om.mq m~.¢o I I I euoseuuHIeu use expose unsussum .m
no.co~.nm mm.mNo.Hs un.cmo.m ms.mmw.m AmH.Hme.mV Hom.nH~.~0 em.ms~.o HQH.¢¢o.~Hv eeuseHeA uHsou .eusew< .4
I I I I I I I I eHnHeeHluesH uesuuHesoo «seed .m
I m I m I m H00.ooqv m H00.nmo.~v m 00.0wH m 00.nmo.N » I » eueonuo use eusewe o» eeuse>u< .~
"Ab nsouo sH one suHsa eueeee uonHw sesu nesuov
IIII essalooeuu use so eueeee ueuquueIsos ooeHmIIH macho
NoaH HooH ooaH oan wnaH NnoH onaH mmoH
~<uHH eHsuusom :oeHmHusHum umHus30uo< uoumouu<.NmmuHmmwm: san asousou ease-eueum HeHusesHm mam axe: MM

 

mucusua=q¢< Hm «savazom sass-goo
m usemmmo ouseususH ouHH

 

 

180

Liic Insurance Company D

Exhibit llI

 

Na.NNs.omN.Nw
mI smo.on m

 

 

sw.Nme.emN.mm

 

«m.smn.mnN.om

Hom.mNH ooN
om.mNm.qm w
om.mNm.mH

oo.ooo.mH . m

mm.mwo Hmm N

oo.ooo.mNo a

 

 

usszuxe>sH use nuHuHHHsenH Hm

 

 

muommm uuuuasumIsos sH

Hm ouuN>onm mussH MM

.oumuHosxuon
.usoaumussa NP

 

 

o>oss HmuHseu o>uweou HeweH sH usuaHusH soHuuoa Nosuoo
. msouHosxuouu NM usqfiumo>sH Hausa
AuHUHweuv ewsHsuee uaueHaasuue HeuoH
H anstm sea HuHuHHouV emsHsheo uosHeuuu ueuowuseuusp
HeuOH
e>suuou soHuesHe> eeHUHusuoe Husseusez
moms as .nauoN>Nu ..uuesosaussos sou
”assesses HeHuoae New esoHueHuaouns<
”HuHuHHuuv owswsueo uosHeuem
JUOue HeuHseu so Eswfiuum
use muses on Ne nosese 000.000.HIIxu0ue HeuHaeo
nxu0ue HeuHseo Now sHIuHes ussoa<
"eueuHosxooum Hp usuaueu>sH

squad NasoN

 

 

 

 

 

usesueo>sH

 

0N.NqNIwnm«M

00.00m.00~.40
00.000 son

mm.enn.anm
Ns.oaN.omH.mw
mo.Nmm.n
Hm.NNN.N
Ns.eqm.oaa
as.msN.qN

o .Ham.Nom.Nm

l\

 

HHH anHaxu

00.N~H

0N.mom.mmo.Nm
IIIIIIIIIIII
om.NNm an

00.000.0N0.Nm
00.000 ono H

00.000.0n0 w

oo.ono.NoN
oN.Hsm.oqe.Nm
on.qam.an
oo.owa.noo.Nm

H_m

euueaw wsHusu0us
Iessu>eu 00 undo uueHuuoa<
euueee wsHusuOue
Iesse>eu Ho soHuesHe> .u.H.<.z
"eueeee Ho soHuesHe>
.u.H.<.z sH use-euosH uouHHeeuss ousuoa
.ueeee ueuuHsue uo soHuesHe> .0.H.<.z so uoeen «HeuoH
HJoHos uuNnHH
one eussOuue oHuHu0Ae0 esHsuse uo esoHueHusouss<
zmmHummu_mumHmmummHmu: Hnuww ansoe
esoHueHuaouase use xuoue HeoHaeu .eoHuHHHneHH
so>o nueeee ueuualue mo soHuesHe> .u.H.<.zIIesHsu:m
sea euseo on ue euuese 000.030.HIIx00um Heaneu
"HeuHaeu HerH
euHuHHHneHH HeuoH
Huseue uHueuu Ho oeesuuss so eHneaes uueuusoo
HHHeueu new <IHHH eHsuosum 00-0 eeHuHHHneHH usekusu
".oasaHNs-Ns massesoso

0~.comqmmo«n

0N.om0.mmo.mm

 

 

 

 

 

 

. . ne>heeeu assessesH Hummmwumfl HeuoH
ussm essom
eussw uHeoauu ssHsuum
esoHueHsesuoe useuH>Hu .eueuHosxuNHom
eeHosowsHusoo

«HHH seesaw: euuehusOo HeusOIUHAASe so u>heeeu
.oNuNaoa sea-us use usuvuuue co
uouooHHoo elSHsuun so e>uooem
easHaUus uouueHHooss use uouuoueu so epueeou ousuoa
«nausea» HeHueauue Heuoh
"euueuusou use ooHuHHoa oHHH so
neo>ueeeu onHos oueweuuus
.nepueeom a: unx IIIusH ssusueo>sH use elsHaeum mo soHuuom

 

u I H m N > I H u s e m m H H H A H n < H H
No0H
:eeHmHosHum um: goes ueuuoou< HHHeueseuz
INIImmmm

 

 

Nm.mNH.omN.Nm

III1III4IIIIII
04 0mo 0H0 w

 

mm.mmw.0OH

H0.00~.0H

00.000.00H

Hm.nqN.o
mm.onm.nnH m

 

em.omn.0n~.ow

 

00.nN4
uH.an.0No

0N.¢00.Nno.nw
00.000 nw .

om.Hn0.enn
00.000.no

nn.mno.e
NN.NNN.mnn.H

mo.mon.NN
oo.Noa.mNn.n»

 

NH.NooIH
Na.omo.no
mN.mHm.qNN
oo.oom.msa m
oo.ooo.NH
oo.oon.HNe m

NN.OON.aH
ON.Hoe.NN w
'1'}
oo ooo ooH
oo.ooo.ooN w

 

oo.oou.no »

on. a Na
oN.NNn.oon.H»

ueou ueuHuhoa<

 

.AN nuclease
sown shousou mm uousoueu Nessa euseHen
assessesH euuA

 

 

 

 

 

 

 

moon-e HHe HM usseu>sN Hmooh

 

 

 

. . ensues ueuuHaueIsmm MN ueumu>sH HmuoH
mueou soHuHeNsvoe ouseusesH suHmus use assuauo<
usoHnuNsEod assessmsH ssHmos use “souHoo<
msoHananU assessmsa «HHH use; NmsHm
omoo wsHsHmfiem
HsoHueuHusoEev oesoexo cu uowuesu soHuuos o>HumHJEsu
smou
Nuoewsousm eoHosewe “Hueso
”muoHues oususu ou uouuowuu eumou
oesoAKe soHumHuousou cu uowuesu soHuuoa ~>HumHsfisu
umou
“usufiaHsve use ousuashsm
euoH oHnHeeos ecu sonH>ous usoH
umou
NeeHsemabu ouseusesH umsuo sH xuon
eouos smHs oonHoU
HHHeueu sou <IHHH eHsuesom eoev museum oseuusu
.uuoee< uouudflu< e< AHHHeso act on suHsk uuuum< msHumuuso
. . euoeme uuuuHaue sH uouuo>sH HmuOH

 

 

 

 

euHeoseu HNHHHND
HHHeuou uoH <IHHH eHsuosum eaev eueeee useuusu
usoHueaHe> .u. H. <. 2 ans oeHe eH sows: .soHueHueuseu
use soHueawuuole how usuesnue ueou ueIIeueeee msHueuuso
. euoeee dmmmmmmmuuuflmwnum_mm ueuee>sH HeuOH
o~.ooo.~no.n» A.0.H.<.zv
euesoHeeHIloo eoseusesH Ho soHueHuoee<
HesoHuez an uenwuueoun soHuesHe> HeuoH
eseoH HeueueHHoo

 

 

 

00.000 n0

on.Hmo.4nm eseoH muHHom
unsound
soHueHuounou ou unnuesu sowuuoa evHueHsaso
ueoo
00.000.00 "eueuee Heeu Henson
mn.nno.s eHee Ho uueuusou nous: uHes eueueo Heex
eusaoueHu ueueHalsuuess eeuH
eseoH Ho assoae eoem
nu.~0~.nnn.H Neueuee Heeu so eseoH ouswuuoz
00.an.n~ exooum
oo.w0¢.an.nm euson

esHe> .u.H.<.u
"eueeee usHosuounIessu>ex
Nee>ueeeu assessesH uo eusuaueopsH Hedda e< ueuufieu< eueees

m H m m m <

 

181

Life Insurance Company 2
Workingpgapital
December 319 1962

 

Schedule III-A

 

 

 

 

 

 

Admitted Non-admitted Total
Current Assets:
Cash and bank deposits $454,279.00 $122,000.00 $576,279.00
Premiums in course of collection 1,461.62 - 1,461.62
Accident and health insurance
premiums due 104,874.59 - 104,874.59
Accrued income receivable 60,200.07 - 60,200.07
Amounts due from other companies 5,431.86 22,447 27,879.54
Agents' debit balances - 91,389 91,389.25
Totals $626,247.14 $235,836.93 $862,084.07
Provision for possible losses - 100,000.00 100,000.00
Effective amount invested-
carried to Exhibit III $626,247.14 $135,836.93 $762,084.07
Current Liabilities: ~
Premiums received in advance $ 141.37 $ - $ 141.37
Unearned investment income 8,867.03 - 8,867.03
Accounts payable for general expenses 9,617.13 - 9,617.13
Claims in process of settlement:
Life insurance 39,326.82 - 39,326.82
Accident and health insurance 300,466.00 - 300,466.00
Accrued expenses:
Life and annuity commissions 49,289.00 - 49,289.00
Accident and health commissions 22,260n00 - 22,260.00
Taxes--other than income taxes 48,929.41 - 48,929.41
Federal income taxes 4,000.00 - 4,000.00
Amounts withheld or held as trustee 16,510.19 - 16,510.19
Agents' credit balances 11,073.39 - 11,073.39
Remittances not allocated 49,054.51 - 49,054.51
Totals carried to Exhibit III $559,534.85 $ - $559,534.85
Net Policyholder and Stockholder Funds
Invested In Working Capital $ 66,712.29 $135,836.93 $202,549.22

 

182

COMPANY E

History
Highlights

 

Company E is the only mutual company analyzed in this study. The
analysis of this company indicates that satisfactory financial reporting
techniques are essentially the same for both stock and mutual companies and
that the recommendations of this study are equally applicable to both.

Company E was a stock company until 1950, at which time a mutualiza-
tion plan initiated in 1941 was completed. It is a larger company than
the first four companies studied, so provides a test of the significance
of the adjustments in a medium sized company before moving to the large
National firms. The following tabulation summarizes the size and growth

of the firm by ten-year intervals:

 

 

 

Life Premiums Total

Insurance Written Insurance Total

Year In Force During_Year Reserves. Assets
' 1892 $ 2,056,000 $ 49,000 $ 51,000 $ 161,000
1902 8,970,000 271,000 405,000 551,000
1912 38,022,000 1,246,000 4,167,000 5,818,000
1922 95,546,000 2,919,000 14,620,000 21,878,000
1932 146,356,000 4,119,000 27,034,000 39,726,000
1942 130,797,000 3,200,000 30,988,000 40,673,000
1952 341,203,000 7,976,000 65,404,000 75,169,000
1962 1,021,984,000 23,607,000 140,056,000 162,706,000

Underwriting and reserves

Company E issues the usual forms of ordinary life, endowment and
term policies and individual annuity contracts. In 1953 it entered the
accident and health field and in 1959 it began writing group life and
group accident and sickness insurance.

$At N.A.I.C. valuations but including non-admitted assets through

1952. The 1962 figure is the total invested in assets as shown in
Exhibit III.

183

Approximately 52 per cent of the life insurance reserves are valued
by the net level method, and approximately another 4 per cent use a modified
method under which the net level equivalent is reached at the end of the
third year. Currently, a portion of new policies are valued on the
Commissioners Reserve Valuation Method using the 1958 050 table and 2 1/2%
interest, modified so as to reach net level equivalents at the end of the
tenth year. However, almost all of the policies valued by the net level
method were issued prior to 1948. This means that, except as tempered by
those policies for which reserves are modified so as to reach net level
equivalents at the end of three and ten years, the portion of current
annual revenue transferred to reserves at the present time is not very
different from that of a concern using the Commissioners Reserve Valuation
Method exclusively. The warning previously sounded regarding the possi-
bility of over-adjustment for first-year acquisition costs and the effect
of reserve methods on reportable earnings is nearly as pertinent to Company
E as to the concerns already discussed. As has been repeatedly emphasized,
accurate capitalization of direct first-year acquisition costs would have
to be based on the portion not covered by the reduction in first-year
reserve requirements under the modified preliminary term.methods, rather

than the arbitrary method used in this study.

Adjustments Not Previously Discussed

Adjustment 64, Reverse accruals which
are really_appropriations of Surplus

 

Company E includes the anticipated cost of items ordered during the
latter part of the year but not received until the following year in
liabilities in the Convention Blank under the caption "Accrued Furniture,
Fiqxtures and Supplies." The change in this account from year to year is

inxeluded in the computation of net gain from operations.

184
The nature and effect of this procedure can best be shown by assuming
an exaggerated example and tracing its course through the accounts. Assume,
therefore, that the firm ordered $1 million of furniture in December, that
the furniture was received and paid for in January of the following year,
and that the depreciation rate is 10 per cent. The following tabulation
shows each entry and adjustment which would be made by the company. The
accounts are stated in conventional general journal form, but amounts are
shown as increases or decreases rather than debits and credits.
8 u r p l u s
Gain From Direct
Assets Liabilities gperations Charge
_I_tl Year 9_:
Change in Accrued Furniture $(l,000,000)
Accrued Furniture $ 1,000,000

Adjustment given effect in
the Convention Blank.

 

 

Totals for Year 0 -0- $gl,000,000 $(l,000,000) -0-
_I§_ Year 1:
Furniture $ 1,000,000

Cash (1,000,000)
Received and paid for 7
the furniture.

‘Depreciation Expense $ (100,000)
Furniture (100,000)
Annual depreciation

Change in Value of Non-
admitted Assets $(900,000)
Furniture (900,000)
Adjustment given effect in
the Convention Blank.

Accrued Furniture $(1,000,000)
Change in Accrued Furniture 1,000,000
Adjustment given effect in
the Convention Blank.
Totals for Year 1 $(l,000,000)$(1,000,009)$ 900,000 $(900,000)

.13 Each Succeeding Year:
Depreciation Expense $ (100,000)
Furniture $ (100,000)
Annual depreciation

Furniture 100,000
Change in Value of Non-
admitted Assets $(100,000)
Adjustment given effect in
the Convention Blank.

'Totals for each succeeding
year -0- -0- $ (100,000)$ 100,000

 

 

185

The above analysis proves that the method followed by Company E
charges the entire cost of the furniture to Operating expense when ordered.
An income item is included in the earnings statement when the furniture is
paid for. Since the gain from operations is transferred to the Surplus
account, Surplus is reduced by the entire cost of the furniture when
ordered, but is not affected after that. Each year, depreciation is
charged as an expense in the Operating Statement, but is offset by an
equal income item entered direct to Surplus. The decrease in assets in
Year 1 is, of course, the expenditure of cash, the Furniture account being
entered in the ledger but removed from the balance sheet by the adjustments
in the Convention Blank.1

The rationale for Company E's procedure is easy to discern when one
remembers that the Convention Blank is primarily a formula for the computa-
tion of legal surplus and that the criterion of impairment of capital is the
preliminary guideline which has been adopted by the regulatory authorities.
Since the firm may be committed to the expenditure for these assets as soon
as they are ordered, a portion of Surplus equal to that commitment is no
longer available for the protection of policyholders. So, Surplus should
be reduced. The above entries do just that.

Financial statements emphasizing the double entry concept of accounta-
bility must do more than this. The huge expense in the year furniture is
ordered and compensating income reflected in the operating statement the
following year do not provide a fair measure of earnings. Inclusion of

the liability for the expected cost of furniture without including the

1This process was previously discussed in connection with the analysis
of Adjustment 52 in Chapter III.

186

furniture as an asset does not provide a complete report of the funds made
available to management and an accounting of what was done with those funds.
Before the procedures which are in accord with generally accepted
accounting principles can be determined, it is necessary to inquire into
the nature of the "liability" which Company E includes in its balance sheet.
It is really nothing more than a purchase commitment. This is something
which should be disclosed, but there is no present liability. Disclosure
can be made by means of a footnote or by setting up an Appropriation of
Surplus, or Surplus Reserve. The only time a deduction should be made in
the income statement is when a loss is clearly in prospect as a result of
the commitment.1 Then, the loss should be deducted in the year in which
the event which caused it occurred.
Adjustment 64 transfers the "Accrued Furniture, Fixtures and Supplies"
account from liabilities to Surplus Reserve and eliminates the amount of
the change in this account from the Operating Statement. Legal Surplus is
left unchanged, thus recognizing the soundness of the procedure for regula-
tory purposes and keeping the extended balance sheet in conformance with
the Convention Blank.
Adjustment 6;. Reverse charge £2

expense for Grouijisaster Contingency
Reserve

 

After 1959 this reserve, required by the State of Missouri, is
treated as an appropriation of Surplus. Adjustment 65 makes the 1959

statements conform with this procedure.

 

1Finney and Miller, Intermediate, p. 439.

187
The Financial Statements

The financial statements speak for themselves. As one would expect,
the rapid expansion which has taken place in recent years has resulted in
the Convention Blank showing a net loss from operations. To a large extent,
this has been offset by capital gains, either realized or unrealized, so
that only 1962, the year in which the stock market sustained a sizeable
drop, shows a loss "per the Convention Blank before items classed as
'Dispositions of Income.’ " Also, as one would expect, the adjustments
during this period of expansion constitute an increase in earnings each
year. However, it is interesting to note that in 1962 a loss is reported
in the revised earnings statement. If the admonition of over-adjustment
for first-year acquisition costs is valid, this loss should be a matter of
some concern to management. However, there are some other factors which
must first be given consideration.

One factor is that Company E has nearly $15 million invested in
property which is leased to others. The accounting method employed has
been improved in recent years but is still extremely conservative. The
original method used for amortization of the cost of transportation equip-
ment is described as follows in the 1958 examiners report:

In all cases the equipment is leased . . . with renewable options
at reduced rentals at the expiration of the original lease. All
taxes, insurance expenses, and maintenance and repairs are paid
for by the lessee.
The Company originally amortized, or depreciated, these investments

. at a 4% rate of return even though the actual yield was higher.
This resulted in a faster charge off of the asset and a deferring of
a portion of the rental income. No adjustments were made by the
examiners since this is a conservative method and also the Company

in recent years has amortized these investments at actual yield over
the period of the original lease.

188

Real properties have apparently always been amortized over the
original term of the lease. The 1962 examiner's report states that the
company "amortizes the entire cost of the land and building of each parcel
during the prime term of the lease. Most leases provide various renewal
options at reduced rates."

This procedure may be a bit too conservative to provide a sound
report of accountability, particularly with reference to fair measurement
of both present earnings and earnings which will be reported in the future.
Since the entire cost of the asset, including land, is charged against
revenue during the prime term of the lease, there will be no charge against
revenue during the renewal period. Should the lessee not renew at the end
of the prime period, Company E will still own a parcel of real estate
which will almost certainly have some value. It would seem that a better
measure of earnings would be obtained if a conservative, but realistic,
estimate were made of the value of the property at the end of the lease
period and then amortize the expected decrease in value. This is essentially
the method used in standard depreciation accounting--the difference between
the cost and the expected residual value is depreciated over the expected
useful life of the asset to the firm. This residual value may be a sub-
stantial portion of the original cost of the asset. For example, a salesman
might purchase an automobile for $4,000. If he expects to use it for two
years and realize $1,800 for it at the end of that period, he would depreci-
ate the autmobile at the rate of $1,100 a year, thus spreading the expected
cost of owning the autmobile over the two-year period he expects to use it

in his business.

189

At the very least, it would seem reasonable to amortize the cost of
the building only, and to extend that amortization over both the prime and
the renewal period of the lease, perhaps in proportion to the respective
rentals.

No revision is made for amortization of leases in this study because
sufficient data is not available in the Convention Blank for such adjustment.
The deficiencies in the company's method must be kept in mind, however, in
evaluating the trend of earnings shown in Exhibit I.

Another factor which must be kept in mind is that commissions are not
the only acquisition cost. One of the premises behind the adjustment for
first-year commissions is that the modified preliminary term reserve
methods are possibly effective in spreading these other costs over the
time revenue is generated by the expenditures. So, if first-year commissions
are then capitalized and amortized, the final result might be reasonably
accurate. Further research at the company level is required before any
conclusions can be drawn as to the soundness of this premise.

The balance sheet demonstrates that the format used in this study is
just as adaptable to a mutual company as a stock company. The only difference
is a minor rearrangement of the capital section and the omission of the
capital stock accounts.

A final reminder is in order regarding the financial statements.

These statements are designed as a research tool only and should not be
interpreted as recommendations for use by industry. Many technicalities
would first have to be solved by research and experimentation at the company
level and consideration given to important factors which are excluded from

this study. If the statements were to be used in published reports to

190

stockholders, and/or policyholders, they would first have to be condensed
and simplified. It is believed, however, that statements condensed and
simplified from perfected statements prepared alOng the general lines
suggested could be accompanied by a full certificate by a certified public

accountant .

E
Exhiblt I

InSIH'8n(1‘ CLHH an

L1 fut“

191

cc _m~.mom.q_m

 

 

mm.qn0.m00.m~m

 

 

mq._mo.qh0.m~m

mm.qmm.mmq.zsm

 

 

“HE

Hq.mm0.mmm.0~m

 

04.0mm.000.0~m

 

no.0sa.mos.m » n~.a_o.ooa.o m sm.mmo.~no.o »

 

mm.mno.n~0.n m

uwsfissom
vesseuox ovuuvsueousp wswosu

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

mm.qmo+woa.m_ nq.zm..sno4as «m.qm~.mmq«aw sq.mnaqwiu.qw a..o.n«w0n«os no.0saqmomqm: n~.mzo«0mn4m1 om.nno.~no.a mm.mnm.awm4h o~.smo~enm.a .masctum
vosaeuom pooussueousp wowscwwon
ha.soo.osm m ma.mom.mmm m oo.eqm.smo.s m s_.mam.flm_.z alie.mmm.m~c m oq.qsa.mqn.a » ow.shn.mmz maoo.<ao.~s~0 » om.mas.qms.s m so.ess.mo » aucsctmw
noes-um» ooooasumoscs
AWN snauuooosv
MM sesswuvo so:
mem.qis.mssc manq.mqs.o_c w mq.moe.aqm m ms.owm.usq m om.san.moo » am.omo.n- » ms.omm.omo » ne.mmo.na~.s axoq.mmo.mo0 » 4m.sss.4mo a sauce
- - oo.mm~«sos oo.sem.qm 00.nom.n~ oo.omA«o~ oo.mmm.ss oo.ssa«wao oo.aqs.n~ oo.qem«mz icscscswcosu. o>tunoe
as..ozq.mssc mfimq.mq_.s_c m we.sqq.ms~ a as.uzo.ams m sm.nam.moo » mm.zoe.~o~ » ms.ons.n~o » ne.oez.omn «Ao¢.nma.mov » cm.aoo.nso » .asstsu swam Mustang 0» asusncqts
“assocH mo eso«ufimonm«0
mm aim. _sc m sm.s4u.wsm m mm.mmo.mms.z m om.~sm.mmm i m Hm.Msm.aoo m mm.qma.oom.s » no.mm~.m~w m ma.q¢o.mqo m os.ooz.ono.s » Ho.nem.aza » Aawozc usages mum
.s m_s.m0m as._e~.mme oo.ooo«-m ca.ssm.mw ma.nmo.oo~ oz.am~«mAn m~.mmn+¢a~ s¢.ezn«oa~ oo.ea~.naH mm.zmo«ona woxus usages ~.s~oos
.-c.mse.aoqc m sm.osq._nq.s m mm.~mo.osn.~ » mo.~oz.wae.z m em.a¢m.mna._ » eo.~eo.oso.a » m~.ooo.ooo.s » me.¢mn.ae~.z » as.e~e.sm~.a » om.o~o.e¢m » mum venues eyeson
Ammomv wEOosH ANN
ee.mea4WOm mm.smm«zsmwz oo.ooo4mom.s n.4ao.mho mm.omo.~oe -.n~o.oso.s nu.4¢m.ass na.oao.aan mm.aoo«mnm ma.nom.sm mouse; as. .asqo "nous-o
Aoo.zeq.msme mxmw.mmo.ooe m mm.~om.o_q m mm.ass.mos a us.msm.qaa » ~o.mso.noo » ma.¢a~.osm » oo.mso.a~o » nm.o¢4.~ao » no.noo.oom » ”moose
mucus“ musessmsm mum
om.4ss.wm_.a m me.qqq.oom.w m «w.soa.oaq.a m mq.aas.mms.o m “n.0Hn.qno.n » ~n.mm~.noo.e a oz.o~o.o~m.o » 4m.aq¢.~no.e » no.5om.mmn.n » oe.ono.nna.n a sauce
qm.aaz40mq sq.o-«¢_m -.ssw4weo s_.oo~.mmz mz.~no.o~n as.aso.o- mm.om~.ne~ ha.smw4ss~ on.hon.nws oo.o~o.nos Axes «sagas cans
sonuov ovum ose nauseoua .uoueh
sm.~mm.sqa sq.oss.qwe .qs.sms.nnn zm.omo.nsq mo.onq.amn om.nse.hem os.n~s.omm om.oes.n- oo.ooo.om~ o~.son.m- wnc.auo guess»
flees use usuluuobsw ~euosuu
mm.oqe.m~m.q so.som.onm.m am.~ms.nmm.m ~m.o¢o.mos.m ms.nmm.noo.~ no.ona.nsn.~ as.4zo.eno.~ s~.no~.n¢o.~ a~.moa.¢no.a oo.n~o.¢nm._ o.c~sxo qua-ta.as “nuance
em.4ns.o~o.m m mm.~e_.nnm.m a Ne.emq.msm.m m qz.oo~.oos.~ m ~_.mqe.nmn.~ » an.osa.znm.a » ma.ome.oos.a » He.nom.~oa.. » o~.qeo.HMm.s » s¢.mae.mn~.z » .cossusa-oo

"oesuaxm u>wusuuuwsfiao<
vse usmlumu>sH .s0wu«u«30u<

 

_a.mao.qmm.m m
as._o~40oo.~_
a“.aam.es~.omm

oo.mzq.oez.m »
ma.s~a.~om«a
nn.an_.oo~.a_m

s_.~ms.hmm.a a
oo.m~o.moo«~
05.nqs.omm.nza

o~.no~.mmm.o m
oc.HNq.o~m«~
om.o~h.qN~.¢Hm

ms.m~n.mon.o .
~m.maq«Nno«o
na.a~o.oae.~s»

nn.no~.ona.n »
on.oo~«wsn.n
aa.oso.mho.ss»

oe.os~.oe~.n » oo.a~o.aeo.e »
8.084831

N0.qmfi4000 a

oa.nzn.aoe.a »
na.-hqwas4n

oe.nsm.ooo.
an.moo«w~n«w

 

 

n »

uncusw nacho
uuoesusoo so uusoaxem ose muwueson

 

 

 

oo.~n0.-0.q—m

00.mmn.~0m.-m

m~.mqfl.nno.0~m

qu.mbm.0un.0 m

m~.mqo.onn.0 »

 

qq.sam+omqwu

om.mmm.m

00.0wm.0~m.._m

q~.m00.qn~.~

0m.m0m.m~

m~.n~m.soc.ozm

”0.05W40quwl

ma.mqe.sq

as.-m.sma.m w

00.mumqomo«4

w4.mhm.~n

me.ohm.o~m.a m

00.nn0qnnafifl

om.qmz.ao~

mm.qmo.noa.e »

00.0N~.¢~e.m o
0w.n00 00H m

nu.¢00.-~

<~.~m0.~n~.n »

 

 

mo.amw.i~m.qmm

Hm.so~.oso.om»

~0.m0n.~mn.c~m

oz.omo.4xa.mmm

am.n-.hoa.-»

~0.n-.00¢.0~»

 

 

No.0mcIomq
me.mmo.mmu.h

oh.wmm.moo.~

"n.0nn.omo.s
_m.~so.-m.-m

~0.Nnm+0mN
wo.mfim.00<.o

sz.mn..qoe.~

wo.m-.-~.~
nw.00m.¢00.s~m

on.om~qwfin
~0.005.~00.m

am.oha.s~s.~
mq.hao.soe
mm.Nos.maq.nsm

000m

no.5qw4mom
m~.¢00.00m.m

as.oma.nso.z

Hm.ons.aon
oa.o~n.soo.osm

0nm~

:aususuasue unsuaaouu<

0¢.Hmojoau
mm.wmo.osn.¢

mm.an.o¢0.~

q0.¢0¢.n¢~

so.na~.e_o.na. oa.ann.e~a.ns» mm.ona.ama.ss» no.aoe.msn.0s» ha.mno.ono.o » ae.oao.nne.o »

000a

oa.onm4mn~
4o.ooo.osn.e

50.005.0¢0.~

Q¢.-4.hn~

mmmw

 

om.nmn.oee.s » mo.no~.n~o.o » ss.omo.os_.n » no.hoo.¢aq.a » oacu>us ensue
No.zom.~m~.s a ma.n~n.~4a.o » as.~0z.ann.o » ss.4¢o.ams.n » hugs
eacu oas0>uu uos sawusoa ”ouch
aa.a~a.¢os.a h~.on~.ono mo.mno«m¢a oo.mno.mmo .vauss>sv
we assofiochufifion nu unasquI
on.ooa.mm an.~o~.on 4m.smm.~e oo.oon.so .nssauss saunaszouca
use vouuuwoo cw uueosusu
so nauseous sou usuluuseoc
so.mso.n~s.o » nq.~mo.omo.o » ma.ooo.ona.m » ee.eon.oma.s » no>toaos sown” as oauutucs
nnvtuuou
soofionauafioa we wouue pom
. ”sawuuos ecu Huston
~a.ono.e~s.5s» aa.a-.ene.ns» oo.mo_.osa.qa» oe.zeo.~n~.m~» Mason
as.oae.snz oo.4~e.nna n~.nao.-n mm.ona«oo saao>us mess-sous tones
as.ooe.o~o.n mo.oon.onn.n ne.~0a.aa~.n am.os~.~ao.~ .ucuuuaoacs
so evcuva>uo use uses .ueusOUsH
so.on~.ooq.z No.n~n.snn.a as.maa.~ae.s ae.~no.~on.~ “so-suaou
muons-loanase saw soauesovuesou
on.seo.oa as.on~.ne «n.mon.ea o~.o~o nus-o; on. usooauo<

 

on0~

vauuuuu< N euos u

usssoueum wudfisheu o>wuehe

 

M usemfiou

mosesausH

 

 

mam”
£3.80. a
0.

uu«A

I

no.a>ue

4n0~

u<

nn0~

ouuq
"encuueuoouesOu huuasse use elsmlehm
"escaped

E
11

 

Life Insurance Company

192

 

Egfifiuggg flail
so.seo.omo m m~.mee.0mm._m s~.oaa.wms.s m so.mnm.mom.s m wz.mmm.oom._ a .N.”Um.qu.Hm am.moe.amm m 4m.nsn.mos m mm.mss.woN m no.00m.amm a scussumsm
mwsflsuwm voua>um onu you «Ecucm “oz
use xsean scausobsou are sum escauesoao
Sosa sweo uoz cooauon ousosoMMMQ

   

 

 

 

 
 

 

 

 

 

 

 

Asm.a~m.0zsv » om.oq~.msm m nn..na.mmm.s m m~.~zm.msm.s a Hn.nsn.~oo , m as ems.oom.s» no.nms.mmm a as.qqo.wqo a as.oes.ono.sm so.meo.aHs » “cues“.sa mussctqs

vouu>ou MwN “macaw oaoocH mum
sm.sma.osn.s m az.qu.~s~ m nq.ooq.quh.s mass.oon.nna.svofiom.ooe.mao.svm as..om.sso.amaea.¢sm.n<mv masa.som.oom0 «Amo.qem.o~mV » as.moo.aes » .ucaauuafis. asses
Aes.woo.mv Ama.~0mqmsq. Aam.mqn.meso AH~.mm~.a_~0 an.aaq«~o~ as.qsm4~ Anm.esa«¢0 Aqs.so~4me Aoa.mnm.sqv Amo.hoo.sqw ensue «no as spotty rogue

uuosuOu use seo> smaoso or“ on nonsense
use moans“ sseusmo summsesh-uw> nacho
q¢.m~0.n~ oo.nmm.fin m~.m~0.mm -.00n.0- ~0.ewo.s~m om.mmm.fio n¢.000.m~ nfi.o~o.n~ 00.00n.m N~.<¢o.0 sacs nosmnuosuwu “a «bonus
posse Mae muses use musufiouosm any so
nuouee voxfiu oususaoe-sos oun~m--> sacso
o¢.s-.no~ No.0sq.qe~ q~.~mq.mom 00.0mm.ao_ s~.m~n.aso om.mms.omm . no.mam.eos Hm.qoo.sn~ on.Ho~.nos mm.soe.mem moostoa .tasuu 0» assoc
sofiuwuwavuo mo sowusoa e sowmo-->w noose
- . auwmae sswosmo so
noeuou sanwmnos sou oow>0umu-mmm ssosu
co.msn.oas.s Aoo.qoa.om~0 mo.eon.aem.z Ase.mmm.wos.~0 “Hm.sos.nao.mV an.moe.q¢¢ Aao.nma.ssnv amm.mmm.onev Aas.ase.mmev Aao.ese.zsc uuou ususzsua. cs
Eonu wswsuauos «gnu .uusfie> .u.H.<.z cu
, nowu«ssuoo mo “solunsnoe ouso>omuunH nacho
au.sma.m a mn.ano.am mazo.eao.nzv masm.eom.esv “Ass._om.~q0 a oe.msz.se waw~.sse.~c masq.aas.o~sv » no.5sa.m~ maoo.~oo.~nv » A» spots as at.
sass: uuueue oaxwu sesu uosuov maumauumsu
sou so nuance omuuwfloeIsos oue~m--~ osouo
"Aeaueuoo you A<0HH oasoonom use. musoeumamo<
Amm.0¢0.o~0.uvm n_.m-.00n » ~0.~mn.qo~ m o¢.m-.~mn.n o ~_.00~.~oo.~ » n~.hw~.nn¢ » 00.nmo.0o~.um on.ooc.m0n.am n~.¢0¢.nmm.~m eg.ono.0~n m II assoc“ Mm
oceans-omnav we commeao wasps
uuouen xsefln sewuso>sou Hum uuz

 

 

 

 

 

 

 

 

 

 

 

 

Am~.000.~o~v m so.nmm.q~e.~» 00.nnm.4n~ » m~.~wo.ufln.n » «n.0e4.no~.n m nn.mno.0oo o No.00n.noo » nn.0~0.0-.~» mw.m~m.00n » oo.o0¢.~¢~ m smuoa
moo.000.oo~0 Aoo.qmw.o¢~0 A00.000.on0 00.30010mn p - - - Awn.nnnan~0 . esgsusm ou «ooswo nouuusu memos swuuo

,0n.-~.wv Am0.q~0.~mv A~N.0<0.0~0 m00.nwn.no~0 Ann.m0~.an~v Aom.¢0n.~o~v An~.0s~.-0 o~.~c~.n0~ Aen.num.mnv mn.m~0.¢¢ mamas bonuses
use vouuwflveusos uo oaue> as owssnu

An~.~0n.00—.~0 oo.¢0n.on~ A0o.¢0n.mcn._0 o¢.n00.00~.u an.ooo.nno.m Anm.noa.4<¢v ~0.mnH.th ~n.0mo.0ne n~.-¢.n0¢ 00.¢~s.ad wsfle>
. goon ue>o assume «a sage» s“ wwseso

oe.~en.non » an.smq.~sn.sm oo.oao.ooo.z a -.¢ao.n~a » un.omo.soe » -.nmo.oso.sw ne.awn.aas » ha.mnn.ean » mm.aoo.ann » mm.nom.am » use“
mousse so sumac“ use uswem "sowseo

u»:30uuu

ws~ausm on» o. uooswv posuusu scuba
Aon.00~.mnm.~vmano.0_~.m~nV «Au0.n~o.oH0 m mo.oam.nn nann.0o—.N0¢v » «o.mm~.mm a 50.noo.¢ne o n0.o~n.en~ » n~.¢o~.nos » «n.0nn.owa m xsean sewusu>soo «mm mum

 

 

unawuesomo essu ammogv sgeu mum
n0.0-.n¢0.0 » so.m00.mm~.0» -.00H.~mu.w » ¢~.n~m.~o~.s » on.00¢.n~n.o » 00.400.~on.nu ~0.n¢n.~on.¢¢ m0.00~.nh¢.a¢ nu.0<—.¢~0.na 00.nns.nnn.na asenn somusu>sau nus nonsense Reach

 

 

A¢~.0ooqwu Ann.~0mqoww. 5N.<n~«w~ nn.¢00.~ 0n.n~¢.~ 0~.q4n«~ Amo.¢0n«mv om.nnnqa A05.nnmdwq Am0.500qu unmasum mo
escauewuao»one wflueos ope sows: canon

«0.005.0mm no.50q.00~ n0.0¢~.0¢~ o..00~.~no 00.500.000 mm.mo~.mmm ~0.Nn0.-n ~c.oom.ona mo.~0n.0on n0.00d.0nm Axeu oesosw
usuosauswv amow use nousoUw~ .nuxeh

m~.000.nn0 oa.o~n.n~0 «0.000.000 n~.0¢0.00n n0.0nq.nnn 00.noa.n¢n 0H.n-.omn n0.o¢~.nn~ 00.000.0nu ~n.~n0.nN~ ousmsxu
. oueuno Leos use usmiueu>sq «esusoo
ac.~o~”Nnn.c m~.¢0~.000.¢ -.0¢0.¢00.m om.m00.000.n nc.n00.000.~ n0.omn.onn.~ 40.q~0.qmo.~ -.n0~.n00.~ 0~.~n0.00n.~ 00.nno.¢0¢.~ oesoax~ «usessmsm Hesosuu
q~.mou 0sn.n » 00.nmo.~no.n» ~0.¢~n.n0~.m m c~.oon.n~0.m » mm.0~0.0n0.~ o un.0~0.~04.~» ~0.non.¢no.~» -.oo¢.¢ds.~» on.nnn.n04.~w no.0an.~oa.~m wsoauewfiiou

nonsense o>wuesuufiswfioe
use usuluuobsu .so«u«eusvu<

 

 

~B.0Nn.m0m.u » 00.mmn.m~n.mw 0H.Nh~.~NN.m w N0.~no.n0H.h u n0.0mn.n~¢.o » nn.o0~.0oh.n» 0*.O-.0¢N.n» oo.h~o.h¢o.¢0 o0.n~m.~o¢.e¢ 00.n00.000.n» scum! noduco>coo hum
00.0mcqoon 00.00nqum oo.o¢nqwnn oo.onN«00~ 00.000qen 00.000.n¢ . u u n ouwmwo «no: «0 use» sou «an. cu owueso
~5.nho.€NN.n o 00.nua.ofin.w» 0~.Nno.~00.h m 0N.n0~.n00.o » n0.0~n.00n.o m nn.n0~.0ns.nm Q4.0~N.0¢~.no 0°.hNo.h¢o.<d 00.nnn.aoe.¢¢ 0¢.n00.000.n» ucuEUuou- owcfiflhiu vanw>ou hum

”unbusu encuu
”neuauah anew: sauuse>sou

 

 

 

 

 

«can ~00" 000a 0n0~ mn0~ hn0~ on0~ mnou «mom mnOH
Ha uunwnmm asean sauusotsoo «mm.mw msaouu< esuumsm mm“ assuueuwmm MN eewuellsw so“:

 

 

euseIOueum unmasked seeu>uu mo sawuewuwosOoou
m Halo ousgsesu 83

 

 

 

 

Life Insurance Company g

193

Schedule II A)

fl

   

#0.Hmn.00m.fim 0~.qm_.-~ w mq.00q.qmn.fimfln~.00m.nm0.~vmaom.ooq.m0m.~y

 

»

 

 

» A as ... smut

 

 

 

00.nom.0n0.~wacs.000.mqu»A~n.~om.00nvofimo.¢40.0~mV» no.0om.nqfi m

secusH so nuswEumsho< HH< uo uuouwm “such

nucuEumofioe H> nsoho "ouch

 

 

 

 

 

 

 

 

 

 

 

 

 

 

qu.moo.m0 mama.m0m.mz0 mano.QO.mesv »A_N.mm~.sasc m an.~sq.smm » oz.44m.~ maea.oo~.mmV mfion.mmm.aqv mamo.aoo.sev m
I I I o~.mm I I I I I I opssavx sucomssusou soon-own
asouo sew ousmaxo Ou owuezu ouuo>om .mo
Ae_.moo.mV Ama.~om.o~0 a~.qas.os an.~oo.s om.Asq.~ as.eam.~ Anm.qoa.qc o~.nna._ Ao~.nno.av “mo.aoo.~v . .nsatgm so acosuussQOFQa.
>H~eos one node: mumssuue omso>~x .00
I I I I I I I A00.000.0<v A00.000.040 “00.000.000 so~a sofiesoa uc sowupoo meow>uon omen .mo
- m - maq~.o~a.ao~v ona.oa~.s~sv m oo.ooo.mm~ m - m I a - m I a - m usages mass no gas .eScA I>ssuaotsom .oo
“xcmnm ass as macsuo posse
uuuusou oce sews poncho on» cu nonsense
use woumnm cwmutwu pounceuHIInb nacho
oo.0~0.mm m 0e.nmm._m m mm.m~0.mm m n~.00~.0_~ m Hw.qwo.q~m w 00.nnm.~o m “c.000.m~ m m~.o~0.n~ m 00.00m.m m N~.qso.m m mosssxfiu use osozwsuzw mo oo~e>
soon um: cw wwsnco sew zuuco ~m~o>wx .Nm
hzm0u vouewoousoo us
muowue ooxsw mam uutmu 1cm mucquueuu any
so assume ooxww oauuflsoeIsos oue~AII> asosu
oe.s-.mo~ » No.0za.qn~ » q~.~ne.nom » oo.omn.ao_ a z~.o~n.aso m on.nos.omm » om.mam.qo~ » sm.qoo.~n~ » om.so~.moz m mm.ooq.ma~ a .scuauuaflua >H spate "oboe
om.~mo.o oe.sm~.e so.~<_Ioz - - - - I - - _sa aIUH a. pace-a
ale» 0:“ cs ousnowooe saou sewusuaovue
soosfiv wocetnmc« Loans: one ucoowou< .Nq
oe.mon._ “n.5e o_.mo~.s Anm.n0a.sv o~.o~o.n om.o~m.~ as.m~q.~ an.aNs.m ea.~m~.~ mo.q~a fissuom.t assausa sacs-ac:
ob ccwusoaouu so umuuowmoy manyeuwiloC
musessnsw sufleu; use usoowuu< .fiq
0N.m00.on~ m 0~.~n~.00~ m ~¢.o~0.00~ » m¢.~0~.0o~ m No.0no.n~o » e0.~n0.n~n m H0.0q¢.~o_ » 0n.nnn.o- » an.0_¢.qo~ » mn.an.4d~ m Avofisos seem u>wu
e so>o a~so>o ooueuofifie mdwuesuunsev
35:33.50 sensuous." on: news» 335 .oe
”mosatos oususm ou ounbu
cowuwmwsvue no sowusos e souuoII>H snouu
o0.m~n.0-.~mA00.¢0~.ommvm 00.00m.0em.fimaoe.m00.00~.NVmfimn.ooa.nn0.n0» mn.no¢.4¢¢ “Amo.mnfl.nfinvmawn.onn.omevmah~.-a.wuevmn00.e~n.-v » «usuauasnoe HH anotu Aeuoh
mn.ssn.o~s«w Awa.o~oqmo~q zn.q~m«ume«w “on.moa.o¢s.~q Aso.sos.ono.nq as.oe4.4an Amo._004mwmq.Ana.mnm.4a¢w A-.onoqm~aq. o~.osn.on .xuosm .sw
A~n.m00.n~0 mA~0.5h0.0mV m 0—.04n.o0 » 0~.n~n.~m mA00.e~a.-0 » 0~.o~o.0n » 00.0N0.~q a n~.nqm.n~ ”A00.oon.~ov oA0~.n0m.me0 m noson .ON
Homou ponwuuose cu
Ecru wsssssuou ancu .mosfie> .u.H.<.z cu
. nosuuusuou uo usulumanoe ouso>u¢IIH~ aneuu
~0.~nn.n m mn.nm0.~n mayo.qs0.n~0 oasn.q0m.c~0 mao¢.~0o.uev » 0¢.Qo~.de «Aw~.~aw.~0 »A~<.nn~.o~avo nc.n-.n~ «A00.~00.~n0 w eusufluusaoe u noosu ~e.o#
0~.00«4H~ I I I I I I I I I oasesoxo sagesom .0
A00.000.o~0 00.000.0N I I I I I I I I omne>wouuu efiamn .h
Roe.an~.e0 co.na~.- Ao~.ona.m0 Aon.aa~.~0 ma.on~.~ na.u_¢.n “om.non.nv a~.q-.a Anz.~ss.~v aao.anm.mv soc->u. :0 uses .Insauss auceuaacs .o
«0.ono.m Aon.4nn.nv Awm.ono.o~0 A~o.~ow.n~0 A0¢.-0.-0 ”n.0on.0fi n~.~4o.~ Anq.q0n.o¢~v ~4.nn~.n~ An0.n~o.0nv mouseyen u«nuo .uusow< .a
Ao0.mno.~0 m 00.n«n.c w mm.~n~.n m am.0~0.n~ 0A~0.0-.n~0 » on.00~.mH ma_m.o~0.~v » on.~00.o~ » nm.~mn » a«.¢-.0 m scan-l oousfiua .huosowueun .eu«_nssm .0
uA> nacho ow use guano
muse-e posse senu sonuov ausuIUueue on»
so eaoeee vauuuaoeIsos oueHmIIH ssoso
~00~ ~00— 0— 0n0~ 0n0~ ~n0~ 000“ mama ¢n0~ nn0H
~<HHH ausvosom :eouufiusuum usaussouod vauuouu< N-esosoo: so“: Escusou eusuIUueum weausesfiu mmw_mmmfl NH

 

 

Cup—"Bu

mau< mm..z=soeum

v0 «Iuwa
u asemmmo ouseususw ovum

E

Exhibit III

Life Insurance Com an

194

 

 

'I' E

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

mw.o.I.sOn. m . . . . . scwaumw>cs mum mussel sass sauce mm.m~e.ooe.uozm . . . . . . . mousse «am as oeum~>cz _suo~
as. use. mmm. m m . . . . . . msomme usuusEoe-sos HM an.n4o.mmm.m m . . . . . muomme uooufinueIcos MM umumo>ss “moon
mucssses uosueuos Mm usmssmo>s« Heuoh ~0.qfim~mmo«a 00.0mmqnw uueou soauwnflsvue musesnmsa Lu~euz use usouwuo<
0H.moe.m~ esowmesalou oozesamss someoz use acouaoo<
~0.4-.msn.qm acownmdhCOo busesaasw owud seoz umswu
. “muowsus ossusw cu unuseuoo momou
00.noo_n~o_m~ o>one wagons» o>soeos ~ewu~ sm uousqusu soeuuoa nusuoo on.¢~0.mos MNdmdemmmll ousoaxo scuueauossou o» umwsecu souuuoa o>wue~sfiso
oo.m~n.0o~.0H m . . . . . . wusssteu upsweuus ~eu0H no.0-.-m.~m smog
00._m~.~0~.q~ excess-o uasaeuos uouuwuueussa "oceanhue use eofiwooaosae .usulnwsco .otsuassom
oo.~0n.oc0.o » 00.nm0.-~_~ ousOwuuonse you 0¢.000.eo~ -.nnn.n~ ouse>ue as use0 ulna-ass nosessnsm
uCC uBOV«.)..~fl k¢0~95z0w~03 LON Swlfi90hm m~.O.—Q.nm hUHUII Ubudwha US. uflwmahfla .COCOquuUI
oo.on0.n assasssu um.nuo.mn m be:
use assuususw we suesosan new easeluwfiloo mddeMJMIIII «usaouue o~ofiuooudooss sow sowea>oun ausuoa
00.0n~.nmo.m o>uoeou coupesge> endowssuoe mucueusex 0m.n0~.00 m fleuOh
00.noq.mo m obsess-ca sacsm sow ~>seeus Aosuwswusou ”neusenen ownuu .musaw<
"noeoauao Headwas sou uouemsQOLsoe «nausea neuouee usossou
howswsseu uuczeumz .euwee< uouusflu< u< hufiaeao .c: on nous) euuee< wswuesuao
qz.~mo.mmz.amsm . . . . . scuausu>ca.wuuww «egos es.~mo.~ns.~ns» . . . . . .sosue assesses :4 wozmo>cs _.sos
am.mso.mso«mz mn.eaq.som«m. am.wNQImwaqmes .zo... assuaeots
Ionss>os mo “ecu uuuwus9a<
no.som.omn.~ns» naysa- masonsota

Iuscu>os 00 soaueo~e> .U.H.<.z
“mousse mo
co~0e20e> .U.H.<.z CH “swansosfi ueuwgeoss: bonus:

~¢.~cm.oom.n~ m mousse we segue:_e> ~.u.~.<.zv esosofieuwzloo
museusesw uo sawue«00eu< ~esowuez so uueen ~eu0h
mm.0¢~_oem_- esowuequOLQQe

use eouasaaneu_ so>o uuueee uuuuwaue
mo soaueo~e> .U.H.<.zIIus~suau mucusueuu uuswuuwesa

 

 

 

 

 

 

 

 

 
 

 

 

I a a 4
00 Non 000 a m sonoauaa Hessooafinm.ueuumuwuwwumwe_“Mmmmwm mm oundenfl m~.n~¢qo~ omsosxu sowueeuosnou cu uuwsezo sosusos w>noe~zasu
so.aso.zh_ a z.co
. . .ununusm ~ewoA "usuluwsuo wswunooosa eueu oases oo~m
n~.o~o nmm mqam . . . . . . . . «wussfisnesfi ~euoh . 00.¢mm.000.n mmammm1MMMIl unsound scaueauossou ou uuwsesu sawusoo o>ace03830
00.nmm._mm_s moss cs ~_ne>-s oo.emn.on~.em umno
auscufl>wu souaonhufi_on uuso«usonne sou somew90sm “oouuuo use:
an.n—L.oo~.~ 00Hm~0.0q¢ ukusflapesa usossau sosuo e0.-o.ome.e «Mdeddmmm1fl o~ne>wouos oases“ usulueo>sq ooasuo<
om mmn nN— OUCI>VI Cw Ugwwufih 33w.0: N§.NmM.QN IO~AI>NOU¢¢
m~.000.e—~ nous-den saunas .uusow< 0h.mso.~0n.~m smev
0m.000.men nonsense uussoue use «fines-s eussoou< “auomne usounuu
m0.00m.om0 m elue~o suesusou use huufiom "unoccueeullou eusessesu no souueuuoeu< .eso«uez an unassumsts
“messaaabesfi usussso sasueade> on“ ceae «a sous: .ae0u ueII¢ueuwe asssezeso
. . “onuHHwneaq wswuesooo nm.0~0.00~.0¢~m . . . . euosue uflmmeOsmrosso>os flfl uounu>sw ~eooh
Ln Ono nmo ocum . uu>suuou accesses“ Mucuaueue ~euoa n0.40n.00n.~m~» ususmeasaBou
00.n0o_m00_m ausom< use noomo_aam new euaueson sosuo use “colossus“ sou obscene . ousessesw «o seque_20em<
"n.~qn.~n0.nn~» . . . uo>soeos sou~ozhuadom [sowsueue meuOH Hesosuez hp uonwsomosa codename: ~eu09
mmdmmmdmmmeall. musau uauoaou fissiosm I AMMJNmM1flMMIIII noses ewsenosu smwouOm sow scueumsau<
mm.mme.oqa.m guess-sausage ucous>sv .utouso;»Ussos os.oon.aoo.~ oa.oOn.zoo.~ «seas Fesos-_oo
oo.q~s.mm~.q IIIIII1IIIIIII .uu.szcou _.scu-u_aa=. co .>so.q- no.5no.aso.ez no.5no.nzo.es .coos ass_na
0m.~nm.m0~.mmgm 50.400 nwn «0000000 assessesw Lad-a: use useuwuue so 00.n0~.0~0.~ oo.m0~.0~m.~ usoguo Ou ouneo~ usulhfisvm
~n.u00.000.-~o nn.~o¢.o~o.m~ nm.~o¢.o~0.n~ euosuo cu uoeeu. uueune ~ee¢
mmqmmmqwmmqmlu senses»; no.5na.oon.nm no.5na.osn.nm .u.u.o .eot no seno— om-wuso:
ueuuo_~ouss use uouuoueu so o>uoeos uuauoo 00.~00.onh.o on.n~0.n~o.- exacem
oo.oen.som.n~s» u~>sa..t _.at.azu. "egos m~.oo~.oso.na » on.~oa.mnn.na » .econ
neuoesusou use «afloauos own” so ueoo uoeuuumud deb U.H.<
new>seeos moamos uuewoswu< neuoeue usuusuo»aI Ioase>om
"ensue-e. e4 u~on elousH usulueo>s~ use eloasusm mo sauuuou .eo>uoeeu accessesn no eusolueo>su ~enea e< uouuqlu< ouoeee
Hummmmmwmw mmummwmmmwmdmm mmmmmd
III mmmw .«m mumuumum
SH 23:3 :3 a a gel-am. 5:. Human I momma” Island flamed

 

m nsemmmu ens-uses” ouqd

195
COMPANY F

History
Highlights
Company F provides a detailed analysis of one of the forty largest
life insurance companies in the United States, as ranked in terms of
admitted assets.1 Interestingly, no additional adjustments of significance
are required over those encountered in one or more of the smaller companies.2
Company F was formed in 1926. Nearly two-thirds of its stock is now

owned by the company with which it shares home office and other facilities.

Growth is summarized by ten-year intervals in the following tabulation:

 

 

 

 

Life Premiums Total
Insurance Written Insurance Total
Year In Force During Year Reserves Assets3
1932 $ 39,300,000 $ 800,000 $ 700,000 $ 1,000,000
1942 241,000,000 6,500,000 20,800,000 23,900,000
1952 957,000,000 43,200,000 146,200,000 177,600,000
1962 2,923,300,000 61,200,000 335,500,000 410,000,000

Underwriting and reserves

Company F writes the usual types of life insurance. Over 40 per cent
of the life insurance in force is group insurance. As can be seen in
Exhibit I, accident and health insurance dropped from nearly a third of
premium revenue in 1953 to approximately 3 per cent in 1956, then increased
to almost 10 per cent in 1962. Since June 1, 1955, all new accident and

health issues have been reinsured.

 

1In 1962 the company was the sixteenth largest stock life insurance
company in terms of admitted assets. It should be remembered, however, that
the ranking would be different in terms of premiums written or insurance in
force. Companies with sizeable portions of health and accident and term
insurance would rank higher under these criteria.

2 .
The one new adjustment (number 14) reflects an item of accounting
procedure and is not a major item or new concept.

3At N.A.I.C. valuations but including non-admitted assets through
1952. The 1962 figure is the total invested assets as shown in Exhibit III.

196

Reserves are computed almost entirely on the net level premium plan,
with interest mainly at 2 1/2% and 3%. This means that a higher portion
of premiums are transferred to reserves and thus not considered current
revenue during the first years of a policy than in the firms studied so
far. This, in turn, means that the possibility of over-adjustment in the
deferral of first-year life insurance commissions is, therefore, remote,
except as affected by the large portion of group business. There are not
enough data in the Convention Blank to permit evaluation of the effect of
a large portion of group business on the validity of the adjustment for
first-year life insurance commissions. It should be remembered, however,
that the five-year period being used is a shorter period than would be

indicated for individual life insurance alone.

Adjustments not Previouslijiscussed
Adjustment 14 is the only one which has not already been necessary,
and therefore been discussed, in connection with the analysis of one of
the first five companies studied. This adjustment reinstates premiums in
the course of collection to the balance sheet. It is a valid asset from
the double entry accountability point of view even though it is not admissible

as a legal investment of insurance reserves.

The Financial Statements
There are only a few factors pertaining to the financial statements
which have not been previously discussed in connection with the analysis
of one of the first five companies studied. By and large, the items which
were significant in the smaller companies are significant for Company F,

and no new major factors were uncovered in the analysis of this large firm.

197
Earnings Statements
Since Company F has invested over $30 million in corporate stocks,

the unrealized capital gains1

and the transfers to the Mandatory Securities
Valuation Reserve2 should be carefully noted before an over-all evaluation
of the statements is made.

The "Reserve Strengthening" item included in the disposition of
income section of Exhibit I reflects an extra transfer to reserves.
Strengthening usually involves changing the reserve calculation to a lower
assumed rate of interest or changing from a modified preliminary term
reserve method to the net level premium method or a method closer to net
level. Life insurance companies were permitted to elect the level,premium
method for Federal income tax by the 1959 Revenue Act whether or not they
use it for other purposes. Some companies chose to change to net level for
all purposes, however.

The 1961 examination report on Company F points out that except for
a small number of policies on a miscellaneous premium paying or benefit
basis, the policies which were issued prior to 1959 and were previously
valued on a modified basis were revalued on the net level basis at
December 31, 1959. Policies issued in 1959 were valued on the net level
basis. Policies issued in 1960 and subsequent years have been valued on

a modified or net level basis consistent with the valuations previous to

December 31, 1959.

 

1Shown as "Change in value of assets owned at end of year" in
Exhibit II and reversed in Adjustment 21 (Exhibit II(A)).

2The primary item included in "Transfers to Appropriated Surplus"
in Exhibit I.

198

The 1959 charge to surplus for the revaluation, or strengthening,
again raises the question of the desirability of the current Operating
concept for life insurance companies. Since the earnings of life insurance
companies do not fit into an annual cycle, it seems appropriate to regard
earnings as the measured flow of net revenue into retained earnings during
each annual period rather than as a precise measure of Specific activity.

It seems, therefore, that the charge for reserve strengthening should
be made in the earnings statements rather than direct to surplus. This is
particularly true when the "strengthened reserves" result in materially
lower transfers to reserves in future years. Where the charge to earnings
is so large as to result in a material distortion of earnings in one year,
an allocation over several years similar to the way the past services
portion of pension plans is handled in Adjustment 63 might be appropriate.

No adjustment is made for the reserve strengthening charge to surplus'
in this study because sufficient data are not available in the Convention
Blank for accurate allocation. The reason for the strengthening varies so
much from company to company that no realistic arbitrary adjustment, such
as is made for goodwill and past service portion of pension plans, is
feasible. In practice, ample data should be available from the actuarial
computations already made.

In many firms the "strengthening" item is relatively immaterial,
but such is not the case for Company F. One of the items which is tested
in the next chapter is the materiality of this item in the largest national

companies.

Balance sheet
One item in the balance sheet requires an explanatory comment. The

$800,000 shown as the cost of electronic data processing equipment is an

199

arbitrary amount. The net book value is accurate, but an arbitrary
division of cost and accumulated depreciation had to be made between the

electronic data processing equipment account and the furniture and equip-

ment account.

I
1

an

Life Insurance Co

200

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

o..omo.a~e.sm» an.o~e.qm~.nea o~.~oa.ooa.oea o~.ono.esn.on. on.~so.o¢o.oe¢ n~.oes.s~o.n.¢ oe.nno.oen.oea o¢.ooo.o_~.emo ~a.n~s.nso.oma as.ono.0au.onn oceans-u
uosueuom ueuuauueossm usausu
.n.m~e«¢n~4~e o~.~ma.oaa«mm a~.ano.ezn.on on.a~a.aee.oe w~.eea.a~o.mu oe.nno.o¢n.o¢ a..oom4ws~.¢n ~a.naa.nao40n nz.ono_oso.e~ o~.ass.nea.n~ .easas-u
uosueueu uouu«uueuus0 nswsswwon
no.a~o.~sa.o » n~.oso.aoe.~ » oo.n¢a.~ae.e ”Aoo.~h~.nnn.oae as.noa.o~o.s » ne.~an.ooo.e . ze.ono.z~a.o . -.n-.nom.n . an.anm.oao.~ . oo.ess.amn.n » .uauatuw
uosaeuOH uouuwuueosss Auo
aosuuanosv mm coausue. mum
ma.ns_.qMa » mm.~se.~no.q a 50.nma.eno.~ » oe.ona.ooo.~sa no.0os..e~.n . no.¢~a.eo~ .Aoo.ooo.hnv . na.a~o.oes.~ . n~.oao.aoo.n .AsH.oae.neev . sauce
oo.ooo«oOn oo.ooo.oon oo.oom«mOn oo.ooo.o0n oo.oooqaon oo.ooo.oon oo.ooo.ooa oo.ooo.oon oo.ooo.oon oo.ooo.oOn .soosonuuou. 0“ .ououa>as
oo.o~e.~sn oo.o¢n.mo oo.oee.zo oo.an_.ooo.as no._oo.oao.~ I - - - - uaaaoesmcusu. .>t...m
Aw~.o_n.5500 » nu.N~z.co~.e » no.oOn.nne.s » oe.oaa.nnn » oo.ono.oaa .Ann.os~.so~0 .Aao.cao.hnnv . na.s«n.oeo.s » n~.oao.hon.~ sass.ose.nqoc » .nsata. sou-ssaoses. 0» .uoe.c.ts
”manna“ uo accuuweonean
am.naa.sa~.o » oo.aos.oon.a » as.»nm.oon.o » an.eeo.~an.~ . oh.non..so.c . on.~¢o.aee.e . se.ees.aoo.o . o¢.¢¢o.one.n . ~n.hea.ooa.n . mmmsn~.oee.e » A..osv usages mum
an.ooe.mos.s oq.m0m.ao~.~ -.o<¢.onn.fi. «a.sao.o~a.s no.o~¢.non._. ~n.a~o.~uo = mn.nea.~no oe.maoI~on an.no~.anq n~.snsI¢He aux-u «Icons zeronos
es.n-.ooo.a » oe.oso.asn.n » an..en.ano.a » oo.ona.son.e . on.noe.non.o . ~o.o~c.~an.n . oa.so~.oos.o » oo.aza.~no.o » s..sno.ass.n . so.aan.~on.n » nus Iaoumwu
encuon Aeeouv mucosa uaz
en.mmm.ca ~a.m~a«ma no.os~.mo Aon.ohe.n~nu . so.nem.um 4e.fl~w.o~ me.no~.on os.om<.~_s oo.<x~.ons mm.aos.o~ .o..oa no. ens-o qusauo
No.on~.un— I I I I I I I I I eeesoaxu .eseor Lassa mo usoEuesfiu<
mn.mo~.nna.o » en.aee.oee.e » oo.eaa.~aa.a » on.nm~.noa.e » mm.mum.ee~.o » on.mea.a¢a.n . no.neo.nno.o » o~.zo~.nsa.n . na.oan.one.n . sa.¢c~.~e~.n . usages access.ca ”oz
eo.en~.oa~.os» as.ass.ooa.s~» sn.enn.anm.oz» oo.aoe.noo.os. no.no~._ns.oa. mo.ooa.nne.ns. on.~aa.oo~.~a. oa.«no.ann.ns» o~.a-.meo.nsa ao.¢na.eeo.es» sagas

~m.¢¢0 nan ~

0~.~00 0N0 H

.Qn.n-_~0n_~ o~.~on_q~d_~ nu.¢n~ NQN_~

J

ne.~nu nno H

Hm.~n~ £00

00.000 com A

Hm.on~ nON H

on.n~¢_o- u Axe» albusw

sesu senuov even use eeeseuufi .eoer

 

 

 

 

 

on.soa.nao.~ no.nno.~oo.s oo.-~.oao.~ ~_.o~e.ooo.s no.0en..sa.a ne.¢ao.ann.a no.-a.asn.s os.n~a.n-.s ma.oee.ann.a oo.aao.ann.a ..cosxo

I eueueu gees use usuluee>su Heuosoo
«a.oo..an~.h no.4nn.ans.a nn.~nn.sos.o on.esn.noo.n nu..sn.ann.n an.ean.oao.n .e.osn.eea.e no.noa.ooa.e oo.o~e.o~n.n no.-a.seo.e .aacsuo eon-tauaa Heuocoo
~4.sos.sne.a . ~o.aon.eo~.a . ~«.noo.aoa.h . ~s._.n.on«.a . a~.n~..ann.a . ee.oo~.ann.o . ~a.~ee.ea~.n » an.nmm.on~.o . No.noo.oas.a . so.aoe.ao~.a o .eoa..sn-oo

“ensues" u>uueuueaswlu<
use “colony’sa .soauwesauu<

~n.nem.moo.o~» ma.aoo.oae.o~. an.o~n.oon.¢~» c~.nna.oa..o~. so.~ao.aon.-o no.mos.nan. a. sn.omo.onm. a» an.eos.nae.aa. so. so.non.o«. ee.eon.o~a.aso .uouaa gamma
au.n-.sMs.~m o~.noa.o~o.on oo.~eo.o~o.e~ oo.m-.oms.m~ ~o.o~o.o¢w.em he.naa ans aw oo.~os one as «4.0ma.s~a.am am.one sou o~ on.snn.nm~.ea .uuetuaoo an .uuu-ses as. .sasocun
as.osn.o<s.oo» na.nsn.oon.on. os.o~n.ann.~na on.ona.o~s.oe. no.en~.oeo.oea on.-~.qms.oe» sn.o-.ooa.nn» ~o.zoa.so~.an. on.eao.¢oa.oea «o.soo.a.~.en. «season .aoum

 

 

 

 

. e. 41 . al Is Idlllluulldl . Ill..I-IJ|1I . eI «1' I d «J . u all IIIIIIJIIJIII 5]].
as ans ~me o~» on men men as» «a ego on“ as» as ~0~.o¢a.sm. we “on uflo as» so one as“ ea. no «as «an as» so «as «an as. me soc so“ as» an «am soo “Has-cu .aeu «anus-u so: cosusos “use“
o~.a~sqnn oo.smm.ea oo.oon an.~ao s~.nmo«mI an.aon oh.qen so.ooo on.omn o~.oo~ evaoussao
ee 3032.333 3 uosusuum
Aoo.mae.moc az.~ne.o~s oo.aon.ann “Na.ene.anc Ano.ooe.os~v no.5so.na co..na.oos on.one.oo~ oe.enn.oan «o.sn~.~sa .uss-uus u.uuoasoucn
use uouuemeu s" oeeouusw
so eeesosue sou useluesaud
ee.aoe.man.o~» mo.ono.~oa.as» o..sos.aoo.aa. he.ene.nnm.t~» mo.oen.oq~.asa ag.naa.moz.oa» om.aao.~na.oa. on.nnn.n~a.aa. en.o~a..ea.o~. nn.a¢o.aea.na. .opuo..u Heu.s as ....»usn

 

IIJIIIJIIIJII IIJIIIdIII1II IIJIIIJllldll . q q . I4 a
no 0mm NNO 00» 00 “no 045 ms» Qn 0n§ ~00 as. N‘ QQN Qua no» GO 000 005 no»

 

0m.onn.¢w
o~.nnn.0mu.m~

n0.om<.¢00.~
¢~.oo~.uso.m
05.noo.n0~.nnu

mama
m I342. a

«0.0004AN
Hu.n40.ohn.o~

05.500.0sn.~
«n.0n0.u-.o
~0.00~.oon.~no

~00“

nee>heeou uuuuoshowuoa ee euaee uom
"sawuuoa es» uoauea

 

nOu0~n.0

. J a [11' I|.||l4lllql Ill.ll1llel lull-IIJIII

as one so» on» «e nna sue an. on nae can as. so see no» an» an n~e ass en. aeuoa
om.nno.n so.ooa.~ as.~so.s oo.oes.o no.sae.n«~ o¢.ooo.o I gag...“ eaau.uoao tango

c~.~o~.ano.na no.nao.non.na os.sea.oen.~a ma.ons.n~o.~s ez.s~o.ooo.a so.oos.ens.o nu.0an.~aa.e oa.e~n.oea.a ease-a.o>cs
so euseuapwu use uses .ueeseusn

e~.aa~.ne~.s na.ooe.oo~.a on.see.nna.a a~.oao.so~._ so.ano.noo.s oa.coo.oaa.a nu.eao.n~a oo.a«e.noo.a .uueuuaou
reused—nae you sensuous-sou

oo.oaq.nos.o oo.noh.o~n.a he.~en.enn.o ne.neo.ooo.e no.ee~.aon.a no.nae.~¢e.o ne.~sn.noh.ca an.ooe.eno.na nus-ea use uuoeauue

no.nna.~os.aee so.nna.oon.ne. no.nne.n~o.n¢» «n.0no.aue.sea so.~en.~ea.on. en.new.o~n.sn. ea..-.oea.¢n. es.ooe.~nh.on. .«aa
”esouueueuaesou huuslle use ellelohu

"god

000— 0n0~ on0u

5n A

0
zeo~mmusuu~ umuusaouot mwuueuud

lug
usuuwueum mmmmmmum epm
GUCCI—3

s umuuumm

  

 

«may

nnoa

 

 

‘2'.

I
ll

 

Life Insurance Company

1
0
2

Exhibit

 

ma.-s.ooa

 

 

m mo.n¢m.~mw m an.

 

I. ,II I . i i ll
0 nm.omn.mmm m nu.0mq.~me m 00.0Hm.0mn w 00.0fim.o0g w usoaoueum mwsassem
uouu>em one son «Sousa “oz use
usean sowuso>sou wnu sea msosuesoso
Bash sweo uez soozuon ausoswwwso

m»~0.mnm.om0v manq.00n.0mV m 00.0nM.o0o

 

 
 

«mm.~o~

 

 

 

 

 

 

 

 

 

an.n¢n.00~.m m 00.00~.00n.n o 50.0m0.000.o m mm.qmo.~nn.~ » 0».nom.m~0.c » 0m.~¢0.000.q » ~4.md~.a00.o m 0¢.q40.0mq.n w Nw.n¢n.oom.n » on.0mm.000.o ousuleueue ausssseu ummw>os

 

 

sum Aeeo~0 manosfl uoz

 

on.m~o.q¢n.n mano.0¢~.umo.«vmano.0m0.00nv waon.oao.n00.vafimo.n00.~mg.qvm 00.0nH.~nm.~ » 00.0mn.nnm.fl «AHO.¢Hn.n~0v »A4¢.¢o~.o0n.uvo n0.n0m.0~n o «useiuesnue Hench

nu.0m0.-~

00.000.000

an.nna.~n0

oo.0~c.00¢

00.n0n.nn 00.

«H.000.00n mu.

Asa.¢a~.ane.nc Ame.

m n~.¢~o.00u 0 mm.

I I I I I I I I asean use sa usosse sosafi souss0u
use seam sososs ecu cu nonsense

use enema” sweusuu somuseshIIHD sacso
ane.0mH 0~.o-.¢~ <0.~Hn.m0 o~.~q~.0n nn.n00.0m Aoq.nmm.~fiv Aom.0m~.n~v nHo.o~a.000 uuou usuesuessou ue assume uoxww flse
hhseu use euseleueuu use so aueume

uouam uouuwaueIsos uueHAIID asoso

goo.oma Asm.oa~.anev Ace.no~.eo0 oo.nns.ono o~.oom.~oo «m.o~e.eon am.mss.ooo en.se~.oo~ neossoa otauns as assoc nouns-savo-
uo sesusos e seuoaII>H noose
ono.onov Anm.non.~an.sv Ana.oen.nos.ev no.q~h.ano oo.onn.o~o.s “so.oss.oo~.s0 Asm.so¢.nhs.~v sm.~m~.n~m u-oo noususos. as easy wcsapauus

essu .eos~e> .o.H.<.z cu weauwssoon
, mo usuauesnue oesu>emIIHH ssoso
«00.05 «A00.0~o.~0v mamm.NN¢.-v » no.¢nd.n~ “AHO.m00._HV » n~.0~e.no m 00.nam.0 » «n.00e.o » Ab noesu cs use sows: uuoeme
ueuww sesu sosuov ausoseueuu use
so eueeee uouuaaueIsos woesmIIH ssoso
Augseuou
sew a<0HH «Hauosom oouv nusoauusfiuc

 

 

 

 

 

us.mss.~mo.n » sa.onn.~ma.s_» Na.sso.nos.h » oo.oon.ase.e » ce.emc.o¢o.a . No.nom.osn.n » me.ase.oo~.e » an.onn.non.s » s~.~ns.ons.o » na.oss.oom.< » unease mm Icesusummmam

flfl ueeue~o mass“ «semen
asean sewuso>soo new sex

 

 

 

 

 

 

 

 

 

 

 

 

Ano.00n.0mn.~vm m~.n0n.¢0n.n » 0n.n~o.0nn » mn.o¢n.0H0 a no.nu~.~00.e «Au¢.0on.nsov «Amn.¢00.~N0.~0» 00.n00.nnn.u » o~.n~n.oen.~ ua00.meN.n~mv » ~euos
Ano.e-qmm~MIl 0n.o-ao Ano.ono4MMI Ao~.omn.n~0 oe.0enqn 0n.n~H«o Awn.0oc«n0 Ano.oosuI Ao0.n-40v A~n.-0.n0 eleuu wswosefien use usesuuossou
Aso.oo~.nw~0 Anu.~¢0.050 nmc.onw.oo~0 n~.ona.0n Ado.ooo.—-0 Ano.N-.n~v Aoo.omn.0oHv Ae~.n0~.euv -.ooo.~ 0N.nno.~ «sous uouesus use
ueuuaflueIsos no os~e> s“ uwsegu
“on.-s.sm~.sv om.mes.omn.n mo.aem.onn on.a¢a.o~e.s no.55n.ee_.¢ Aon.ees.aeo0 Auo.~ns.nsmc he.ans.~e~.s sh.nss.aea.~ Aoa.ono.o~n0 seas «0 on. so
uusbo euoeee mo as~e> sw owsesu
en.0nm.¢0 m ~0.m-.on m m0.0-.mo «Aom.0ne.nmm0 » ~0.ns~.nn » ao.—-.0N » n0.no~.on » o~.om4.~HH » oo.¢mu.0n~ m I m use. ausussauou
so sumac“ use assem seneseu
"ussouoe
«sanssm one o» uueusu uosouso nIuIH
s¢.o~o.omm.. » ne.noa.ase.o » nn.eno.esn.o » as.ooo.ann.n » -.nne.ano.c » on.-o.eas.e » so.-e.e-.n » no.nnn.o~o.n a o~.a-.o~e.e » ~s.o~o.aao.e » Inns-so ecsucvsuou
use HMN «seguesomo
scan “seedy sued mum
00.-~.0mo.0~» on.m¢0.~oo.o~o ¢N.e~o.n00.n~» -.m~s.-a.-» 00.nnn.~ee.h—» nn.one.00~.n~m ne.ono.0~n.n~u no.0no.0d¢.¢—n no.00n.~no.o~» ou.n¢4.en~.n~m xsefin
sasuso>soo use has nauseous "egos
-.mo~40 0n.0-qo A<0.50H.0~0 Ao~.onn_m~u I I Aun.~0n4n0 Amu.a-u Awu.nudq-0 Am0.~n0_n~u asfiem Heusseu
cu segueoauaeeefiuos msssssaes sauna
oe.e~n.sas.n oo.o~s.qao.~ oe.mnn.-~.~ oo.enn.en~.n ne.nns.ne~.s mm.emh.nna.s oo.¢am.oso.s o~.oos.oeo.s oc.oem.ono.a mo.nnn.onn.s Ax.“ «nouns
wswusfluswv eoeu use eunseuw~ .uoxeh
on.~oo.n~o.~ no.nno.~00.fl 00.N-.ono.~ -.o~e.ooo.~ on.eon.soo.u n~.0ou.nnn.n n0.e40.nun.~ oo.n-.nu~.~ mo.o¢¢.0nn.~ 00.n00.0mn.~ oesosue
eueuee ~eou use usesuuo>sw gesoseo
«n.enq.nmu.n ne.uoo.nn~.n -.nne.oo~.o ~n.c~o.~o¢.n 0~.0oh.~nn.n 0~.n00.~00.n 0~.-o.ne—.< hn.e~o.000.e -.0MH.~on.n no.¢on.eoa.e eesesxu assessesw ~euosoo
00.nn~.000.0 » 05.n00.000.n o on.v~o.onn.s » oo.o~e.¢an.o o On.0ne.0ne.s n co.~00.nao.n » ~0.ooa.emo.o » 0~.¢¢0.noo.o n o<.noo.00s.n a ~n.no~.¢0n.h » usage-«luau

nonsense opmuesuessaflue
use uselunopsa .so«uuu«sco<

 

~n.nen.aoo.o~» na.eoo.oae.o~» aa.eus.mom.e~» e~.nna.oaa.o~. so.-o.mon.-» no.oo_.nsn.oa» an.eno.ono.ea» on.eos.nae.os» so.oso.non.o~» ee.een.o~o.oso “cocoons. .ucacuno voassos has

~oaw
mm.mmnsemm

~o0~

"esouss eeoso
seasons; asenn scuuso>s0n

 

 

 

 

DI

OOQ~ mafia mama mama chm“ nn0~ on nn0~
e: souusepsoo .01..“ Man 3:33 esnmusm fled. 8033a .ulo. ear—lam so“:

euseIOueum e s chem use >01 0 gmuaauusooefl
M Hmummmm ooseusesw swag.

 

 

 

 

 

 

 

 

 

 

 

 

 

00.000.00‘ » I

o In I
Schedule II(A)

» I a . I

.I .I.-.-

 

an.nNs.eonu~»Ano.oe~.~ee.evoano.sho.canvass».wso.nsmqmmaaee.nee.s~s.eoe e4..ns.~an.s. oo.ons.ana.saas..ean.nsoe .AeeIeen.oea.sc. no.non..~n .

ensues so nun-euqanee sse so “some” s.uos

 

 

seas
scaesos uo sosusos eoua>see seem .mo
"As-Hm eta sw esosse noses
uuekhoo use see» seeoss one cu noesusse
use eeeeo~ saeusou soueseuHIIH> sacso

. I o I »

 

 

sn.0n0.un~ » 00.n0n.un

neurence

use

» co.e~e.ons . o~.csa.es

 

u c0.-n.n0 . 05.nea.oa o nn.n.0.0n

 

 

 

 

on.00n.000

» N~.o00.o0h

» 0—.¢00.0n~ caun.o~N.nnev voo.nuflI.00

 

0n.qu Aon.~0¢MII
Acn.w~n.o—v

Nh.nno.ncn

202

Awn.n~n.onv

» 00.n00.4n0

A0“.¢N~0

“on..ns.muo

o ne.n¢d.~n~ .Ao~.ooo.o.nv oAu¢.¢¢s.nnv

Ah..000<~0

AoN.Qd~.hcv

Am0.0nh.n¢v 0-.-«.0nn

.Ase.nen.~sv

 

Q 00.nn~.0no o 0N.000.~00 a ~n.0~n.4on
~0.mflm cu.ose.~ fian.10c_nmu Aoo.0hsd000

Aue.eno.aes0 Aan.a~a.hoev

0 nu.o¢n..0~ . hi.0nn.0oo o an.nmn.unn

uselhasvo use ensuasssu «o os~e>
1003 ads su ensesu saw asuso euso>om .nn
”secs ueuesuossou ue eaeuee
uoewu Hue hhheo use eusoIUueue ecu so
euoeee unsau ueuuslueIsos oueHAII> sacso

“Ron.ene.n~0 aaso.ose.ose .

 

 

euseluesnue DH nacho "each
ans loam ee sessefl
ele- ss uousououv useOu counsesouue
unossu assess-aw nu~ees use useuauu<
Aeaseeos lawless uosseos:
o» scuusososs s“ unuseueuv esoaeewal09
«usessoss nudes; use useuHuo< .~e

Auo«ses yeah e>uu

e ue>o m~se>e usueuo-e zswuesuwnsev
33.3.00 accesses“ 00: see» “asap .0:

"guesses esauaw cu ounce

sasuueqsvue mo scuusoa e ueueaII>H nacho

. QM.~¢N.00N o

n0q.~o¢_o~u

a 00.0“”.000
“mo.~en.owu
.Nq

Aoo.oon.nno Ano.eue.ohs0

o on.-~.ono o 00.000.n0n »

 

nm.nn¢.~no ““00.¢n~.un<.nvoaw¢.ono.on000Ann.n0fi.uon.~whaos.aln.n0~.<vo no.c~n.nno a 00.0nm.o~0.~aaao.oh~.00~.~vuan0.~oo.nh~.~vo o0.«n~.n~n a

 

assessesfiue HH nsoso Keuoa

 

 

 

 

 

 

 

 

 

 

00.000100M44 Aoo.ennqeneqnq Aou.n~hqncoupfinn.ono_~se_~u Ao~.mns.moo.uu om.~mc_NMO no.0on.~e0 A00.0onqwnnqwu nom.mmc.mmu.~u mn.nn4.n~m execum .HN
Aun.n~n.nnnv unoo.oow.-v who~.o-.0~0 o ¢~.~n~.od “Awn.uoa.-v nann.-n.~¢v o o¢.enH.no » «0.00n.n » nn.~hh.0 “Aun.o~N0 » auson .o~
"ueOu usesuuole cu
loss wsssssues can» .eos~e> .o.H.<.z cu
eosuwusuee uo sosuea~e>os eese>edIIHH seaso
oo.oae.ooe » ma.e~o.oos . nn.~oo.e~ .Aoe.os..sov .Aon.«~e.asc . so.en..n~ oaso.nae.~s0 . as.o~e.no » oo.aan.e . ~n.ooe.o » .ucueu.aqo. H noose seuoa
w0.00~.0~ I I I I I I I . I I sasuuoflnou «o eeusou sq elosleus .e~
0~.~no.00n oe.ooo.00 oo.n¢4.00~ AsN.e¢o.nnv Ano.n0~.onv en.ooo.~n A00.~0e.~00 e¢.~¢n.o~ Acn.n~a.-0 Aoo.oh~.uv ensesose smwouon .0
Aoe.¢~s.n0 no.nqn.- Amm.no~.—v oo.o~. An0.s~nv an.os~.~ nn.~00.~ noo.no~.n0 ~0.n~0.~ an.n00.~ e~ne>seuos eflsun .h
I I I I I I I I A00.ooav I eoaowaos ~esunbsusu no «age» was
no eeeuse sa ..uue .eeuos easiest .n
Ann.oo—.-v Aon.0oo.n0 Asm.o~e.auv Aon.oon.emv uo.uon.o~ Ao~.N0~.0~v on.-o.oo ~5.¢.0.0n s0.nol.sn n0.~oo.n eeusenea usneu .euseu< .e
00.nmm.o I I I I I I I I . I ednueealuesa uOseuuesOu eseoa .n
I o I a I . a I o I o I a I o I a I o I » useuuumo so eusene on eeuse>u< .N
uA> asosu as use sows: eueeee
use: sen» seesaw eusuleueue en»
so eueeee uuuuulueIsos ooeamIIH asouu
~00~ ~00“ o¢0~ 0n0— on.“ ”no“ 0” «non «now nnou
as” 33.28 2.3358: Hun-:83: eouflo. oeI u Some... flan: 33.3 3. 83.2% "3833 Mm «1|... an
In

 

o e s u a .ma
assesses“ ea

E
I

an

Life Insurance Co

203

II

Exhibit

 

w~.msq~ono_somm

IIIIII1IIJII'

00. 00H 00¢ 0H

00.00H 000 mm

m

mm.mm~.o5n.n0 w

m~.nm~«05N«¢0

00.000.000.H

1'1

m

mN mom she mama

00.0ma_o00 mm

mo.sas.omn.eenw

 

 

 

mossssspmss mum
. muumme umsusaueIsmm MM uuwuflosxuoua
Mm mmmmmmmm sussw Mm ususumu>sa Anson
u>one Heusseu e>somus Hewuui s4 uuusauss scsssos Hugues
msuuflonxuOun >0 usesuau>ss ”moon
H usessxm susIIams«5seu uesseuos ueuussumosss

HCOEUGO>CH HMJOH

 

 

 

 

 

 

os.ono4ssq.sn
mo.aas.ono.~s w

0m.m0q mm uusosusosse
so» so: mucous>su .oseuaosmusaos s00 sesua>osm

5N.000.Huu uusessmsH ssoso
mouxofisfim uufiwwo eaomIIeusdu uuunusuuesusD

0m.00H.qoo o>uoeou ausuwssusou ssoso

e>souos seguesHe> newuwssuom zsoueusex
“neeosssn Hequose saw escapessaosss<
newswsueo unsweuux
Josue Heuuseu so 6:460um
sea on ue easese 000.00HIIxu0ue amasseu
"Joann Heuwseu saw sHIusss ussoa<
”usuuHosJUOum an usuflueo>
usuaueo>su HewuH Hench
euoeee 0swu3uous
Iosso>us mo ueOu usesusofl<
euueee msfiosuoss
Iossu>ou uo scauesHe> .0.H.<.z
"assume mo
causesHe> .0.H.<.z sa usoauuusw uousaeusss ousuea
eueeee usuufiSue mo seguesHe> .U.H.<.z so uoeen eHeuOH
Azosun assess
use eussouue uauwuosev eaHsuSm as assauefluaouss<
:mmsswau sussoeswssos= muuww sagas
usesuesuaousse use Josue Heusseu .eosuwasneaa
uo>o euueee ueuuwsue «o sasuesHe> .0.H.<.zIIesHsssm
sen 0H» ue assess 000.00HIIx00ue Heuuseu
"Heuwseo e>hoeo¢ Hem

«ususasness sauce

mo.soo.ssm.ss m

oo.ooo.o0n
oo.ooo.ooo.s »

 

 

00.000 00¢ ma 00.050 man 000

00.0H¢.¢no.00¢m

00.000.500.00 0
00.05H 000 NH

 

 

nn.000.5no.nn »

nn.000 500 um

oo.ooo.ooo.s »

 

 

e e e o e a . u e

 

50.

010 50010

0H.5~0.~0¢.mnnw

i

00 000 000
0H.0N©.N00.nnnw

00.000 H50 0

mm.ase.ooo.s
ne.mqo.nms
oo.mmn.mnm.e

. . .II1IIJ1IIJIII.
00 000 000.000» no 000 000 0

 

H uanunum

00.n5mqfl mo0H s« anemes eusoum>wu
seuHoszuwHos unscauuonse sou sawew>0sm

ne.me¢.5en.n «assassnesfi assueueso usosssu smashes sosuo

n5.mm0.qnm euuseHen usueuu .euse0<

suesusxe uoshuue use «Huezes eus3000<
unweHu uueuusou use xuwaom
easemes eouoz

oo.nne.em~.m
ma.o~o.n~m.n
oo.oon.-s »

%

0N.NHq 000 000m.
00.qu 00¢ 0H w.

 

 

I

uuuuu>ss Hooch
uuumu>sw HmuoH

euoeee HHe mfl

muumee uouuaflueIsos a

 

 

 

 

 

nn.0m5IMHoq0

mm.~on.smo

sa.Nma.qs~ w

sH
4

0N. 500 054 000a.

ss.onm.mms
Na.s~n.soe

ma
mo.n~m.sno.n

40.050.000.000».

"eowuwHwnewd masseueso usokuso

 

 

 

eu>hoeos ouseusesw NMMMMMMMN Hench
eseHm usuaousuox ouonslm mo sawes>ed sou e>hoe
eobuoeeu ueuH 00H HummmmuMN Heuoa
e0>uoeou souHosxusaos uosuo
eusSH uweoaeu asuflosm
essaueH3350ue sense use useuw>uu .eseuaosAuHHom
eeausuussusoa ouwa usosuws euuesusOu Heusuauassse so e>hoeem
eosusaos nudes: use usousuue so
uouueHHou easwaoss so e>ueeed
elsaluun ueuoeHHousn use uouuuwuu so e>heeeu susuoo
eo>heeou Hesuesuue Hench
"euueuusOu use eoausaos euaH so

 

 

so.mo~.m~o.o~m»
mmammmqmmmqflwu

oo.¢os.nos.snmw

 

on

5H.00N.H
50.0Nn.000.0~
00.5m0.00~.nH

3.93.318a
«a.sam.on~.on
ha.ea~.sne.m-w

 

uuoo eonsuuaac

nee>uoeou .flaos euewouwwu
nee: eeed e4 uaem elou sH ususue e>sH use ueassuum mo sasusom
sz u: smuszs enemussnmm0< mm

 

News .4:
:eouuaosaum umsussowuu ueumeuw< NHHesusoo:

h Nmmmmmm

 

 

n sunleuon

 

 

 

oasesSesH euwd

 

00.0004000 seas usuaussuuu oomodasm
00.00~.H wuuou sofluwessoue sueswu assesses“ nudes; use usouaoos
00.000.05H aces-ewIIOu assessess suaees use usuusuu<

esoseewIBOu musessess euua seem smash
"euOHsus ussusu cu uosseueu muuou
mmsosuu sasueaueusou cu uewsesu scausos u>wuegsauu
umoo
"usuaswsuo use assassssm
sosuuuaaou no eesQOo sw «Bassosm
mouse>ue oesosku wstu>msH
uHse>suueu mHHsm
eouseHep uwnuu .uusows
"assume usususu
.eseuu< uuuuaau< e< xuaaeso uoz on suasn eueee< wsauesoso
nuueee usuuaaue sa ueueu>sw Heuow

«5.9ao.nam.m m
on.n~o.ema
sm.wms.omo.s w
no.om~.os
wo.mna.m
so.n~o.ss
.m.4sa.sas a

 

 

 

 

eeesaesn assauue usesesum

00.054.000 unseen» seguesuounuu on unusesu scauuos e>sueasasu

00.000.000 w uuoo
“usullunuo usueeououa eueu assasuueHu
00.500.5n0.N eoHoe>seuum
00.000.H ussouue Assasse .esowese:
00.000.N50.N w some

”euoeee usuussu

"eyesoweeselsxu ouseusesH «a sadnesuoeed descauez an uonwuueuss

seguesHe> use oeHe em sows) .ueou ueIIeuoeee usauesuso
euueee ummmmmmuuuummmnmm.mm unsee>ss HeuOH

~0.0H0.uno.00¢w

 

 

 

 

unusuauewsaoo
euseusesH uo sowueuuoen<
HesOwuez an uunwuueuun scauesHe> Hench

A5n.000_00eu eeueu easesune saweuou saw usuaueshu<

5H.o0~.H ueeueusw use eeuos lawless uueuseuesu

. am.m~n.ooo.o~ names mosses
50.Ho¢ <00 0 sowuesueusuu
3 ueusesu conson— 2,333.50
00.0Hn.nn~.0~m ueoo

"eueueu Hens
eueuee Hess so eseoH owewuuoz
assaum

nuson

mm.ano.om~.ns
369.318a
mn.mnn.sso.ne
u~.eoo.as~.nun
oases o H a e

 

"eueeee assusuounIessu>es
"neshoeex ouseuSIsH eusulueebsH Hedda e4 ueuunlu< eueee<

Illwol
m a u a ma

 

so“: luousou mm ueuseunm seesm esseaeu

204
SUMMARY

Six companies were analyzed in detail in this chapter. This analysis
required the preparation of detailed annual worksheets and the preparation
of revised and extended financial statements. The adjustments which are
made are either (1) those which are possible using only the data in the
Convention Blank or (2) arbitrary computations of factors which the companies
should be able to make accurately and without serious difficulty with the
information at their disposal.

The primary purpose of this detailed analysis is to obtain a thorough
understanding of the Convention Blank. No other research technique can
provide as deep understanding of life insurance accounting and reporting.
Furthermore, the attempt to extend and revise the statements in the blank
is similar to the laboratory approach of the sciences.

The revised and extended statements are admittedly imperfect in
technical detail, but serve as an effective research tool. They are too
cOmplex for public usage in present form, but, with the exception of
factors which had to be specifically excluded from this study because
additional research would first have to be conducted at the company level,
provide an acceptable report of accountability which conforms with generally
accepted accounting principles on material items while retaining the compu-
tation of legal surplus inherent in the Convention Blank statements. It
is believed that, if technical details can be solved at the company level,
simplified statements prepared within the framework suggested could be
included in annual statements to stockholders and be accompanied by a
full, or clean, certificate by a certified public accountant.

The six firms analyzed range from small companies organized since

World War II to a company which is one of the forty largest life insurance

205

companies and one of the twenty largest stock companies in the United
States. Six companies do not provide a sufficient sample to establish

the materiality of the adjustments and the degree of improvement in the
revised statements, but are sufficient to verify the technique of adjust-
ment and the methods followed in obtaining data for the adjustments. It

is particularly noteworthy that all of the major adjustments were required
in one or more of the small companies and that no additional types were
needed in Company F. The laborious and time consuming worksheet and
financial statement proofs are, therefore, omitted in the analyses in the
next chapter, in order to concentrate on the materiality of the adjustments

and revisions.

CHAPTER 1

 

The analyses in the preceding chapter indicate that there is sufficient
information, either already in the detailed schedules of the Convention Blank
or readily generated by the companies, to enable life insurance companies to

prepare financial statements which conform with generally accepted accounting

principles. This conclusion assumes, however, that certain technical problems

could be solved at the company level. Before research designed to solve those

technicalities can be recommended, evidence on more than just six domestic

companies is needed that such statements would be a material improvement in

the measurement of earnings. This measurement has become one of the key

elements under generally accepted accounting principles but has received

little attention in the reports of insurance companies.

Two groups of companies are analyzed in this chapter in an effort to

extend the test of the materiality of the proposed statements over a wide

range of companies. The first group consists of all of the remaining stock

life insurance companies in Nebraska.1 which are not included in the detailed

aha lyses of the preceding chapter. All of the pertinent Nebraska companies

are thus included in the study, thereby eliminating the possibility of dis-

toI‘tion through selection of the companies for the detailed analysis. The

 

lExcluding those companies which are so inactive, so new, or so highly
sPecialized in an unusual type of policy that application of the adjustments
to their operations would not add meaning to this study.

206

207
second group consists of ten foreign companies ranging in size from the
largest stock company in the United States1 down through three which are
smaller than Company F. These are companies which have, with one exception,
large numbers of stockholders and whose stock is actively traded. The
degree of improvement in data needed by stockholders of such companies is
the very heart of this study.

All of the adjustments which were developed and verified in the
detailed analyses of the preceding chapter are applied to the firms studied
in this chapter, but the detailed worksheets and the extended and revised
financial statements are no longer required. Instead, a new Exhibit A,
which is almost identical to Exhibit II of the preceding chapter, is pre-
pared. It, like Exhibit II, is supported by a detailed schedule of
adjustments. Exhibit A emphasizes (l) a comparison of the amount of earnings
reported in the Convention Blank with the earnings which would be reported
under generally accepted accounting principles and (2) a reconciliation of
the revised retained earnings and paid-in surplus balances with the legal
surplus computed in the Convention Blank.

The caveat which has been repeatedly sounded in prior chapters
regarding exclusion of the effect of factors such as income taxes and
other items for which information is available only at the company level
is equally applicable to all expressions regarding conformance with generally

accepted accounting principles in this chapter.

THE REMAINING NEBRASKA COMPANIES
Most of the remaining Nebraska companies are firms which have been

formed recently, so were not selected for the ten-year analysis in detail.

 

1In terms of admitted assets.

208

However, the analysis of one firm which has been in business for many years
was deferred to this chapter in order to test the abbreviated analysis on a
substantial company where the Convention Blanks are available for more than
five years.1
All of the types of adjustments which are given effect in Schedule 1
for each company have already been discussed in the preceding chapters,
the only new adjustments being those required by technical variation in
detailed procedure by the companies. Discussion is therefore limited to
a brief resume of the nature of the firm's primary insurance activity, its
underwriting policy and other factors which need to be kept in mind in
interpreting Exhibit A. That Exhibit summarizes the result of the analyses
more effectively than would expository explanation and Schedule 1 gives
adequate supporting detail.
The companies are discussed in ascending order of admitted assets.

This permits the analysis to start with the simplest situations and move

to the more complex.

Company Q

Life Insurance Company G was formed by the merger of two burial
associations in 1957. The reserves of the burial associations were based
in part on the net level method, but most current business is valued on
the Commissioners Reserve Valuation Method. Total premiums written during

1962 were:

Life insurance $54,689.36
Accident and health insurance 30,873.20
Total $85,562.56

 

lAs has been previously noted, the Nebraska Insurance Department

retains the Convention Blanks on foreign companies for only five years.

209

Total capital was $150,000 and Surplus $37,500 at the time the company

commenced business in 1957. $60,000 of this ($50,000 capital stock and

$10,000 Surplus) was obtained from sale of stock at that time and the

remainder was the capital and surplus of the burial associations.

210

Exhibit A

 

Life Insurance Company G

 

05.000.0mm
00.000 0n

Aso.nesc a

 

00.000.50

n0.000.om

0H.n~m.5

n0.o0n.HHm

”on «0
eueuesuud

a. lapsed

 

 

 

 

 

 

 

 

 

 

 

 

as.nas.0nm oo.oso.-a
as.sso.s sea.oms.~0
os.sso.-» on.oHs.n~»
as.mme.on» oo.asm.-a
sm.non.sw ms.mnsqan
oo.mnm.eom nm.nso.~o»
oo.ooo.os oo.ooo.os
so.ano.sn» mm.mHo.~n»
na.nso.~n os.mms.se
mm.oeo.~ » sm.e-.e »
asm.sm~Is0. ~m.~es.~
oe.onm.s » mn.~sn.s »
as.oso.s » Aea.oms.~0»
Aso.sm0 ~n.nsm
Ass.eqo.mv sn.neo.n
Aao.sooc Aan.m¢sc
an.sn~.n Am~.~eo.mc
Na.0so.a » mm.nne.s »
Ams.sno.ocu mn.n0s.a »
Ana.sos.ou Ao~.ooe.~0
Ann.sn~.mc m~.~eo.o
o_.sme.n Ac¢.ec
no.eee.e . as.asu.~ »
woos seas

 

 

 

 

 

 

 

 

 

 

 

Ill
on.Oso.n~a na.maa.o~» ss.osn.es»
as.sso.e ~s.o~oqs an.~sm.s
nw.omm.o~» as.msn.es» ~n.ono.ns»
on.oss.m~» mm.msm.o~» ss.osn.es»
o~.mss.~n -.o¢mqn~ as.qooqma
as.mms.sn» no.snn.ee» ee.nse.o~»
oo.ooo.0s oo.oooqos oo.ooo.os
os.oms.se» mo.onn.en» ee.nse.es.
no.ameen me.nse.as «n.oo~qo~
ss.oe~.Msa sm.noo.0s» Aeo.nso.sc»
som.nnsu oe.son as.o~e«n
ms.ess.ms» sa.o~e.os» as.noo.n »
ms._so.e » «s.o~o.o » on.~en.s »
nn.nne oo.ss~ on.sn
en.mno.e us.nn~.o o~.eoe.e
No.~_s fiss.n-0 Aeo.ss~0
sa.mmn Aso.eas.sc Aoo.enn.ov
Aa~.o~s.sc» an.o~s.~ » on.sne.s »
~e.~on.o » nc.ooe.a . ms.~o~.~ a
so.nao “mo.ennqwq. Aao.s-.~0
sea.ennc sn.n~o.s ~e.~so.a
I soo.nsc oo.on
as.aen.o » sn.~oe.cs» “mo.~no.e0»
cogs onas mass

:.usmsuasss umsuasmwme emmmumua Has-son . nmwe
mues-

 

Nn.ono.nH 0

0n.~0~ nu
500.00Hv 0

I

 

~n.0no.nH 0
0~.Nn~_5H

~n.00~.0n »

 

Aos.sss.nv »

 

00.~0H.0H 0
00.050 n

I

500.00n0 »

 

A0n.~0u.0uv»

Ano.~me.n0
Aum.nn~.~0
Ano.nsc

50n.qnn.0~00

5n0H

 

OUHEOHQOO

oaone ee .seos so use se ousoseuusc

see» essu eusulueaqu<
see» «0 0ssssswon ue oososouuso
"moosm
ousosouusc
asean sesssoasou sea esssssm uoswaeeeso 0ssus0
seuoH
Iguassu asIVses museum
senses-n eons-sue vosossssusa: museum
ewsssseu uosseuod ueuussseossp masssswou
mumflmmuw uosseuus
Awm.mmmmmmmmmV mm aosusuv. mum
u>seeus sassesfle> eosussouoe msoueusex
"assasse uouesssossse ou eseuesesh
“elousH so esOsuseose«0

mucus“ so:

nus: ooselsousou Q a :33

 

 

 

usuossseosss

 

 

euselueseue Hench
seou uouesoesseu ue eueeee uesau sse muses use
ease-Uses. esu so useeee uousu ueuuulueIsos eueHAIIs noose
euossos essusu ou eueOo sauna-ssvue mo sususos e souesII>H noose
eseeee sseusou so eeeeofi eHnseeos sou eus>osmIIHHH saosu
seas usesssole as loss assassues sass .eo=He>
.u.H.<.z cu eesssssuue so useluesnue eese>emIIHH ssosu
A> ssosu ss use sass: euueee uoxsu sesu sesuov
ausflsoseue any so euoeee unusulueIsos ooesmIIH ssosu
"Huseueu sou H ousuosum eeev esseluesnu<
elouss W0. 033 mm uoeeeuo
Isous esoueo asesn sosusossoo mum mum
nevus ueuesos use euueee uouuslueIsos mo eases su easesu
seeh no use ue uosro eesuussuee mo esHev ss 00sesu
use. euoeee so Aeeeeo—v essen Heusseo
"use“: sasusessou so esusssm ou uuessc ueseusn slauH
aseH- sauusebsou soc essaueseso lash AeeoaV sseu yen

 

 

 

 

 

 

mm.mummuummuuummmuum.mmmm_“anemia”

sasusessoo mun endumsm mfl ee seen 00" essauesmum losm s«um.mfl mmeluesnmd

mam

 

assessesH

«HHH

211

Schedule I

Life Insurance Company C

as.oso.s »

 

aso.sav »

 

50H.000.nvw

 

as.moa
Aeo.smnv.

“on.o~o.ovw

 

Amo.somv »

 

mn.sn~.n m

 

N0.0H0.0 w

 

Na.0so.m m

s usaeueum

 

som.ons.~0»

 

«0.050 m

 

sn.neo.m »
as.ooo.s
o~.ns~.a .

as.eom.s a

 

a0m.n0Hv m

 

Am~.~qo.mvw

 

00.000.H »

 

00.000.H w

ms.sso.e »

 

nn.nn0 w

 

an.nno.e »
a~s.soe n
Ano.osw.~0

sn.sso.osw

 

~0.~HH m

 

«o.mnn »

 

A-.mNs.svo

 

AwN.0~H.va

000H

NH.0N0.0 w

 

00.550 0

 

~s.nn~.o a
mm.emn.¢
Ano.oHo.n0

mn.oon.osw

 

“H5.n-0 m

 

Ass.eas.sva

 

sm.m~s.~ »
Aos.awsu
mo.sn~.~ »

 

mn.~en.s »

 

0m.5n w

 

o~.eoe.o »

 

o~.m~m
mm.soo.m

as.esm.n »

 

Aso.ss~v a

 

“so.enn.ova

 

mn.sne.s w
Awa.mns0..

sq.oas.~ »

 

on.sos.msm

 

mo.sso.m a

 

na.omn.s »
mornesas
ss.uen.n

05.0«0 w

 

Hoo.5n0 m

 

n0.nn0.~ »

 

Aeo.onnv a
Assuoosu
no.osn w

Aoo.nesv w assuau.sfie< sages

 

usuflnwsve use ossuwssSM
mo osHe> xoos ues s0 anaesu sow uses» oesobum .Nn
uueou uuueuuussou ue euueee uexwu HHe asses use
eusuIUueue usu so euoeee usuau uouuwlueIsos oueHmuo> ssosu

Hn.05N w

eusUIuesnue >H ssoso Heuoa

I 5H0 noun ee sense! «lee esu sq uessewouv ueou
unsususauu- accuse nonesseas ensues use snoosuue .Ne
I Aebsoees Haasuss uesseuss ou soausoaOss s0
unknoweuv esoaeeallou assessesa suHeos use unnuauu<
Aussses see» u>sm e se>o hasubo udueooHHe
hHauesusssev usageeslou assess-5 as: .30.» sesam .00
. "euoHsoa
«Hausa ou eueou sasuweasvue mo sowusos e seuonoIbH noose

.H0

sacs a. noun-au.ov .ooaesen assoc .euaoua .om
"euoeee sdeusuu so eoeeoH «Huaeeos sow eua>oshIIHHH ssoso

 

Ao~.~am.sv» Iguana .su
"ueou uouwusole as loss usesssues essu .eusHe>

.UIH.<.z ou ensuHHSuoe «o use-sesnue eessbquIHH noose

 

.no.son.s » .uaueu.saue s guano sagas

mo.aon.s unsussos sensspsuas no .osssssa-sa sussoa
sosuo use esHe> sea uo eeeunu sq .uuu .euuos [Banana .0

 

 

I » .ounesen.usaoe .euauu4 .e
"As sense as use sass: ego... sense sea» soasov
eusuluseue one so euueee uosuuluensss eueHnIIH ssosu
snIesIs
ungufln 3
33335

 

1.38.5. It 13833 BIIHII.» .34 aqueous. _... 3.. I Bongo «mammal-lam 3 «fl. cleans”

easeluesnu<umm

 

 

oHsuonum uOHHeuon

 

m.Nmummmm assessesH 000A

212

Company §_

Life Insurance Company H was organized as a capital stock legal reserve
company in 1960 but did not commence business until 1961. One million shares
of $1.00 par are authorized, but as of December 31, 1962, only 100,255 shares
had been issued. Of the proceeds, $100,255 was credited to capital stock
and $350,892.50 to surplus.

The company writes life insurance only. At the end of 1962, approxi-
mately $4 million of insurance was in force. Just under $200,000 was term
insurance and the balance whole life and endowment. All of the reserves
are valued on one of the preliminary term methods, primarily the Commissioners
Reserve Valuation Method using the 1941 030 table of mortality and 3% interest.

Premiums written in 1962 totaled $181,266. The net gain (loss) from
operations per the Convention Blank was thus a loss of roughly 50 per cent
of the premiums received, in spite of the fact that preliminary term reserve
methods are used. Even under generally accepted accounting principles, as
applied in this study and subject to the limitations imposed, the loss is

equal to over 35 per cent of premiums.

213

Life Insurance Company H

Adjustment p£_Gain From Operations and Changes ip Surplus per Convention Blank

 

 

Tp Agree With Earniggs Computed ip_Conformance With
"Generally Accepted Accounting Principles"

Exhibit A
Aggregate

 

 

 

 

 

 

 

1961 1962 of Key Items
Net Gain (Loss) from Operations per
Convention Blank $ (73,504.46)$ (90,020.97)$(163,525.43)
Items Entered Direct to Surplus on
Convention Blank:
Change in value of securities owned
at end of year - (25,000.00)
Change in value of non-admitted and
related items (33,218.21) 5,232.72
Net per Convention Blank before
items classed §§_dispositions
pf income $(106,722.67)$(109,788.25) (216,510.92)
Adjustments:
Group I--P1ace non-admitted assets on
the statements (other than fixed
assets which are in Group V) $ 16,066.59 $ 21,116.83
Group III-~Provide for possible
losses on certain assets (1,324.54) 231.48
Group IV--Defer a portion of
acquisition costs to future periods 39,950.78 24,256.69
Group V--Place non-admitted fixed
assets on the statements and carry
all fixed assets at depreciated cost 17,151.62 .(1,349.55)
Total adjustments $ 71,844.45 $ 44,255.45 116,099.90

 

Net income (loss) computed ip_
conformance with "generally

accepted accountingipginciples" $ (34,878.

Dispositions of Income:
Transfers to appropriated surplus:
Mandatory securities valuation

22)$ (65,532.

80) (100,411.02)

 

 

 

 

 

 

 

 

 

 

reserve 308.86 350.25
Net addition £p_(reduction pf)
unrestricted retained earnings $ (35,187.08)$ (65,883.05) (101,070.13)
Beginning Unrestricted Retained Earnings - (35,187.08)
Ending Unrestricted Retained Earnings $ (35,187.08)$(101,070.13)
Ending Paid-in Surplus (net of
commissions) 350,892.50 350,892.50
Total $ 315,705.42 $ 249,822.37
Ending Unassigned Surplus per
Convention Blank 243,860.97 133,722.47
Difference $ 71,844.45 $ 116,099.90
Proof:
Difference at beginning of year $ - $ 71,844.45 $ -
Adjustments this year 71,844.45 44,255.45 116,099.90
Difference at end of year, as above $ 71,844.45 $ 116,099.90 $ 116,099.90

 

 

214

Life Insurance Company H
Detailed Schedule p£_Adjustments
Tp_Make the Financial Statements Agree With

 

 

"Generally Accepted Accounting Principles"

Group I--P1ace non-admitted assets on the
statements (other than fixed assets which
are in Group V):

3. Loans considered inadmissible
4. Agents' debit balances
6. Prepaid expenses

Total Group I adjustments

Group III--Provide for possible losses on
certain assets:
30. Agents' debit balances (estimated at 10%)

Group IV--Defer a portion of acquisition costs
to future periods:
40. First year life insurance commissions
(arbitrarily allocated evenly over a
five year period)

Group V--Place non-admitted fixed assets on the
statements and carry all fixed assets at
depreciated cost:

52. Reverse entry for change in net book
value of furniture and equipment

Total Adjustments

$ ..
13,245.44

2,821.15

$16,066.59

(1,324.54)

39,950.78

17,151.62

$71,844.45

Schedule‘l

$25,000.00
(2,314.77)

(1,568.40)
$21,116.83

231.48

24,256.69

$1,349.55)
$44,255.45

215

Company'l

This company is another of the new firms. It was organized in late
1961. Like Company H, it sustained a loss even after adjustment to con-
formance with generally accepted accounting principles.

Unlike many new firms, Company I values a substantial portion of its
reserves on the net level premium plan. The life insurance reserves at
December 31, 1962, were valued by the following methods, using CSO mortality
tables and 3% interest assumption for all except a few policies:

Net level premium method:

Ordinary life insurance $48,942
Credit life insurance 5,410 $54,352

Modified preliminary term methods:
Commissioners reserve valuation method $ 3,136

New Jersey standard method 1,550 4,686
Reinsurance assumed 11,500
Total $70,538.

 

Total premiums were $126,688 in 1962. By contrast, Company J, which
also commenced business in 1961 but uses preliminary term methods for most
of its policies, earned $662,353 in premiums in 1962 but has reserves of
only $20,497. This comparison illustrates the impact of reserve methods
on the reported earnings of new companies. It underscores the need for
research into the possibility of basing Adjustment 40 on the portion of
direct acquisition costs not compensated for by the difference between the
reserve methods used and net level premium methods, rather than on the

entire first-year commission.

216

Life Insurance Company I
Adjustment p£.Gain From Operations and Changes ip_Surplus per Convention Blank
Tp_égree With Earnings Computed ip_Conformance With

 

 

 

 

 

"Generally Accepted Accounting Principles" Exhibit A,
Aggregate
1961 1962 of Key Items

 

Net Gain (Loss) from Operations per
Convention Blank $ (4,383.05)$(233,234.82)$(237,6l7.87)
Items Entered Direct to Surplus on
Convention Blank:
Change in value of securities owned

at end of year - (5,727.35)
Change in value of non-admitted and
related items - (59,066.27)

 

Net per Convention Blank before
items classed §§_dispositions
pf_income $ (4,383.05)$(298,028.44) (302,411.49)
Adjustments:
Group I--Place non-admitted assets on
the statements (other than fixed

 

 

assets which are in Group V) $ - $ 61,506.96
Group II--Reverse adjustment of

securities to N.A.I.C. values, thus

returning them to amortized cost - 3,300.00
Group III--Provide for possible

losses on certain assets - (5,592.66)
Group IV--Defer a portion of

acquisition costs to future periods - 32,988.74
Group V--Place non-admitted fixed

tassets on the statements and carry all

fixed assets at depreciated cost — 1,006.57
Total adjustments $ - $ 93,209.61 93,209.61

 

Net income (loss) computed ip
conformance with "generally
accepted accounting principles" $ (4,383.05)$(204,818.83) (209,201.88)
Dispositions of Income:
Transfers to appropriated surplus:
Mandatory securities valuation
reserve $ - $ 965.56
Net addition £p_(reduction pf)
unrestricted retained earnings $ (4,383.05)$(205,784.39)
Beginning Unrestricted Retained Earnings - (4,383.05)

Ending Unrestricted Retained Earnings $ (4,383.05)$(210,167.44)
Ending Paid-in Surplus (net of

 

 

 

 

 

 

commissions) 500,000.00 600,000.00
Total $495,616.95 $ 389,832.56
Ending Unassigned Surplus per
Convention Blank 495,616.95 296,622.95
Difference $ - $ 93,209.61
Proof:
Difference at beginning of year $ - $ - $ -
Adjustments this year - 93,209.61 93,209.61

 

 

$ 93,209.61 $ 93,209.61

Difference at end of year, as above $

217

Life Insurance Company 1
Detailed Schedule p£_Adjustments
22 Make the Financial Statements Conform With
"Generally Accepted Accounting Principles"

1961

Group I--P1ace non-admitted assets on the
statements (other than fixed assets which
are in Group V):
l Supplies, stationery and printed matter
4. Agents' debit balances
5 Premium notes in excess of net value and
other policy liabilities on individual policies
9. Returned checks
10. Miscellaneous debits

Total Group I adjustments

Group II--Reverse adjustment of securities to
N.A.I.C. values, thus returning them to
amortized cost:

21. Stocks

Group III--Provide for possible losses on
certain assets:
30. Agents' debit balances (estimated at 10%)

Group IV--Defer a portion of acquisition costs
to future periods:
40. First year life insurance commissions
(arbitrarily allocated evenly over a five
year period)

Group V--P1ace non-admitted fixed assets on the
statements and carry all fixed assets at
depreciated cost:

50. Record furniture and equipment
51. Record depreciation of furniture and
equipment

Total Group V adjustments

Total Adjustments

1962

$ 2,794.
55,926.

2,427
345.
13.

$61,506.

3,300.

(5,592.

32,988.

1,059.

Schedule‘l

39
60

.35

28
34

96

00

66)

74

55

(52.98)

$ 1,006.

$93,201.

57

69

218
Company‘i

Life Insurance Company J is the last of the companies which commenced
business in 1961 included in this study.1 This firm was organized by
another corporation, which purchased most of the first 1,500,000 shares of
10¢ par stock issued at 13 1/3 cents per share. Bests' report, however,
that these shares are marked and that they cannot share in the assets of
the company in case of dissolution until other shares have been reimbursed
the full purchase price for a period ending September 15, 1968. One million
shares were offered and sold to the public in late 1961 and early 1962 at
99 cents per share, thus creating a substantial paid-in surplus.

In contrast to the two preceding companies, a profit is shown in 1962
when earnings are revised to conform with generally accepted accounting
principles. Almost 99% of reserves are determined by the Commissioners
Reserve Valuation Method with a 3% assumed interest rate, so the portion
allocated to reserves is extremely small. As was noted in the discussion
of Company I, premiums earned in 1962, all life, totaled $662,353.12 but
total reserves at the end of the year were only $20,497.00. Insurance in

force on that date was over $17 1/2 million.

 

1Two companies which were formed in 1962 are excluded from this
study because operations of less than a full year do not provide a meaning-
ful analysis.

219

Life Insurance Company J

Adjustment pf Gain from Operations and Changes ip_Su§plus per Convention Blank
Tp_Agree With Earnings Comppted ip_Conformance With

"Generally Accepted Accounting Principles"

1961

Net Gain (Loss) from Operations per
Convention Blank $(38,374.
Items Entered Direct to Surplus on

Convention Blank:

 

60)$ (77,504.

1962

Exhibit A

Aggregate
of Key Items

 

59)$(115,879.19)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Capital gains (losses) on assets sold - 912.26
Change in value of securities owned
at end of year - (1,727.18)
Change in value of non-admitted assets
and related items (7,456.87) (14,820.66)
Net per Convention Blank before
items classed §§_dispositions
p£_ipppmp, $(45,831.47)$ (93,140.17) (138,971.64)
Adjustments (See Schedule 1 for detail):
Group I--Place non-admitted assets on
the statements (other than fixed
assets which are in Group V) $ 1,466.77 $ 5,088.80
Group III--Provide for possible
losses on certain assets (13.42) (416.14)
Group IV--Defer a portion of
acquisition costs to future periods - 304,888.83
Group V--Place non-admitted fixed
assets on the statements and carry
all fixed assets at depreciated cost 5,990.10 11,087.28
Total adjustments $ 7,443.45 $ 320,648.77 328,092.22
Net income (loss) computed ip.
conformance with "generally
accepted accounting principles" $(38,388.02)$ 227,508.60 189,120.58
Dispositions of Income:
Transfers to appropriated surplus:
Mandatory securities valuation
reserve - 858.52
Net addition £p_(reduction pf)
unrestricted retained earningp $(38,388.02)$ 226,650.08
Beginning Unrestricted Retained Earnings - (38,388.02)
Ending Unrestricted Retained Earnings $(38,388.02)$ 188,262.06
Ending Paid-in Surplus (net of
commissions) 161,177.89 864,867.25
Total $122,789.87 $1,053,129.31
Ending Unassigned Surplus per
Convention Blank 115,346.42 725,037.09
Difference $ 7,443.45 $ 328,092.22
Proof:
Difference at beginning of year $ - $ 7,443.45 $ -
Adjustment 7,443.45 320,648.77 328,092.22
Difference at end of year $ 7,443.45 $ 328,092.22 $ 328,092.22

 

 

 

220

Life Insurance Company J_
Detailed Schedule pf_Adjustments
Tp_Make the Financial Statements Conform With
"Generally Accepted Accounting Principles"

 

 

 

 

1961
Group I--Place non-admitted assets on the
statements (other than fixed assets which
are in Group V):

2. Advances to agents or officers $ 404.94

4. Agents' debit balances '134.15

6. Expenses paid in advance -

7. Bills receivable 50.38
10. Miscellaneous debits 877.30
Total Group I adjustments $1,466.77

Group III--Provide for possible losses on certain
assets:
30. Agents' debit balances (estimated at 10%) (13.42)
Group IV--Defer a portion of acquisition costs
to future periods:
40. First year life insurance commissions -
Group V--Place non-admitted fixed assets on the
statements and carry all fixed assets at
depreciated cost:
52. Reverse entry for change in net book
value of furniture and equipment 5,990.10

Total Adjustments $7,443.45

Schedule.i

1962

$ 677.
.38

4,161

316.
(50.
.45)

(16

$ 5,088.

(416.

304,888

11,087.

$320,648.

71
54
38)

80

14)

.83

28

77

 

221
Company K

When earnings are computed in conformance with generally accepted
accounting principles, as applied in this study, Company K shows a profit
every year. This is in marked contrast with the losses of Companies H and
I but consistent with the second year for Company J. Even though this
profit measurement is imperfect, it gives a better indication of operating
results than the Convention Blank, which shows that all of the firms sus-
tained operating losses each year. The profits computation must, however,
be tempered by recognition that over 99 per cent of the reserves are
valued on the Commissioners Reserve Valuation Method using the 1941 C80
mortality table with a 3% interest assumption. As has been repeatedly
pointed out, research is needed at the company level into the possibility
of making Adjustment 40 for only the portion of direct acquisition costs
not offset by the difference between the reserve methods used and net
level premium methods. If this can be done, earnings statements could be
conservative but nevertheless reliable indicators of whether a new firm
is making progress.

Approximately 77 per cent of the insurance in force is a special
20 payment life insurance. All other policies are non-participating and
include the usual ordinary life, term and limited payment life insurance
plans. Over $16 1/2 million of insurance is in force. No accident and
health insurance has been written even though permitted by the certificate
of authority.

The original capital of the firm was obtained from the sale of
304,270 shares of 50¢ par stock for $2.50 per share less a 10% commission.
An additional 126,567 shares were issued under option contracts at $2.50

per share in 1962.

222

Exhibit A

 

Life Insurance Company K

H~.m00.0mm m
H~.m00 0mm

m

es.ase._m~

H~.000.0mn

A50.000.50mv

A05.5H0.00va

 

H~.mo0.0mnm

00.050 50H

N5.m00.00mm

H~.m00.0mmm
00.~H0_0m0

0H.055.n50w
No.0m0 Hn5

as.ssw.n-a
MHIMmmImmw

om.omm.mo »

A0m.000 HM

~0.000.00 0

 

oq.mso.an_w
mm.mmH.H

00.05m.00H
A05.05n.H0
0m.000.m

H0.505.0 m

 

A5n.000.H000

Haa.nna.su
Hem.oeo.mV
om.mm~

A00.0n5.00vm

~00H

N5.m00.00m w
H0.mm5 M5N

H5.0mH.50H m

N5.m00.00m m
mm.~0~ won

00.000.000 0
50.000 omn

ms.sm6.nms »
mmqwmmqmmII

0~.nH0.5HH m

0H.500 0

00.NH5.nNH »

 

H0.mm5.n5~ 0
50.000_H

~3.sme.mns
Hmm.~oe.osc
Hms.nmo.nv

00.005.0NH 0

 

55n.000.omva

A00.000 0NH
0H.m00.m
n5.HM5.~
HHo.000.5~V w

HO0H

:eeHmHusHsm usHsssouu< usuuouu<
AseHn soHuso>soo

 

 

H5.00H.50Hm
H5.00H 50H

»

 

 

H5.00H.50H0
00.000.000

as.nmn.sonm
sm.mss.m~n

om.H~q.wm »

00.HN0.0m m

 

00.n00_N

05.0NN.H0 m

 

H5.0nH.50H»
m5.-0 0H

00.000.05
H00.500.~0
00.nmm

m0.0~m.m~ w

 

Am0.000.movm

500.000.0nu
A00.mmm0
00.005.~

Hmo.msm.o~vm

000H

NHHeseseU

x

 

 

 

u>one me .seom 00 use ue oososessso

seek mHss wusofiumsnu<

sees 00 mssssswun He mucosouwso
“wooss
nususomeo
xseHn soHusu>soo sea msHsssm uoswsmmesa 0sHusm
Hesse
AeueOu soHueuHsewso use esoHeuHiou «0 s05 usHsssm sHIuHem wsHusu
uwsHssem uosHesem unsuHsumossD msHusm
uwsHssem uosHesem ueuosssnessa 0sHsusom

. awsHsseo uusHeuos
uouuHssmosss ANN soHuosuosv mm soHusuue uuz
e>semes sossesHe> aoHuHssuue useseusez

nechssn uoseHssossse cs msowmsesh
"esousH mo usoHsHmoamHo

:eeHmHusHMm mmsussooue ueumeuoe mHHesusuwz
nus: muse-scusow 0H mmummnmu.HaudAu «.0000 max

muselsuonue Hence

 

 

 

 

 

 

ueou uoueHoossuu ue euoene uexHu HHe Asses use
eusuloueue use so «sense uesww uouquueIsos ooeHmII> sacso
auoHsus assuau ou eueOu soHuHaHscue no soHusos e suuonII>H ssosu
sueeee sHeuseu so eoeeoH oHaHeeos s00 uuH>0smIIHHH ssosu
ueou uoususoae co Boss 0sHssaues eons .mosHe>
.u.H.<.z cu euHuHssuee uo useluesnue oesoeemIIHH useso
A> csoso sH use cuss: eueeee uoxHu sens sozuov
mssflluueue «so so assume uousHlueIsos oueHmIIH cease
“AHHeuuu sou H eHsuusum eoev eusufiumanu<

 

 

eIOusH mm.monuHmommsu Mu uouoeHu
alouH osowon xseHn soHuse>soo sum mum
elves ueueHos use uuusHlueIsos so osHe> sH mwsesu
see0 no use ue uosso moHuHssuoe so osHe> ss 00sesu
uHoe euuuee so AmooeoHv essem Heusseo
“aseHn soHuso>soo so esHsssm cu sooch uusuusm usuuH
aseHn soHusoesoo sea esoHseseso losu Heeoqv sHeu suz

 

 

 

suHa nus-Esousou mfl uousmmmw emsHssuM suHa oos0£ MM
sum esHmmsm MM souseso use osoHueszm aosu sseo mm usoluesnu<

 

 

 

Haemmmu oosessusH euHH

223

Life Insurance Company K
Detailed Schedule pf_Adjustments

 

22 Make the Financial Statements Conform With
"Generally Accepted Accounting Principles”

1960

Group I--P1ace non-admitted assets
on the statements (other than fixed
assets Which are in Group V):
2. Advances to agents or officers $ -
4. Agents' debit balances 24,472.
7. Bills receivable 854.
Total Group I adjustments $ 25,326.
Group II--Reverse adjustment of securities
to N.A.I.C. values, thus returning them
to amortized cost:
21. Stocks 533
Group III-~Provide for possible losses on
certain assets:

30. Agents' debit balances (estimated
at 10%) (2,447.

Group IV--Defer a portion of acquisition

costs to future periods:

40. First year life insurance commissions

(arbitrarily allocated evenly over a
five year period) 70,695.

Group V--P1ace non-admitted fixed assets

on the statements and carry all fixed

assets at depreciated cost:

52. Reverse entry for change in net book
value of furniture and equipment 13,022.

Total Adjustments $107,130.

.08

1961

$ 24,100.
.46

68 104,623
25 -

96 $128,723

68) (10,462.

63 158,437

75

71 $273,753.

(3,985.

1,939.

Schedule.l

1962

00 $ (7,000.
13,797.

.46 $ 6,797

19)

35)

.42 148,376.

67

01 $157,979

3,046.

(1,379.

1,138.

00)

.41

30

74)

94

58

.49

 

 

224
Company l_._
Several interesting activities need to be reflected in the financial
statements of this firm if stockholders are to have a complete report of

accountability from management.

Merger

The original company was owned by one family and a few key employees.
In 1958 the stock of this company was purchased by a foreign firm which
had been organized in 1955, and the two firms were merged. The old Nebraska
(Northern) company was the surviving corporation. The transactions of the
"Southern" company during 1958 can best be summarized by using the type of

T accounts which are used for instructional and analytical purposes in

 

 

accounting.
Cash Notes Payable to Banks
(a) $6,231,750 (b) $6,249,250 (c) $5,240,000 (a) $6,231,750
(c) 5,240,000
Stock in "Northern" Compapy Surplus
(b) $6,249,250 (d) $6,249,250 (d) $6,249,250

Explanation of Transactions:
(a) Borrowed from bank.
(b) Purchased stock from stockholders of old Nebraska (Northern) company.
(c) Portion of bank loan repaid by the end of 1958.
(d) Stock of "Northern" company exchanged for new stock and distributed
to stockholders of "Southern" company.
Since insurance companies carry only one surplus account, the above
entries sufficed. At the end of 1958 both the "Northern" and "Southern"
cdivisions prepared its own Convention Blank in the usual way. Then, the

two were simply added together. This procedure was essentially that of a

pooling of interests.

225

This simple procedure cannot be used when generally accepted accounting
principles are followed because the surplus account must be split so as to
reflect contributed surplus and earnings. A serious question arises as to
whether the entire $6,249,250 must be charged against retained earnings, or
whether the portion in excess of the balance in retained earnings can be
charged against paid-in surplus. The basic facts are that funds, part of
which had originally been contributed by stockholders to the new Southern
Company, were used to purchase the stock of the old Northern Company and
that stock was, in turn, exchanged for stock which was distributed to the
stockholders of the Southern Company. The Southern Company stockholders
thus received a dividend in the form of stock in the merged company. These
facts should be discernable from the procedure used in Exhibit A, but this
does not mean that the alternative procedure of charging part of the cost
of the stock against paid-in surplus would be unacceptable if accompanied

by proper resolutions of the directors and adequate disclosure in the

statements.

Assets received igDexchange for stock

The original stockholders of the Southern Company exchanged land and
mortgage loans for stock in the company. Some of these assets had to be
treated as non-admitted assets in the opening Convention Blank. As a

result, the Group I adjustments are extraordinarily large.

Underwritipg_and reserves

The trend of earnings cannot be properly evaluated without first
(considering changes in reserve valuation methods because these methods
have a profound effect on the portion of premiums taken up as revenue in
the first years of a policy. The reserves at December 31, 1962, were

comprised of:

226

 

 

 

Modal Per Cent Of
Interest Reserve Plans
Rate Total Currently Used
Assumption Reserves For New Business
Reserve valuation plans
no longer used for
new business: '
Net level 3 1/2% 44%
Modified preliminary
term 3 1/2 12
Select and ultimate 3 1/2 1
Full preliminary term 3 1/2 5
Reserve valuation plans
currently used for
new business:
1941 C80 mortality
table:
Net level 3 4 11%
Commissioners
reserve valuation
method 3 34 89
1958 C80 mortality
table:
Net level 3 * *
Commissioners
reserve valuation
method 3 1/2 * *

107. m7.
* = Less than 1%. '—__ - '——_

Accident and health insurance premiums comprise less than 10 per cent
of total premiums. Approximately 40 per cent of the business written in
1962 was term insurance and nearly one-fourth of the insurance in force
is term. On these policies, the portion transferred to reserves is small
so most of the premium is included in revenue.

Total premiums written during 1962 totaled $4.8 million. Life

insurance in force at the end of 1962 was $262 million.

Accumulated dppreciation
The old Nebraska (Northern) company always charged the cost of

furniture and equipment to expense when purchased. The Southern company

227

capitalized these items and depreciated them. The method of handling the
accumulated depreciation provides another example of the attitude under-
lying much of insurance accounting and reporting that almost anything is
acceptable if it decreases legal surplus. The examiner's report states:

In its 1958 annual statement, the Company included as a liability

a . . . reserve for depreciation of furniture and equipment of

$10,000. It also deducted the entire book value of furniture and

equipment as an asset not admitted. The items were accorded the

same treatment in the financial statements of this report.

The same procedure was followed for aircraft, automobiles and farm
equipment. Leaving the reserve among the liabilities while deducting the
full cost of the assets as a non-admitted asset reduces surplus below
what it would be if the cost were expensed when the asset was acquired.
Fortunately, this practice has been abandoned, but the very fact that it
was followed as late as five years ago and was not considered serious

enough to warrant change in the examiner's report is indicative of the

underlying philosophy stated above.

228

L
)

gran!

(01d Company Before Merger

 

Life Insurance Co

 

Exhibit A

 

ms.8sn.smo »
s~.o~q.o~s

00.an.~nm m

mn.mq~.nse.s

05.0N0.0~H

m0.5~0.m0~.H

HH.00m.~5N.Hm

 

«EuuH
no“ mo
oueues00<

< uHAstu

 

M5.05m.H00 m

mmqmqummnll

5~.5H0.~mo m

 

ms.osm.smo »
sa.son.NomIa
so.ess.smm.~m

5N.5H0.Nmo m

n0.500.~0n m

 

~n.osm.os

na.s<o.~mm m
sN.ssm.~no »
mm.46~.mn6«w
am.smo.60n.~m

em.msn.ne
Hs.oon.onn »

 

mm.s3m.~wm »
mm.~s~IHmme
om.o-.eoo.~m

 

0m.H00.00m.~

00.00M40004M

05.050.0001M

 

 

n0.m00.05~ m 05.000.H0~ w 0H.HON.mH »
«0.000.00 » 50.000.m0 m H0.00m.Ho~ »
00.000100 00.000400 00.000.HnN

Nm.00na0 m 50.000.0H 0 H0.00n.00 »

 

sn.sso.mmm m

om.nas.non »

so.-o.os~ »

 

 

oe.sms.m~ » mm.s6o.so » em.msn.me »
ss.mns.s oH.o~s.~ o~.~oo.os
Hmm.ooe.m0 Hon.oes.mc ~4.one.es
Ann.s60 H-.mom.se Hmn.soo.~c
e~.nsm.sn so.~o~.sm Aso.oe~.ac
Hoo.smm.se a mo.~on.o~ w Hs.owm.n~ »

 

HH.Nm0.000 0

00.0N0.nn~ 0

5H.n00.mmm m

 

00.n5H.m0n m

5n0H

00.000.00N m

om0H

:eonHusHsh assassOuu< ueumouu< NHHeses .
useHn soHuse>sou sou eaHNmsm Mfl eonseso mmu esoHuesmum
usOwu- usemmmu uHov

oo.oom.s Hmo.mH~.o~H How.mee.o~0
Han.sso.nnv Aso.mma.onc as.so~.ss
mo.ome so.son.m so.sso.as

ms.o~e.m- »

nn0H

HH.oom.omm »

~0.n0~.5om 0

 

AHO.nH0-5~v

N0.n0~.5on 0

 

HH.aom.omm »

00.5NanH
00.00H.~nn »

 

No.nm~.son »

 

 

0n.oHo«00nqw
05.050.000.Nm

s_.nme.e~e.s
as.w6s.soo.sm

 

0H.0oNAW0wqw

05.0004m00 H

 

 

sm.ss~.sn » ne.noo.o~ »
oo.os~.nos » no.es¢.~e~ »
oo.ooo.on oo.ooo.ons
oo.ooo.on I
oo.os~.no » no.6sm.~ss »

 

5n.H00.NN~ 0

00.000.00N 0

 

Hso.nss.s~e »

no.s~H.nH »

 

 

a
m.umnmmw.

e o assessesH euHH

He.n~o 66.6HHIA
om.so~.n «o.mse
Han.m~n.se Ao~.nooe
He~.o~e.~ev Hoo.o~ev
no.sme.ss » no.aon.os m
we.non.om~ » mo.snn.en~ »
Hms.oea.nsw Hno.man.oHM
an.mns.sn eo.ees.mn
oo.onn.sn I
om.ee~.nss » eo.~eo.o- »
ewes mass

 

 

 

 

 

 

 

uuuuHsuousss Awm.soHuosues

 

 

 

 

 

 

 

ma uoumuumu masses-u
mm useluesnu<

suHa easelsousoo

 

 

 

see» no use we ouseseuuHc
see» eHsu esseluesnu<
see» no 0sHssHO0A ue ousosouuHo

”woosm
uusosowan

aseHn soHuso>soo sen esHsssm ueswsueesa 0sHus0
ewsssseu uosHesem uouuHsueessD mssusm
e0sHsse0 uosHeuou ueuuHsseossD 0sHssH000
sHsseu uosHeues
0 mm aosususe mum
elousH no esoHsHeoseHu HeuOH
eseuHosxuOue cu euseuH>H0
abscess husemssssoo
o>soees sosuesHes eeHuHssuee 5s0ueusel
"usHssse ueuesssossse cu Ceuaesh
"albusH mo esoHuHeoseHn

:IUANHUCHHN mafia-3600. VOUNUUUI Nddlugflu=

ouselsOWsou MN

esseluesaue Hench
ueou ueuesuesseu ue eseeee ueIHu HHe asseu use
eusQIUuese use so useeee uoeHu ubuuwlueIsos eueHsIIb sassu
euoHses assess cu eueou soHuHeHsvoe so soHssos e someoIIDH ssoso
eueeee sHeusou so eeeeoH eHAHeeos saw ousbossIIHHH noose
seou uoeHusoe—e ou Inns ususssses easy :0ng
.u.H.<.x cu eeHsHssuoe so usulsesnue eeseoeuIIHH ssosu
Ho ssosu sH use sass) eueeee uouHm sens sonuov
esseleuese use so uueeee unsuulueIsos oueHmIIH csosu
"AHHeuuu sew H eHsuosom 00-0 ease-sesnu<
a a 4..
«luau «HdHuA Addflfl.0uuuduflduu Huu.muu
elous uuueHus use ueuusaueIsos so oaHe> sH 00sesu
see» no use se uusao eeHsHssqu uo.osHe> sH 00seso
uHoe eueeee so AeueeoHv esHew Heusseo
“useHn soHuso>soo so echssw as suesHm uoseusu eIUUH
xseHn soHsse>s00 sea esoHueseso losw neeoav sHeo so:

229

L
r)
l

2901

Life Insurance Com
(Old Company Before Meggg

 

 

Schedule

 

oc.ons.m~ a

 

55.005.H m

Hom.~sw.nm
as.moo.o m

 

H~m.000.0v w

N0.0HN_H

Hq~.o~6.osem

 

n00.HOV m

 

00.050.50 m
05.HHN 0H
00.H00.0H 0

 

A00.H00.H0 m

Hoq.moo.Nu
Na.»

00.0H0 m

_ usauoeum

 

~0.000.00 »

 

0H.om5.~ 0

Hso.sem.60
so.moo.s »

 

a0n.005.00 0

00.000_~

Haw.o-.ssvm

 

H-.oom.se m

 

50.~0~.50 0
00.000 00
-.500.HN m

 

00.~00.0~ m
00.0NH N
No.00m

0N.~00.0H m

 

00.050.00 0

 

0~.N00.0H m

Hmo.ooH.eH
mm.wms.es »

 

~0.000.0H m

 

00.0H0

00.000.5H m

 

H00.500.Nv m

 

A00.00N.00 m

qu.oms.HH0
oo.emo.~ m

 

H5.000.0N m

 

00.050
AnH.005v

00.050.0N m

 

Ham.nsm.s~0»

 

H0.0N0 m

Hnm.oos.m0
as.nss.e »

 

00.50~.0 0

 

00.50~.m w

 

A50.0~0.H0 0

 

He~.m~e.~ec»

H05.00N 00“
00.055 0

 

m0.H00.HH m

HN~.m~n.su
Hmm.mss.uv

05.00~.0H 0

 

no.5NH.0Hm

 

00.0HH.0 m

Hmmqmmmqmw

00.0H5.5 0

 

00.000 0

 

00.000 0

 

HON.000V m

 

A00.0N0v 0

00.000 H
00.00N.~vm

I'll

no.5om.oss

 

ms.ono
ee.HmH.n

00.~00.0 0

 

:uuHsHusHsm umwusDOuu< NMMNMMMQ Nflflumwmwmr
mosuluuau
Mudwmm osouun
m Nmmmmmw ousessusH «HHH

 

 

00.00H.N000

 

ms.sss.es »

Hmo.<so.mH
om.HMH.N~ »

 

00.0mH.50nm

 

00.00H.50nw

 

500.N05.0v m

 

«~.Hms.n~s»
es.mso.so
om.~sn.sn »

 

"H.osq.on »
mmINNmIMII
on.amm.s

as.q~o.sq a

 

NmIHMINH
sasass5H6<

u>HueHsaso

 

 

 

 

 

 

 

 

mscmBumsnu< Hench

musofiumsnoe > QDOsU Hooch

usmBsHsso use assuHsssu mo soHueHuossuu usooex .H0
useEsHsvu use ossuHsssm usooum .00
”secs oosesaosswu se euomue uoxsw HHe ssseu use
wusoEosesm was so msmmme uoxsw uuuusaueIsos ooeHmII> ssosu

assessesnue DH csoso HesOH

Ho>smmus sasEoss uosseoss Ou soHusosOss sH
uwssmuouv acosmmHano assessmss sUHeos use useusuu< .He
Huossms seem ~>Hu e so>o AHsepu ueseuoHHe
mHHsessHpsec usonmHSEOu musessesH ewHH seeu sesHu .00
“muossos essusw cu msmou soHsHmssvue uo soHusos e sewe0II>H ssoso

mouseHes usneu .uus00< .om
“mousse ssesseo so nouns. «HpHueos sou ous>osmIIHHH ssosu

ousulumsnue HH ssosu Hesse

execum .HN
muson .00
"secs uonsusose on auto wsHssssos mass
.oesHe> .0.H.<.z os eeHsHssuom mo usuflsusnue unsu>emIIHH ssoso

museflumsnue H noose Hench

eHoe>Heoos uHHHn .5
noHuHHos HesuH>Huss so uoHuHHHneHH onHos sosuo
use osHe> yes «0 eueuxo sH .ouo .eesos assassm .0
eeuseHep anou .eus00< .0
nl> useso sH use cuss: .euoume uwau sens susuov
ausmEosese ecu so eueeee uouuwiueIsos oueHmIIH noose

 

 

nus) lsowsoo eusoleueum Hesusesss mam use: MM
6e mm «Hauoeum nauseous
Ha-mmmo usoe

L
y

AL

Life Innuranc

an

e Conganx

Her ed Com ante

w;

(New Southern Co

230

Exhib

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

«a.ome.oosv “Ane.maq.¢o_v mA-.~¢¢.oosv «Asn.o¢n.so~0 m mq.qnm.on mama.nmn.no~v nfion.nm5.a¢ovnfimn.nn5.aqov “505.900.04m0 «Anm.5~o.nomv a o»on. .- .sqoa no can u. oucosowusa
Aoo.~sn.~q_u . ou.~nm.on oo.aaa.o- Aon.mam40awq1| m¢.wmm«wM~ A¢~.~o¢«¢m~u Aon.nn~.¢qaw ms.moa.¢ms NH.Hom«4_~ Anm.5so.mom0 s.o» “say uucosuuanu<
n~.n~m.~n m5-.~¢4.oesv ”Asm.oam.so~0 » ¢e.enn.om “Amo.nnn.mo~0 m n~.n~m.~n » - »5_5.o~o.o¢wv ”Ano.hs¢.no¢v » - a gun» so masanwmon u. oucosousso

umOOhA

Amq.mme.oosv ma-._sa.oqsv “Asm.osn.HoNv » me.qnm.om maom.mmm.no~0 » Amm.mm5.mqov mash.wso.mqws “Amm.~_o.moov m uuausoussa
o~.oon«¢mm+wl. m~.o¢n.~5o.n ~o. mac n:T n oa.o~o.ooo«wl Nm.n-.nam1MI ¢¢.soa«¢m¢«m ”m.s5~«wnm«m nm.oom.omnq¢t xc.sn

scuuso>sou son wadsuam vosmwuuasp wsfivsm

«u.~m~.q~m.~ » «o.mm~.~nm.~ » -.mms.oon.~ o co.ono.soo.~ » mm.sa¢.on..~ » Hm.~m~.onw.nm oo.qmo.mwo.m» ~5.ocn.oon.m » Mason

 

on.qho.~oo.a on.4¢o<nqw.a on.¢no«wq¢.q oo.~ofi«woa.a q<.m45«a¢¢.¢
Amn.~e~.mo5.~voawn.oeh.~05.svofim~.oan.5q5.svaNo.-o.-o.vasso._o_.o~n.~va
Awm.oa5___5.~0 An~.oeh.5«5.~0 Auo.~¢o.-u.su “Ho.~os.o~n.~u 00.n4n.¢oo.a

 

 

 

 

 

 

Ao~.ooq.050 » na.¢oo.nn . sn.no~.qa » oo.o~o.o¢e “ANN.n¢<.¢~n.<vo
-.nso.«mq » o_.¢on«~s~ . an.a«m.~<~ » o~.¢oo.sns » wmwn-.nocq0|.
«n.oao.ns~ ca.m5o.«¢~ ~o.o~o.5~0 os.~oo.o~ oo.ooo.on
- - - - oo.om~.a<~.o
Aoo.~so.nv gm.o~m.~o~ oo.n¢¢.mo ~q.o-.oo oo.bm¢.a4
- - - . A8.8°.on~.:
an.n¢o.-n .oo.~no.¢n0 no.non.nq » no.noh.~ «Ros.moo.nsov ¢
mo.oso.-5.s No.o-.onn » mo.¢on.oe~ . o~.¢4o.non . o~.a~m.ono . no.o~5.os~ .
Aoo.ssn.sqsv o~.~na.on o oo.o¢o.o- .Aon.noo.sonv . oc.-na.nn~ mAes.ho¢qsn~u .
5~.mo¢.nn ~«.o-.os no.0mn Anm.non.oa0 “on.~s~.m~0 .i
5~.~oa.-~ 5n.ono.~a o_.~9n.an -.~5n.ao o¢.ooo.~5
Aso.~o~.o~0 Ano.os¢.nsv A¢—.«os.e~0 An~.o¢a.~v Ahn.ooq.¢v
flew.mo¢.~usv Ah~.n¢a.mns asn.o~n.~cv Aao.-s.~usv An5.onn.oa~0
h~.<n~.so » Na.¢hq.oo .Aa¢.~_n.o-s » -.5n..¢om » on.«~o.n~ »
n~.~m_.cno._ o~.oo~.5~n » ne.¢o..h- » oo.o¢n.h¢n » 05.n5o.4on » ~o.nn~.uo¢ .

500.-n_o~nw 500.000 00“ no.o¢0_mow 00.000_mm~ Am¢.~NN_H~Qu

 

 

 

00.000400¢1fl o5.NmN.HH¢4m 00.5a«‘004«¢ Assauuuwaioo «0 uosv anaauam s«-vfium weansm

 

 

 

 

 

“no.0nm.onn0 maes.m~o.n-v m5m~.moo.s¢¢0 » .maficuau noes-gum casufisuuosca mnsvcm
nm~.mmo.5n5u Amm.aoodgqmv I sunfish-u voswauom nuuumsuauusa wswssamon
o~.5a5.5qs » qo.~oo.nds 05n~.moo.~euv » masses-u n~csauumlvouushuuosmml

5mm scauuavouv ou sawuwvv- uoz
Ane.~mn.oov nano.onn~nv a 5~.nm¢.omw » mucosa so acosusuoaasu suuon

 

uuovuosxoOuu cu uvsovw>uo
aways hsosaoo n00 you usoaknm
husu«uumovIImsusosuwsouuo opsonoz
nowuaowswusOu sow u>uouom
» opus-cu soda-5~s> nowumsauuu Ahoy-ass:
"onaausa sou-«unchna- cu usouus-uh
"macosw «o «scuuauosuwc

. 00.oom«d- a

00. n¢¢. 00 u o

Ame. now. wuss name. can. nswv a 5d. moo. «no

 

 

 

 

 

oo.n0~.0n~ ~5.¢4«4o5 » ~¢.4~<.oo~ » ¢¢.noo.5a »:uo~u«os«nm nmuumxwmmu mmumwwwu
Nag-nosed: saw: oosqsIomsOu
:0 005 sumac Auno~v albusu uoz
Afln.nn5.o$v na.n8qaon » NH.~OnJI¢~H 03.5n04nomW » ouasuoann; “ouch.

 

om.nnm_~o No.005qdn o5.~004~0 unou van-«cougar us «unna-
vonau Has >hscu vac ousoIUu-uu as» so
nus... void» vouuaiuo-sos ou-A-I> aneuu
~5.N50.0¢~ ¢o.-o.oa 40.mn~.N~ ovonuoa unausw cu uquu
sauuusaavuo uo scuuuoa - homoQII>H aboso
505.N00.ov Amo.oao.00 505.000.00 out... su-usou so

nouooH again-on sou oou>oumIIHHH guano
uuou vouwusolu cu flosu mswsuauou
ossu .uoaH-> .u.H.<.z o» nowuuusooo
no usulu-nnvn oouo’ouunnu nacho
ab nacho an a». sous:
nuoun- conga son» sosuov nusnluu-un
«Au so guess. vauuwaoCIsos ouu~mIIH sacsu
"Ada-use sow _ ouavosum uuuv ausuluuafiv<
cloud“ MN
vows-«u clog“
mum mum
ulna“ tau-Hus
as. vouualia-sos «o onao> su uwsono
uaum «a sac

504.000.¢~0 oamo.500.00v n500.050.000.~0»

 

 

«0.000.000 5~£.ona.0Nnv nau5.050.00 m 55.~00.—~0.~ »

 

 

osowuanou-wm mu
“venom xs-nn soauso>sou

 

 

Ao~.nom emu Ao~.00—_o~u -.5H0_n00

 
 
 

 

 

00.000.000 o~.00¢.~0 0:.onc.~¢ mm.o00.0~ -.~nn.0o5 I I u
a. 10930 ouauausuuu no oa~ob s0 own-:0
500.0~N0 500.000.0anv 500.0400 5-.wuo.vv 505.~¢c.~nv 5n.ooo.- a4.o¢o.o~ 5¢.¢~o.0~ vuoo ouono- so Ann-oonv oswuw "dawn-0
"as-an sawuso>sou
so cannuam cu uuuuao venousu album
n¢.0~¢.unfi.~» «n.meo.~o~ m 5~.005.0¢~ » ~0.Noo.om~ m 0—.000.o0~ m 55.m~0.00 05oo.~00.oov n5n0.~nm.0nv a 0o.¢au.~ m oo.¢oa.5u » Assam sauusorsou
sun 283-08 83 5:30 58 no:
nauuH nun «emu Noam 00m” onmm 00m~ ulduu nun 500a 000“ 00¢"
00 ounfluudfl< «o ou-uouuu<
a o u a - A,I o u u o d,n o I so an! chemo. o shosuaom :0:
fl 3 u zooauuuswsum 9.1335 _ Snood noun-oz "Soups nu:— oIoIs-flpowsou 5 llunqg j! 3.; Nada «M
3m souusnbsou 'uaqu-squfi

INN.IIJHHIII
“mum“:mmfia...

ANMINHMI

 

 

oeusnnaosn oqu

L

ce Companx
Schedule 1

(New Southern Comganx and Merged Comganies)

 

Life Insuran

—_

231

fiufiflfiflflgg

 

 

ch.~mo.0m m oo.oom.oNs m Acm.moo.~m~0» mq.mmo.mm~ m Aqs.moq.5mwvm mH.mom.m¢Hm ms.son.qss m Amm.5~m.momv m wucweuwahu< sauce
5F.moq.00 m ~a.o-.0— 0 00.000 0 500.005.000 m 500.HH~.000 w o0.Hm0.H0 m m0.005.~0 m 05.000.m0 m musmsumsnuo > nacho _au09
Ana.ahh«nqll Aoo.~w¢IowII Aoo.om¢400 Aoo.omq.ov I I - I “moo wcssouosas so ccsunsuusaon vsouox .nom
I I I I ~0.moo.¢ 00.400.5N I I wsfifiwooEws mo umou ouwfioufiauu .qo0
I I I Amq.o0~.qnv I I I I zsonoo «so we mxoon wsu so
usoeafisam vso muouwshsw wsfiowfla asuso ouuo>om .40
I I I 505.000.000 5NN.0q0.500 00.q00.ma 0~.0~0.o0 00.0N0.54 ouuuuo Haws s0 uwswsu s00 asusu wouo>m¢ .00
50m.oosv 500.0—q.mv 500.000.00 mm.woo.m 00.000.00 m5.0m~.mm mm.om¢.n 00.0~<.- mwsofissflm vsu moHfiAOEOuso
mo wa~o> xoon uos s0 mwsosu s00 asuso ouso>o¢ .om0
50.0m0.m0 _m.0-.mm ~0.500.m~ Amo.0mm.000 «5.005.00 50,000.00 00.500.0m ~5.-¢.m~ usmsawpwo vsn assuassau
wo o=~w> xoon uos s0 owsmso s00 muuso ouso>mm .N0
I I I I 500.000.00 I I I usofiaasvo oso ausuwsszu mo casuawomsaov vsooom .00
I m I m I m I w 00.05o.¢ m I m I m I m usuanwaoo vso osnufissaw vuouox .00

numou woumfiumsamv on muumwo voxww 00o muuou vso
musoeouquu osu so muomua 00x00 vmuufiacoIsos ouo~mII> nacho

 

 

n.00m.~ms m sm.0so.mm m ms.mom.qm m ss.mhn.oo » om.ooo.qu » ~5.N5m.mesm qo.~sm.oo » «o.mns.- » oucoeumahuu pH a:o.o saucy
Aoo.QQmIfiq|I. oo.m_m«ws 5m.qoo.s ow.oo~4m sq.q I I I Au>u~mus cameos“ uwcsnoaa on acousoa0sa as
tosseuonv «Ebwfimsa woswsamsfi cufious vso usukuu< .uq
“N.moq.0ms m sm.nms.o~ m Hm.~m~.mm .m mw.nom.mo » oq.ooo.m~ m NB.~hm.m¢~m qo.-m.oo m co.mns.- » Acossma sums m>ws a hope mscopm ouuuuossa

hfiwsosufinsov «scammAEEOo mucusamsw mad" swam awash .oq
“anewuua assuaw
cu uuooo scwuwmasvum mo sow~son o smuwQII>H asosu

A_o.mms.omv m Amw.mso.msv m Aas.mo5.¢~v m Am~.ooo.~v m Ann.ooq.q0 w Aas.~oo.ov m Awm.mso.m0 m A05.omo.n0 » Ago“ “a nosqassmoe muuca_on “snow .mscum< .oM
uuuwuao swousou so «mono. wnnwumoa saw ovw>0hmIIHHH nacho

 

 

 

Aq0.000.00000 A5N.mqo.0mv m 550.0~m.~q0 m 500.-~.~NHV» 505.000.00~00 I m I m I m «osmiumsnnu Ha noose "such
I I I 500.50045mwl I I I I musuEswzmvu apes:

mo ufismos u no msssm flwuwumo s0 uwssso .0N

500.000.0000 Amm.0co.o50 550.mom.000 500.500.0000 505.000.0owv I I I mxuoum .—~

Amq.mmc.sy m mo.~m5.5m m o~.q5m.ms m o_.Qmm.m~ m Aqo.05q.-0 m I m I m I m mason .oN

”umoo nouwuuofio cu sons masspaumI «ago .mo:~u>
.UIH.<.z cu nowuwuzuom mo usoeumunum emsu>mmIIHH nacho

 

 

 

n_.qmn.so m no.qnq.mo m Aoq.~sm.o-0m -.nmm.mon m on.¢~o.ns m Aoq.mmn.q~vm Awm.5mo.nnv m noo.mho.noo.svm mucussmannm s sunso sauce

Amu.qu.momm Ams.ssn+onq. Aom.mmn.~_¢w m~.~onImmm Aqo.momqwmql, A~¢.non«¢mw As~.~m0+m¢wq Aoq.sonImmoIsq “coo” Iwumsso: .ms

00.00q.0 I I I I I I 00.0~¢ nuanmv maowso-vuu0r .0"
I hum.mosv Aqm.msqv Aos.-~v Aos.nm~.sv I I I muses_oa sosns>sncs so mu_us~saoss au0_oa soguo

 

 

 

 

 

 

 

 

 

 

 

 

 

 

vso unno> uos 00 wmooxo s0 Iago Inauos Sofiauum .0
oo.0~0.~o~ «0.000.00~ 00.000.500 00.noo.o~ 00.000.40 N0.5mo.oc 00.000.00 00,500.00 moussdqn “spun .musom< Io
Amq.5m5.5v Mm.mq~.o 50.0«0 Am~.05_v 00.mmm I I I mansuusau-as nosoosnsoo «coo; .m
00.5oMIH m I m I m I m I m I m I w I 0 musumm so msouwwuo cu nousu>v< .N
u5> asouu s0 who Loss: .uuooma voxHu son» sozuov
nusflaououm osu so spoons vuuuasuaIsos ouo~mIIH nacho
~00” 0000 0000 0000 00am 5nm~ 0000 0000
m m w s a NIB 0 0 u v.0,» m I smwwu: mucuwm msomaou shonunom 302
M «Hanmsom :mufimwusfihm wwwus30uu< noumuuu< NWwasosmu: £003 Escusou ausufiou-um fiqwusosam osu wxot MM

 

muswkuwaflv< Mm mHJumsom uonouoo
Amows~m€ou vuwmmt usw hsmmmou ssvzuaom 302V

1

A Mommasu mosmsamsu 0004

 

 

 

232

TEN FOREIGN COMRANIES
A sample of large stock companies was selected from the list of
fifty largest life insurance companies in the United States published by
Fortune.1 Companies whose admitted assets were closest to preselected
fractions and multiples of billions of dollars of admitted assets were
selected from that list. Certain other firms were added because the data
included in the First Boston Corporation's 1963 edition of Qgtg.gg_8elected

Life Insurance Com lanyfiStocks indicated possible enrichment of the sample

 

by such addition. The reasons for the selections are indicated in the
discussion of the firms.

The Nebraska Insurance Department, in common with many other depart-
ments, retains the Convention Blanks for foreign companies for only five
years. It was therefore necessary to write to the companies for the cost
of furniture and equipment purchased and first-year commissions during
preceding years. Not all companies submitted the data on exactly the same
basis, but the Nebraska Insurance Department had not disposed of the 1957
reports. Consequently, satisfactory verification of the company's method
of completing the questionnaire was possible and the same method was then
used for the analysis period.2 Since the purpose of this part of this study
is to test whether or not the adjustments would likely be material in firms
of all sizes if made in practice rather than to prepare completely accurate
revised statements, minor variations between companies in the method of

compiling the data submitted are not important.

 

1The Fortune Directory--The 500 Largest U. 8. Industrial Corporations
and the 50 Largest Banks, Merchandising, Transportation, Life- -Insurance, and
Utility Companies, and the 200 Largest Foreig_ Industrial Corporations
(revised annually).

2Exceptions are noted in the discussion of the companies.

233

The order in which the companies are discussed follows the pattern
of the preceding section of moving from the smallest to the largest firms.
The first three are smaller than Company F but four of the five largest
stock companies are included.

As the research progressed, the importance of the types of insurance
written, underwriting policies and reserve valuation plans became more and
more evident. Key factors regarding these items are, therefore, tabulated
in comparative form in Appendix I for these ten foreign firms. This method
of presentation allows the reader to compare the over-all situation with
the other firms analyzed before attempting an evaluation of the individual

statements for each firm.

234

Company y;

This company was selected for analysis even though it is not one of
the fifty largest insurance companies listed in the Fortune Directory
because it had the largest percentage increase in market price of its
stock of any of the twenty-four companies analyzed in the First Boston
Corporation's study. The current price of the stock in early 1963 when
that analysis was prepared was 992 per cent of the high 1953 price.1
Three of the companies had no established market price in 1953, but the
median appreciation for the remaining twenty-one companies was 472 per
cent. This tremendous rise in the price of life insurance stocks has been

a contributing factor in the attention currently being directed toward the

financial reports of life insurance companies.

Underwriting and reserves

Accident and health insurance premiums comprised $31 million of the
$66 million of premiums written by Company M.in 1962. Of the life insurance
in force at the end of 1962, group insurance comprised 16.6 per cent and
ordinary insurance 83.4 per cent. Within the ordinary insurance category,
term insurance comprised 46.4 per cent of the insurance in force on
iDecember 31, 1962. Consequently, a relatively small portion of premiums
Iare held out of revenue to increase reserves.2 The transfer to reserves

is further restricted by the fact that most of the major plans now being

1See Appendix 1.

2Approximately $10.3 million in 1962.

235

issued are valued on the Commissioners Reserve Valuation Method. The

 

December 31, 1962, life insurance policy reserves were valued as follows:1
Modal Per Cent Of
Interest Reserve Plans
Rate . Total Currently Used

Assumption Reserves For New Business
Reserve valuation plans no
longer used for new

 

business:
Net level premium 3 1/2% 13%
Illinois Standard 3 1/2 28

Reserve valuation plans
currently used for new

business:
Net level premium 2 1/2 11 18%
Commissioners reserve

valuation method (CRVM) 2 1/2 _48 _J£;

égg% iggZ

A 3 per cent assumption is used under nearly all methods where the
1958 CSO mortality table is used (1961 and later). The total reserve
under this 3 per cent assumption is now nearly as large as under the
2 1/2 per cent modal rate.
Procedures which illustrate nature 2:
life insurance company financial reports

The examiner's report for 1959 discusses an accounting procedure
which adds another illustration, similar to the handling of agents' balances,
of a basic philosophy of insurance reporting. The following items were

included in the Remittances and Items Not Allocated account at the end of

 

1959:
221315 Emu;

Unallocated advances $ 3,074.74 $10,831.99
Investment suspense 1,511.61
Policy loans 9,876.35
Ordinary premiums 181,907.38

$191,907.38 $40,299.05
1

Includes life insurance reserves listed in Part A of Exhibit 8 of
‘the Convention Blank only, without adjustment for reinsurance.

236

The $40,299.05 is included in liabilities in the examiner’s report,
but the debits of $191,907.38 are merged with bills receivable and elimi-
nated as a non-admitted asset.1 Thus, the examiners are careful to include
every conceivable liability in the balance sheet, but only those assets
which are specifically qualified as legal investments of insurance reserves.
From an accounting vieWpoint, both assets and surplus are understated in

the Convention Blank so far as these items are concerned.

 

1The examiner's report makes several minor adjustments and reclassi-
fications so this figure does not agree with that in the Group I adjustments
in Schedule 1.

237

Exhibit A

 

Life Insurance Company M

flag

00.0mm.ooo.a m
mo._em+oe~.s
om.eeo.o~o.n w

«o.m~—.wm0.mm

00.~¢0.005.~

00.~5..500.0N

05.000.N-.~Nw

 

 

mw.mmo.ooo.n m
mo.e~M+ome
om.~o~.s-.a m

mm.mmm.ooo.a m

om.~o~.q-.n m
No.mao.osm
m_.mm_.moa.o m

00.~0N.¢~N.5 m

 

m~.mms.mom.o m
oo.~mo«~am
as.o00.nmn.o m

 

00.000.000.0 m

 

o~.oOm.mmm.o »
nm.-nqose
em.aa_.m-.o »

 

o~.000.0m0.0 »

 

em.na~.-s.o m
so.mmHImo~
oo.e¢o.o~¢.n »

 

40.55~.0-.0 0

 

~m.mmm.mmm+a~
so.een.ooa.0mm

om.qno.mo_«mm
om.omm.~on.mmm

00I-n#000 0N
00.Qm0.~¢5.mmm

es.aqsIsms.m~
mm.5es.nmo.on»

m~.m054~mo.o~
no.mqa.mma.o~m

 

 

00.00mfi50m 00.000.50N 00.000.50N 00.00mq50N 00.000.50N
50.000.H05.0mm 00.000.000.000 00.000.004.000 00.N0~.005.0~» 50.~00.0N0.0Nm
0m.~waqam_«Wm «0.0001000400 mm.~0N#MON+0N 50.~00+WN040~ ~N.00040004Nw

Hm.wom.nos.~ »

Nm.seo.ono.s m

”n.5em.q_h.m »

o~.8~.3~.m m

no.0oe.o~m.m »

 

e_.soo.qoa.m m

00.000.00~.n 0

-.005.040 0

~0.05~.5m¢.a »

000.000.000.00»

 

oo.ooo.oos.~ oo.ooo+ooo oo.ooo.ooo oo.oooIooo oo.oooIooe
8.ooo.ooo.~ 8.08.o8.~ I I I
oe.emo.qe Ne.sm~.no m~.ao~.mm nn.moo.sne so.~oo.ho

00.000.00N w

50.~5m.00~ m

0N.0N0.0_N

00.000.05 m

<0.500.~Hm

00.005.05 m

000.000.000.00

0m.-¢.00 m

 

nq.mom.sso.m m

~0.0m5.0~0.q m

N5.5¢~.000.¢ »

50.050.~00.¢ m

oo.000.~5e.m m

 

mo.qma.0mq m

«0.050.000 »

00.N00.~50 m

nn.-m.osc »

00.00H.00N m

 

 

 

am.oeo.omo.e »

Ha.ann.ann.q » -.o~m.nem.q m am.mno.meq.q m

I

 

m~.omw.ss~ es.oeo+se “n.00aqoa e~.oe¢.s s~.eo~.m~
aq.qe~.ems mo.mmn.qu ss.am~.mm~ eo.ooo.mo~ mn.m~o.qms
Ama.mmo.asv Aom.mmm.m~v Amm.aso.o0 Asu.eam.osv Aon.ooM.nv
Aos.qmm.mesv A_m.som.o~v os.ooo.m~ os.ao~.~s nom.m~m.wmv
em.~sn.ao~ m _n.mss.NmH m mm.mmm.- » ms.ooo.mos » an.amn.oa »
oo.nmo.mam.q » oa.o_a.oon.q m ma.qom.~m~.o m ~m.m¢o.sh~.c » no.oma.ao~.m m
I I I I oe.amswmm
Aen.n~s.smmv asn.m-.~msv Amm.non.-0 Ams.ooo.moHv Asa.ann.oa0
no.0ns.sos an.eseiom Ase.oao.mev Ao~.oms.amV AH~.0mn.nv
~o.moe.mo No.qoo.no oa.mom.qm "a.oo~.wn mm.nMs.qm

ms.wom.os~.m w

I

 

 

o>onu mo .vo«uoa mo ass on oosmsomuwo
your ussu muswsumonv<
mosses 00 wswssfiwon us oosmsowwwo
“wOOsA
mucusmwwflo
xsnfin sowusm>sou son asdnssm moswwmmss: wswpsm
”much
Ausowmu0:50o no uusv usfiassm sfiIvHam wswvsm
mwswssmu voswausm nouuwuuaoss: msflvsm
nwswshom vwssouoz souufiuummuso wswssawom
mmwwssoo nosfimums
AWN sowuuasusv mm sewumuvs mum
«Seuss mo usowuwmoamsn Hauoh
msoufiorxoOom cu wssmss>fiu ammo
muonfiochOum cu mosupw>wv x9000
wswsosuwsosum obsomom
msowuso zuwssss sew w>uwwom
mwflusmwseusoo
u>sUmos s000m40o> moNUwsaoma msouuvswz
"mamasam vooawssosnso cu msmumsush
”oEOosH mo «sowumeAmsn

 

 

 

 

vouuauumuss:

 

:moamwdsuum mssus20ooo noumwoum HwAaswsuw:
so“: mosm6s00s0o_mw vousmmmo Amuofiv oEOosw umz

 

 

 

musoauwSmoo "much
umcI woumsoossmu u- nusuoo coxww "no asses vsm
assaemuosm men so museum coxaw nouuwavoIsos mosflmII> nsosu
avowson osauzm as msmOU sowusuwauuo uo sewuuoa o souooII>H mucuu
mummmn sscuuoo so usamog udnwnuon saw ouw>oumIIHHH sacsu
”mod ponwusoao cu floss mswsssuo» mass .mo:~s>
.0.H.<.z cu wowuwssuum uo usuluuanvo umso>omIIHH sacso
5> sacsu s“ u»: noes: monumo uoxsm sosu sosoov
noswaousum yea so cue-nu vouuwauoIsos moofimIIH sacso
“flawsuov sou uofisoosou masks-Bacooo oouv musueuwann<

escoss Mm MNMMMMMNNMMW MM suwmmao
abouw msouoa xsogn soHusv>soo Hum mum
amass usuaosauou .moozomssm
aboum voyages use kuufifisoIsos mo os-> s0 uwsosu
»wo% 00 us» us vocab muauwsaoom 00 oaan> s0 omsoco
vfion uumuoo so Amouuoav ass-0 "sumauu
,xssam sowuso>sou so «sasssm cu uuoswn nosousm neouH
xsm~m sofiuso>sou sun «sowuusoso absw AuaoAv swam smz

 

 

 

 

aflouH N000 0000 000a 0000 0000
Nam mo
ouomuswu<
.fl uwaflzxu :uoamuosssm mssusooou< nwumwou< Mafioswsoo: L003 oVGQEL00sou mfl mo~s~MMo umswsuqm saw: omsm< NH

 

 

 

 

 

AsmHm sewusu>sou sum sawdusm m4 momswsu uso msosumsmmm scum sHaU Mm.usufiuusfiv<

I wsomaou wosmsaasH wwsq

 

 

238

5

Schedule 1

Life Insurance Com an

 

 

00.0N5.0m0 m

 

No.050.0fimm

 

 

00.N00.N5mm

 

 

 

n~.0m~.s_~ m 00.oso.m0 m am.mo~.oa w
Asm.mn~.~0 Asm.mm~400 Aoa.n~ov

I I m~.os~.m~
wo.~mm.m~ I I

Aao.~oo.~ssv

00.0m~.~00 m

Anm.oo~.mm0
om._oN.mqsm

 

A00.moo.sov
No.mmm.m00m

 

a0.00~.0ms m

00.000.0000

 

os.~m~.mm~m

 

Amm.amq.mq

A05.000.00V

05.000.N0~ 0

Am_.moo«0wl
Ana.mmm.av

00.500IN000

 

00.~0~.0
00.5m0.0

00.000.5HNm

 

“mo.mmm.a_0 »

500.mmm.-vw

 

Ao~.0mm.00svm

Asm.som.onvm

 

0N.50

Amm.soo.0ssv
“00.00m.m0 m

050.000.050
500.0000 0

 

0m.~50.50m 0

~0.0~H.~0H0

 

00.000450
Nm.000.05~ 0

N00“

s assumeum

 

550.000.000
00.000.0NNO

500.5H0.0V m

 

es.ooa.o~ m

 

oo.qms.0s
os.o~m.ms m

 

00.000.00 0

A00.H05 05V
0N.05H.00 0

00.N~m.0~0m

 

0~.000.H 0

 

A0~.oma.mm0
m0.~mo.hm a

 

so.ooo.oo~m
Am0.0mq_~0
Aom.om0.mV

5N.5N0.0~N0

 

AH~.500.0H00

 

os.so~.~s w

 

00.050.H~
500.000.00 m

 

00.000.00Hm
0~.00o N0
00.050.0000

 

00.00H.00~0

 

00.000.000.00

 

05.005.0N m

00.505.000 m

 

A-.m~o.mm0
om.mmo.~ssm

Amo.asm.moev
os.oqo.amm m

 

00.000.0000

05.500.000.00

 

mo.ma0¢~s 0m.sms.aa
«0.005.00 oa.omm.o~m

0N.005.0000

so.mmm.0-.0m

 

500.000.00 0

500.0H0.~0V 0

 

500.000.NN00

00.00m.som »

 

 

 

 

AHa.0omImv I
Ama.mos.omV se.00m.som
oo.oo~.os m I m
55.5mm.oa m «H.0mn.~oo m
00.0a0.as es.omm4~m
mo.moo.mn a mm.nas.o~n »
cams nnIHMINH
usosumsnn<

 

 

o>wuwaaano

:mofimwosfism 0qussouu< cosmooo< Nfidmsosooz

wuswfiumanv< Houoa

wusoaumsnvo b ssosu Hmuoh

s00 EuuH mo sawuowuuuaoo .000
mmswsawon ou msoHuwsso usosqasos oanuuwnoo .u00
zsuaaou «La 00 axoon «nu so usowuwvvs
assasssoo vsu ousuasusu mo os~a> wswonas ouuu>mm .00
usmssasvo vsu ossuflsusw uo sofiuswuosuov vsooom .00
usoeaasdo use ossuwsssu secuwm .00
"umoo souofiuossuo us assume uuuaw HHa musou
use muswaounuw osu so muouuo noxfiu vouuwavuIsos ooaHmII> saoso

ausuauusfiuo >H nacho Hauoa

A00 EwuH mu sussufi uflsu s0 vosuouuvv umou
soHuHmflsvoa uuuswn oosasSmsH guano: use usokuu< .N0
AoPLomou sawauss vosuooss ou sewuuoaoua s0
0930003 usoauoHEOo ousossmsa sinus use uswvaous‘ .00
Avo«uoa sau> o>fiu o uu>o m~sw>o vauuuoagu
.0flwsssuwnuo0 «scanawaEOo mus-sans“ ouua scum “mush .00

“usofisoa menuaw ou uuuoo scauauasvuo mo sOausos o sumoaIIDH nacho

Aflofi us vouqawuuov uuosnflop.ufinov .uuso0< .00
”woouoa ssquswo so moaned anHumoa.sOu ovw>osmIIHHH nacho

musuluusnvo HH nacho Houoh

ssosm cuss s0 unsoluusnco
uosuo mo uaouss - mu ass-0 “cussed s0 owsqso .0~
ux00um .HN
mason .om
"umoo noususoau 0» Busu 0swsuauus mass
.mosgo> .0.H.<.z cu wmsuwssoom mo usufluusmvo ouso>u0IIHH ssosu

musoauusnno H nacho “such

o~0a>aoouu «0000 .5
nousoaon “some .uos000 .0
NA> sacso as use sass: cannon voxsu sosu susuov
«usuaouuum osu so «some: vouuwavnIsos ooofimIIH ssosu

 

 

 

 

 

 

 

 

sow: Shousoo nusuaouaum Huwossswm 0:» 00¢! MM
unassumafis< Mm assemeum cassasos
m wsmmeou oosmssmsH 0000

239
Company E

Company N was the forty-ninth largest life insurance company in the
United States in 1962 in terms of admitted assets but moved to this position
from fiftieth in 1961. It was selected because of this position. It is
the twenty-third largest stock life insurance company.

Company N is wholly owned by a mutual insurance company. It sells
only annual dividend life insurance, of which slightly over one-fourth is
term insurance.1 Full net level premium methods were used in valuing
reserves on policies issued through 1947, but the Commissioners Reserve
Valuation Method has been used on about eighty per cent of the policies
issued since that date. However, a 2 1/2 per cent interest rate is assumed
for all valuations whereas many companies value at least part of their
policies under a higher interest rate assumption. Consequently, Company N
currently allocates a slightly larger portion of premiums to reserves than
firms which use a 3’per cent or higher interest assumption with preliminary
term valuation methods.

All fixed assets are rented from the company which owns Company N.

No adjustments regarding fixed assets are therefore required.

One new adjustment is listed in Schedule 1, but it is merely another

example of non-admitted assets. This adjustment is given number "16" and

involves under-remittances from branch offices. It is really a receivable.

 

1See Appendix I.

240

Exhibit A

 

Life Insurance Company N

 

 

 

Ho.0qo.omw.0 w

 

 

 

”0.000.000I0 0 mm.5ma.mmo.m 0 00.505.00N.m 0

 

oo.0en.qom.m w

 

 

00.500.000.N 0

 

 

mo.aoo«oqw.n
mm.ams.mmo.m m

mm.msm«msm.s
mm.¢NH.NO¢.m w

 

 

 

sm.qqo.omm.0 w

Amm.oom m “.00

00.5m5I0omIm m

 

00.5m~.mmo.m w

Ano.esmawmv

oo.00m.som.m w

mm.ama.mow.m w

no.0anmom
mo.aoo.mom.u m

 

oo.000.qom.m w

Awm.soo.sonv

mm.mms.moo.m w

 

mm.aoo.mmo.m w

 

 

«0.0H0Iasa.mm
na.mnq.non.mmw

ofi.qmm.msn.m~
~0.sms.oqm.a~w

ma.moNIHoo.m
qm.0mm.omm.m~m

am.qms mnoqom
as.ama.mmm.mmw

”n.0moqmmm.as
ma.¢0a.emm.omw

 

oo.ooo.oo~
ma.ans.aom.mmw

oo.ooo.oou
N0.HMs.oqm.nmm

00,000.00“
0m.omo.omn.mum

00,000.00“
“0.0m“.mmH.m~w

oo.ooo«00m
«n.00n.qms.on

 

Nq.sms.oomqwm
Hm.mmm.smo.o m

0m.0mm.oma.mm

mo.nas.mso.s m

36212012
as.0¢0.mmm.m m

Na.0om«¢mm«gN
ma.qmo.msm.m w

an.maqummqms
ma.mmq.oom.0.w

 

 

005.000.0500 0

ms.mmo.mma.m w

00.000.0H0 0

00.000.000

w Amo.nqs.oso.mvm

 

oo.oooIom0
m0.mma.fi

Amm.nmq.mms.svw

oo.ooo«oom
mm.eoo

00.000.00MIN 0

00.oooqo0m
00.00H

00.000.000 0

00.00010om

Ass.sma.smv

00.50H.NON m

oo.ooo«oom
mm.ooq.om

Aoo.ooo.OOn.mv

50.H0m.500.H 0

 

oh.qu.~mq.ms mn.soo.esm.n m

om.mom.aam.e w

 

Ho.005.000.m 0

05.000.050.m 0

NN.me~.qna.~ m

 

00.000.5HN.H

 

mo.aoo.oem.m m Amm.omw.mmm.svm Ano.asm.mm0 m no.0a0.mom w Amm.soo.aoov m
ms.mmo.ommqs 00.0am40sm No.mmoqqmu mm.man00m mm.moswaa~
mm.m55.mam.s Amm.mqm.aas.mv Aom.sme.o~mv Amo.mmo.aoHv Aom.mao.nmmv

05.000.00

m Amm.nss.sqv m

ms.sam.ms w

«5.000.000 0

cs.a00.oH m

 

0~.mmm.05m.0H 00.005.5N0.m m

00.000.000.0 m

 

0o.m00.000.m 0

00.000.05NIm w

00.000.HN0.0 0

 

AHH.05040NV A50.0H0«0H0 H0.0m~«00 00.0004Hm0 00.000q0m
AOH.5o~.omv 00.050.00 AmHIH5HINHV AN5Imm0.50HV A0~.0om.0v
000.000.000.00 50.000.00H.N 00.000.050 00.000.00H H0.005.N00
000.000.000 00.0N5.5 HH.500.0 00.0m0.0 A00.00m.0v

00.000.005.0Hw 00.000.000.0 w

 

meouH NO0H
me mo
wumwosmw<

 

0 usnsexm

mN.mH~.nam.m w

HO0H

“N.¢os.mes.m »

000a

mm.~om.nsa.m w so.wes.mmq.w w

000H

 

:mmamwosfism wswussoou< 000m0uo< NAamumsmo:

 

 

000a

nu“: cosm3s00s00
xsmam scauso>soo sum nsHmMsm MM mmmsmzw nsm macaumuomm
m Nswmmo

0 mosmuaasH swag

 

 

 

w>onm mm .umwm mo vso um mososouwfla
swam mass musoaum300<
smom mo wsfissswms um wusouowuflo
“moosm
musosouwfio
xsmam scaus~>soo son msaassm voswemmmsn wsavsm
HmHOH
maassam ssInwmm wsausm
mmssssmm sosflmumm vouofiuumoss: wsfiwsu

mwswssmm wmssuuwm 0qufiuumoss0 wssssfiwmm

 

mwsfisumm oasssuwu
kuowsumwsss dwm seauosvmsv MM sewuwuvm uwz

 

 

 

sEousa Mo msofluwmoamwm annoy

msmnaostOum ou mvsosfl>00
wswswsuwsmuum o>hwmmm
mmauswwswusou new w>somm0
s>homou sewumsfls> mowussauom stumvssz
”musaooom msasusm vouswuaouaas cu muuwmsssh
”saousm mo msofluwmoamfin

 

:muwmwosfium mmwussoous 0mumuuos maamumsmw:
£003 ousmELOMsou aw vmusmfiou AmmoHv «Sousa umz

 

 

 

«usuaunsnns HmuOH
onowuws unsusm
cu mumou sawufimfisvum mo sawuuoa s uuwoaII>H asouo
umou coswuuoam ou Eosu 0sasusuou mass .oosas>
IUIHI<Iz cu mufiuwusuoa wo usuaumsfivs ouuo>uxIIHH nacho
A> macho s0 and Lows: muumus vuxww smcu Monuov
muswEmumom us» so assume vsuufiavsIsos oumHmIIH asosu
“naamuov sow umaanwsum wswhstBOUUs moav musuaum=000

 

 

yEousq MM msofiuwwomwflv MM wommmau
mass“ shewwn xsmam sewusm>soo Hum 002

 

mus:Ouus .uumom uowua mo usuaumahu<
mass“ vmusaau saw vouufifiusIsos mo usas> sd owsssu
smox 00 use us 00:30 noduwusouw mo osHs> s0 omswsu
naon saunas so AnouuoHv usamw Hsufiasu
Hxsmam sawusm>soo so usasuom Ou 000000 vouuusm «EouH
xsmflm sowusu>s00 son msOwusuoao Baku Ammoav swmo uoz

 

 

 

 

 

MM cousaaou mwsashmm sufiB smum< NM
NM usuaums_n<

241

E
1

Life Insurance ComEanx

Schedule

$0.5oo.0qw.mw

ANm.oan.Nm~.va

 

ma.wM0.onn.Hw

no.0~n.mmm w

 

Nw.nnn.ms~.am

¢H.~00 nnn H

Awn.mwm.qoo w

Amn.n¢n.mna.nvm
Amn.~mn 0HH NM

Amm.dno.~ov m

 

 

 

n~.moq.m¢ a Amm.~H¢.H¢o »

Amm.¢0m.mo mo.~co.h

«n.mm~.- an.hno.m

mq.nmo.o~ “om.omoo

oo.ooo.~ oo.oom

Amo.cmflo Amo.~HoV

oo.oo~ An~.mmv

mh.ofio.mfi m A~o.m~n.hno w
NQ¢H Hooa

.M oflauonum

“no.5Hm.mmV » no.0~¢.mom m Awm.doo.~oovw

 

 

 

No.nmo.¢- w ma.mnq.mo~ w mm.mo¢.us~ » ~n.oom.mne.nw

 

 

 

Aow.fl~c.o-vm Anm.nmo.~oavm “ea.uho.nnmom o~.o¢~.m¢H »

 

 

 

 

 

Aqm.nnfi.mo~u Afim.o~H.omn0 “ca.-o.nnau o~.oq~.m¢a

Aom.noN.moo » om.o¢o.m¢~ » - m - w

na.flhm.~fi » -.nmo.m¢~ » o~.»¢n.ofi o n~.mmm.nn w

Amn.~oq.omu mn.wnfl.a~ _ m~.oquo o~.¢o¢q~n

q~.-o AH¢.K¢~V Aq~.n¢o.fio on.ooa.~

oo.oom oo.ooo n¢.~¢n.~ nn.~nfl

~5.Hoo ¢¢.on~ o~.om -

Amm.quV Aoo.ono oo.oon oo.oofl

o~.moc.~q m oo.-~.om~ m - w - w

coma ¢n¢~ mnmfl Rn-Hn--

adulUusnud
o>wuauaaso

 

mm.m-.~oo.nw

 

 

nucufiuusmn< Houoa

Anewuoa u-uh spam a uo>o h~o0>o uoudOOaHu
hawuauuanuuv «dawn-«Ilou ououuauaa owwa and» uuuam .o¢
"quwqu unaunu
cu uuoou noduwnwnvua mo noduuoa a unmanaan «scum

nuduauuamvm HH nacho Huuoa

qxuoum .HN
cocoa .ou
"uuou vuuauuoli ou luau mudguauou canu .uunao>
.o.H.<.z cu nouuahaoo- mo unusuaanvo unuo>uuaaHH nacho

annulunsfivq H nacho Huuou

auuaduuaauuuuvap .0H

owaosouo :wwuuom .0

manupuouou uaawn .h

.oauwaoa “usvapauaa no .oouaflopaafi %ow~oa

nunuo on: oaan> and mo unounu nu .uuo .uuuod auaauum .n

noon-awn afloat .nuouu< .c

cuuuauuo uo noon». on nuuuu>v< .N

uouuql vouowua no. muonoau-uo .nuaananm .m

un> nsouu aw cud noun: nun-ca vouam udnu nonuOV

«unuauuouu «nu no uuouno vauuwluonuoa ouaHMuoH macho

 

:uuHmuuawum umwuaaouud voumuoud Nwaduonda: anal fluouaoo uudfllfluuum HIflQflIflAh Una QJIZ.MH

 

.mmmmmmmflm¢ mm ofiauonum uofioquon
m_Nmmmmmm uoauuaunH ouwa

 

 

 

242
Company 9
Since the operations of Company N are comparatively simple, because
they lease facilities from their parent company and write only ordinary

life insurance, a second company of about the same size is also analyzed.

Underwriting and reserves

Repeated emphasis has been placed on the effect of the method of
reserve valuation on the portion of premiums transferred to reserves and
therefore on the reported income of life insurance companies. An attempt
to compare the size of Companies N and 0 focuses attention on another
significant factor which has been mentioned but not emphasized heretofore.

A substantial portion of the business written by Company 0 consists
of types which require small reserves and consequently smaller admitted
assets in proportion to insurance in force and premiums earned. As can be
seen in Appendix 1, individual ordinary life policies provided only a
third of 1962 premiums. Furthermore, the amount of term insurance written
was almost double whole life. As a result of these factors, even though
the admitted assets of Company 0 are barely more than the admitted assets
of Company N,1 total premiums received during 1962 were approximately $72
million as compared to $51 million for Company N. Similarly, total life
insurance in force for Company 0 at December 31, 1962, was $3.7 billion as
compared to $2.2 billion for Company N.

Policy reserves on new issues are valued on the Commissioners Reserve
Valuation Method with a 2 1/2 per cent interest assumption, but all the then

outstanding policies were changed to the net level premium plan in 1959.

1$280 million for Company 0; $272 million for Company N.

243

Procedures which illustrate nature of
life insurance company financial reports

 

 

Several procedures are followed by Company 0 which demonstrate that
the problems which were uncovered in the detailed analyses of domestic
companies in the preceding chapter are not confined to those companies.

The same types of conditions and problems seem to exist in some of the fifty
largest companies also.

The first procedure discussed is best stated by verbatim quotation
from the examiner's report for 1961, covering the years 1959, 1960 and 1961.
Adjustment 56a in Schedule 1 should be noted in connection with this
discussion.

The Company has followed the practice of decreasing the asset values
of investment properties . . . by the excess of net income over a
predetermined rate of income for each property each year. For the
year 1961, predetermined percentages which were applied to previous

year-end book values of the income producing properties . . . to
determine the desired income were as follows:

Rate 3% 3.21% 4% 4.50% 4.75% 5.00% 6.00% 6.75% 7.25% 8.50% 25%
No. of
parcels 2 l 12 4 2 8 l 2 1 l l

The established income determined from the percentages mentioned
above for each property is deducted from the net income received
for the year and the difference is the amount by which the book
value of real estate is depreciated.

The following schedule shows the net income from rentals, the pre-
determined income desired, and write down in book value, and the
distribution of the write down on investment real estate, excluding
the old home office preperty: '

Write Down Distribution
Per Annual Statement

 

 

 

 

Less: Depreciation Decrease in Book
Earned At Write Reported In Value, reported in
Predetermined Down Exhibit of Net Exhibit of Capital
Net Income Rate in Investment Gains and Losses
Year Received of Income Book Value Income on Investments
1959 $278,408.25 $144,607.95 $133,800.30 $75,795.38 $58,755.93
1960 343,469.44 177,770.64 165,698.80 87,094.90 78,787.49
1961 372,622.23 189,133.49 183,488.83 96,765.21 88,662.02

1Presumably these two columns do not contain adjustment on old home
(affice.

244

If this procedure can be followed by one of the fifty largest companies
and the examiner's report just summarize the procedure without direct criti-
cism, the procedures which Company C once followed may be more typical of
life insurance accounting than was assumed in the criticism of that company.

Both company procedure and the examiner's report reveal interesting
attitudes toward treasury stock. Only one surplus account appears in the
Convention Blank balance sheet, but Question 8A of the General Interroga-
tories asks for the "Total amount paid in by stockholders since organization
of the company as surplus funds.” The examiner's report reduces the amount
reported by Company 0 in answer to that question by $31,275.21 because the
company included the entire proceeds from the sale of treasury stock in
their total. The examiners present the following tabulation1 and comment

in support of their revision:

 

 

 

 

 

 

Effect On

No. Unit Total Earned Paid-in
Year Transaction £2; Price Amount .Surplus Surplus
1941 Acquired 7,002 $ 26.13 $182,974.82 $(182,974.82)
1958 Sold 286.3 $ 85.00 $ 24,335.50 $ 7,481.02 $16,854.48
1959 Sold 575.45 105.50 60,709.97 15,036.51 45,673.46
1960 Stock Split 6,140.25
1961 Sold 670.06 57.50 38,528.45 8,757.68 29,770.77
Total dispositions $123,573.92 $ 31,275.21 $92,298.71

 

. . The method of distributing the "price" of treasury stock
transactions to "surplus earned" and "surplus paid-in" was on the
basis of no ultimate effect on surplus earned .
The interesting fact is that the remaining treasury shares are still
included in capital stock outstanding.

A third procedure outlined in the examiner's report provides another

example of the life insurance version of conservatism. The premiums on

 

1Subtotal added and arrangement slightly revised in order to emphasize
the derivation of the $31,275.21.

245

loans acquired are charged off in the year in which the loans are acquired,
whereas the discount on F. H. A. and V. A. loans is accrued over a period
of five years, and the discount on conventional loans is not accrued until
the time of liquidation of the loan.

Factors to note in the financial
statements

Company 0 elected to change its reserves to the net level premium
methods permissive for Federal income taxes in 1959. The comments made

in the discussion of Company F are, therefore, also applicable to Company 0.

246

xhibit A

 

Life Insurance Company 0

E

 

Amo.moN.qam.0aow Amo.moh.qan.0avw

Ama.~aa.amnqu0
Aaw.ama.aaav

m

-.~oo.qssqm
Anm.oom.aao.savm

Anm.oom.oao.qavw
Anq.aam«mmq«a0
Amm.qaq.mmm.ov a

 

no.Nmm.mmw.oH

ANH.Naa.mam.0ao

n~.qcfi.mnm.om

aa.wnm.¢sw.aa a

 

madam
wax mo
aumuouum<

 

a 3866

Amo.moa.q~m.0avw
om.mqm.mma.s~
mm.msm.mma.sa m

Amm.oom.mao.4aom
oh.mms.mmo.sm
mm.ama.qao.0a w

 

 

Amm.saq.awn.00m
Amn.mqo.aaao
Amm.~nq.mas.ovm

 

Amm.qmq.mmm.ovw
Hm.amm.mmo«w~
ms.onm.qso.nam

 

Amm.~ms.msq.oow
Aqo.aom.mao«wo
Aam.nmo.mmm.nvm

 

Amm.~nq.mas.ovw
ma.a-.mmo«ma
mm.qaa.sao.wam

o>oom mm .umoz no new as Cosmuouwaa

and» mass mucmeumonn<

you; 00 maficchoo um oucoumwwao
"wooum

fiam.mmo.aam.mvw
Aom.mma.q~m«mw
han.amo.saav a
Aam.mmo.omm.mvm
mn.mos«mom«wH
ms.o~m.mow.a w

oocouwwwan
acmam sawucubcoo use moanusm nocwammmca weaocm
Hooch

 

mm.m0m«Omm1~
00.0mo.qow.aa m

a~.ms~«0mm.~
mo.mmm.m~a.a w

Na.osa.aam«~
so.nao.mma.Nam

~m.oanaam+~
so.qmo.nom.oam

xUOuu kuaummph mmua AuCOAuuwaEOU mo umcv 03~Ah=m s«-oamm wsaocm
uwaaskom ooawwuum oouuwuumoucs wcaoom

mw.omo«HnN1N
nn.mmo.mH0.n w

 

mo.mnm.mmaqa
mm.maa.awo.s m

as.nao.NMa«~a
Amn.ana.moo.nv a

so.smo.mom.0a
nm.amn.mon.~ a

am.ams«wao«m\
3.13.3; a

0m.m0~«Amo~o~ unswnumm voawuuum unusauumuuc: wcfidcwwom

Amm.aaa.~as.q0m

 

wwflfiflhflfl VOCHQHQH

mwm newuuaoouv mm noHuwovm uoz

 

 

oouufluomoucs

 

Asa.o~o.mmmv a

m¢.NNN.mmm.m m

mm.wnm.cua.m m

AmH.m¢m.mmmo a

Mm.sma.mmo.n a «souaa so «coauauoamas Hmsoa

 

«0.00oqsomqfi
ow.nmn.nmm
m0.om0.m~

ch.mao.aan.wv a

om.mmn4M0ndm

o~.ooo.qu

mn.000.oHH.N
Anc.0mo.nmmv

aq.aos.mmq.n a

oo.~o~.HONqH
om.nmw.na

am.omn.omm a

oo.woaqmsaqwi
on.aaq.mma
sm.mo~.mma.s
Ass.omm.aomv
Aao.mmm.sao.ao
An~.amm.amm.~
ow.amm.omn m

muuvaozxuouu cu uvcooa>wo sumo

q~.¢on.omh.a
a uu0v~00300uu ou mocooa>ao xUOum

0m.o-.a~ wcasonuwCuuom o>houum
u wcacunuwcuuum o>uomou Boom nabwfiuua vuuuuwov no mcwoaoH ow owcmnu
no.mmn.omm uo>huuou Hwauoau assoc

o>u0nou scauqsuusflw uoxumz
o>uoauu newunaau> aoauuusuou >u0umocwx
"monocouo oaHnusu nouaaunounnm ou nowmsuuh
"uaoooH uo moowuwuoauao

mm.moo.aso.a
aa.ana.oes.n a

 

aq.Nms.wmn.m m

om.40c.m~m.q w

ma.osm.nqn.s »

am.aaa.nwm.m »

:uuHmauaaum moauadouum oouuouua NHHmuoCom:
sua) oucmfihOMCOu mfl vuuammmw AuuoHv «800:0 uoz

4N.nnn.0wm.m m

 

 

 

 

 

Na.~oo.qss.m a

aas.aam.o~q.av a

Amm.Nso.an~v »

“so.aon.mao.avw

 

- - - ~a.a~o.¢oa
no.mHa.aoH ms.oqo.ao ma.aao.aa mH.Hnn.aa
so.mma.mm aa.omq.oN oa.nwn.qma «m.aan.aoa
as.oa~.m mn.qm~.ma Amq.mom.mv ca.mos.a

mq.sam.wam.n

Asw.omH.Hv m

Amm.mo~.aqs.av

ea.oao.qu w

Aos.mna.qasv

mm.oam.ooa a

Aa~.omh.mao.ao

Ana.omo.q~v m

flow.MmH.<N~.mvw nuaofiuuanou «such

Amfldwmm1wmmqll you» uoaoua «so On couscous vac nonuoa auouuoo now-suuH-oH> nsouu
on.-o.nm uooo ouuuwuounuo on mucous vouau Adm hkuuo can
«unassuauo ago so coo-nu ooxau vouufilfiunoos uoaamnu> asouo
05.n0n.mma mooHuua ousuam cu uuuoo ooaufiuwquu mo oowuuoa u unwonnu>H Queue
A¢o.nm0.NHv museum nauuuuu so nounoH «Howe-0A HON ouw>oumnuHHH nacho

uaou ooaauuolu ou Hana uswnhsuou mono .auaau>
.o.H.<.z cu coauwusuOn uo usHIUusnvu uuuo>omauHH macho
A> nacho ea nun seas: nun-no ooxau annu unnuOV
«unassunu- onu so ouomua vauuflloouoos ouonnnH nacho
”Aauuuuv new H canoUnUm quay nuns-Unsnm<

Aso.o~o.mno.nv

o~.000.nn~ w

 

mn.omw.mqm w

mm.0-.omn.aa w

oo.~mm.saa.s »

nn.00n.3m.aw

 

 

«Sauna nonuuau

«o.m~n.oan.m w .MM cocauaummuao Mm

 

 

 

 

mmmmm uuowon Assam sawusu>soo Mum.mmm
mm.NN~.sm Awa.asa0 mn.naaqm o_.~omqo ma.~oo«a needs uuauo
- Ana.o~m.masv om.maa.an a~a.a~o.sosv - and «sauna aaauoam
sq.~am.oH Aam.q~n.omv Amm.oam.ooHv as.n~a.an Aao.amm.ona0 sauna cassava ac. vouuaaao-aoa so oaan> as «mango
Aa~.oHa.nom.no mm.~qn.mmm.a om.oom.aas n~.a0a.o~m.a on.mma.aaa.s nous so can u. wanna .oauaunuo. «o uaau> as «wanna
as.oos.m~a mm.aao.on so.mmo.ma oo.moo.s aa.oao.n “so. nausuu no Asunaoav .aaum sausage

am.oam.man.n a

~0mH

qm.mn0.nmn.q w

HomH

:QOHNdUCflhN mauODOUU< UOHNUUU< NHHQHUGUU=

ma.mss.ao~.q a a~.~om.oss.n a mo.amo.ano.m a

coma

 

xdmam acuucu>ooo uom osmmmam mm summonu van «sawuoummm

.mmfla.

m.Nmmummm

 

no“: «newshouaoo

"sedan coaunu>soo ea uanMSm cu uoouwn oouuunm uIUuH
sedan scaunu>uou use unbuuauono ibuu Auquv nauo uuz

mama

 

 

mm ummmmmmm muwmmunm ass: oouu«_mm
Scum nave mo unuauusflu<

 

 

 

 

oooausaaa swan

Q.
1.

Life Insurance Company
Schedule

247

 

“flu“ "nun“ . '1; 1!I.I. Hun-fl

~5.~os.sss.nw Aaq.aam.m~s.aoa Ann.~so.aaavw Aso.aom.oao.aca “om.nma.s-.noa Aam.ama.saav a mucueumsflna swoon

- w a m - w ~H.HNo.qoo m AmH.HNo.aoov m u w secuca 0000 so xmu cabana u>auomouumm .oo
”sour Honcho

ozu cu momcuAKu 0cm momuofl awuuuuu uuwmcuuhunwb ensue

 

 

 

 

 

 

 

 

 

 

 

 

 

no.mHa.aoa a mq.oso.as a na.aao.am a ma.amm.ah a om.~ao.ma a em.ona.aon a «unusuaanuu > asosu annoy
ca.moq.oaa No.~oo.mm aq.ama.wa ma.nna.mn No.sma.mn - aamaa coaunu>coo no N uaaaaum ca acauuauunauu uo
auooxo a“ wawoawso no c300 uuank u.>:maaoo omuo>om .m0n
An~.ann.amv Amm.moo.sao Ann.aon.mav Aam.maa.0ao Aoo.~n~.suv Aso.a~o.a¢~v souauxaa new «nauseous so coauaauouaou vacuum .an
sa.~om.om a om.amm.~m a Hm.ama.om a so.qma.~m w sa.aaa.sOa a os.sma.~oo a muuasxau can “snowman“ vacuum .Om

“uuou couuwuouaoo as common ooxwu Haw muuwu can
musueuumuu was so madman ooxwu vouuaaownsoc ouaHm-a> nacho

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

so.nma.~N a ma.oas.o~ a oa.nmn.qma » sm.aam.aaa a ma.mon.nma » ~m.-~.o¢¢.a a auauauaafina >H asouu Hmuoa
an.oom.~ m~.m~a m~.aoa mm.asa Aam.w~av oo.amn.a Ass anus as “means «an» as cuuuuuwao usou
cowuanasuuo uuouwo uoaduaasu anamo: nos unoowuu< .Nq
Ama.manv «m.smn.~ Aso.~sm.oo oa.m~a ao.amm.s om.sos.a~ ossoams assauua vacuums: on coauaoaosa as
. ooh—0003 280302550 006953: Juana: was £533... .1»
o¢.anm.o~ a -.mmm.~N m ma.aon.asa a aa.mon.aaa a aq.nno.oaa a Nm.m~a.aam.a a Aooauoa Mao» ~>au a uu>o aacu>o souauoaau
aaauduuanuuv unawuawEBOU mucounucw owwa wash unuwm .00
"accuses
unsunw cu uuuou :oHuwnfiauua mo newuuon u nouonan>H macaw
ac.osm.~ a mn.¢m~.na a Ans.non.ov » ea.nos.a a Aoo.nmo.~av a Amn.qao.oso a AsoH as asuqaaunuv «gaseous Hague .aucowa .om
“nuanmu samupou no nonaoa oanwuoon Mom mow>oumunHHH Abouu
we.qam.man.nm Amn.mom.aqa.aom Aos.mna.qoqva AaN.ona.aam.aow Aao.o~o.mmo.nvm Aao.qwo.mom.~0a .uauauaanuw HH asouo asses
wq.aaw.man.m Amm.mo~.aso.au Aos.maaqsowq Aam.omh.mam.ao Aso.o~o.nno.nu “mo.smo.mom_~0 nxuoum .aN
- a - a oo.mam.m a - a - a - a mecca .ON
"unou oouwuuoau ou aunu denusuou «ago .uosmu>
.u.H.<.z cu nowuauauuu no uculu-sfioa onuo>umuuHH nachu
Asa.ona.ao a ca.oas.40a » aw.on.oOa a Aaa.omo.¢av a o~.omu.mna a ma.man.a~s a .aauauaafic. H aaouo asses
Ann.mmaq. Awm.Noh.a0 No.omo.a ~o.~o~_a aa.oon.~ no.a~o.s nuance .sooauaauunaz .Oa
oo.aom.m mm.ana.qa - - u - ammunuxu :wauuom .w
-.wom.a mm.noo.mn aa.mmw.s Anm.san.av an.aoa.a o~.ama.aa oan~>auuou mason .a
- - - - - oo.ooo.n muauaaoa Hmaua>avca co soauaaanaaa auaaoa
#0590 van magma; uofl MO uuoolu a: .090 .ufldOH hUHHON .n
Aoo.qos.-v Am~.nsm.~nao aq.¢no.ma Ann.ano.4av mm.onn.o~a No.nsa.oos nouanaua ”anon ..ucuw< .4
no.0aa.oa a ca.aOa.oma a mo.~ma a H~.mo~ a Ao~.q-0 a mo.mns a «Houauuo no .uaoua ou .ounu>u< .N
HA> macaw ca one seas) uuuuuu comma saga quuov
eunuIUuou- osu so one... vouualuounoa uuaHMunH Abouu
News mama mmmm mmmm ulna an-an-~a
wouluunnv<
o>wuuanlso
.m «Haaoaum :aoamauaaua umaaansuo< ou~moou< Naaquonoo= ass: nuouaoo .uau-uu-um assuauaaa «nu oaax_mm

 

 

.uau-u.=fiu< mm.oaaaoaum noaaauoa
.m Naummmo uoouusonn cued

 

 

248
922221:

Company P was selected for two reasons. Most important, it has the
smallest percentage increase in premium income during the ten years 1952-
1962 of any of the twenty-four firms analyzed in the First Boston Corpora-
tion's analysis. It thus provides an opportunity to test the hypothesis
that the adjustments should make little change in annual income in a firm
whose volume is steady. Most life insurance companies have expanded rapidly
during the past ten-year period, so it is hard to find sound companies
which have maintained about the same volume of premiums. Company P had
only a 27 per cent increase over the ten-year period. The median increase
for the twenty-four companies is 114 per cent.

The second reason for selecting the firm was to further test the
hypothesis suggested in the discussion of Company 0 that when two firms
have about the same amount of admitted assets but one has less life
insurance in force, it is safe to assume that it writes a larger portion
of ordinary life and endowment policies and fewer term, group and accident
and health policies. In this instance, the admitted assets of Company P
are nearly the same as those of Company F, but Company P has $1.5 billion
of insurance in force compared to $2.9 billion for Company F.

Reference to Appendix I will quickly show that the second hypothesis
holds in this instance. Company P writes no accident and health insurance,
group insurance is negligible and term policies represent less than one-
fifth of the insurance in force. Furthermore, net level premium methods
are used in the valuation of some of the reserves. The December 31, 1962,

policy reserves were valued as follows:

249

 

Modal Per Cent Of
Interest Reserve Plans
Rate Total Currently Used

Assumption Reserves For New Business
Reserve valuation plans no
longer used for new
business:
Net level premium plan 3 1/2% 31%
New Jersey Standard 3 32
Reserve valuation plans
currently used for new

business:
Net level premium plan 3 14 38%
Commissioners reserve

valuation method (CRVM) 3 _23_ 62

£37. £367.

Schedule 1 demonstrates that the first hypothesis also holds to a
remarkable degree for Company P. The net adjustment for the five-year
period is less than $100,000 against net income of over $21 million.

Evaluation of the analysis of Company P should be preceded by recog-
nition that this company has not only concentrated on the older traditional
types of insurance (on a profitable basis, since premiums are only $34
million in 1962) but has refrained from investing in common stocks at all
and has held its investment in preferred stocks to less than one per cent
of admitted assets. Mortgage loans, by contrast, comprise nearly 45 per

cent of admitted assets.

250

.2
A.

Life Insurance Company

 

Exhibit

om.aoo.som.n m
os.anm+ma
os.000.~00.n a

as.mna.nmo.0~

00.00o.ma

mo.wom.aaa.oN

 

om.aoo.oow.n a

Awm.aoo«oms0.

n~.0ma.om~.s a

 

om.ooo.oom.n a

Hfigflfl

nu.0Ma.smN.o a
m~.mam«mo~
oo.mma.mmo.o a

mm.0mh.0m~.0 m

oo.wma.Nmo.o w
mn.amm4oaH
aq.ooo.omm.m a

oo.mma.~mo.o a

aq.ooo.omm.n a
am.anm.~00
oH.mmo.mma.n a

 

00.0oo.omm.n a

O0.mmo.mma.m a
oh.qomqo~
os.maa.msa.n »

 

O0.mao.mna.n a

 

mn.000.0nm.00
mm.0wm.050.nqw
0N.0dem~01m¢
M0.omm.0on.n m

Ho.oss«mms«wm
00.0mm.oNo.msm
so.mam.aow.am
No.0mq.~om.n a

so.osaqwmmqmm
so.mmm.asm.mmm
oo.smo«¢~mqsm
nn.~om.mom.n a

No.0m0400040m
oo.omo.q~m.smm
«c.0maq0m0qsm
no.0qN.~sH.~ m

sm.aaaqwsm«0w
so.maa.000.qma
00.moN.o~m.om
oa.m~n.0s~.n a

 

00.00n.<mm m

oo.mmn.sos w

oo.mma.~00.0 a

oo.maa.mqm.0 a

«0.004.00n a

 

oo.ooo.osn 00.0004000 oo.ooo4ooq oo.ooo+oos oo.ooo.o~m
oo.0aa.sm 00.000.00 oo.mma.am oo.mHN.OwN.0 oo.oo~.m00
- 000.000.00mv oo.ooo.oam - -

oo.ooo.om~ m

oo.ooo.oo~ m

oo.ooo.mQ0 m

oo.000.000 m

s~.mom.mna w

 

n0.000.0mq.q a

m0.omo.o0N.q w

nn.o~0.0nm.q w

no.mnm.mwa.m m

«0.0mo.~qm.m a

 

An«.00o.omqv w

“.maa.mo~ a

mn.ana.oa0 a

nn.nnm.m00 m

00.000.00 m

 

Amm.noN.00mv

a0q.HMO.mn0v

mm.mm~.n

Amm.m00.0000

an.0no.mn m

mm.n00.nmw
Amm.0mm.0qv
Amm.qmm.mv
Amm.o¢o.qmv

aq.omo.ms

oo.ooo«oom

AoN.nmN.MOV

Amm.mon.mmV

0m.oas
00.000.00

w Asa.mma.000 m

Ano.oqo.m00
sm.nq¢.on

Am0.mn~.00
00.000.0N

00.mmn.sm

Aoo.ooo.oo~v

0q.~0a.00
00.mmm.o~0
mo.mma.0
00.000.00

w mam.noo.000 w

 

00.000.0sm.s a

nm.~00.m0o.q m

No.mom.onm.q

m 00.00n.nmm.n w #0.nmo.-w.n w

 

0>onm 00 .000» 00 0:0 00 0000000009
000% 0000 00:080msn0<
000% 00 w:0::0w00 00 00:0000009

“wooum

0000000000

x:00m :000:0>:ou 00a 000000m 00:»0mmm:0 0:00om
0000:000 00:0000m 0000000000:0 m:00:m
00:0:unm 00000000 0000000m0usa w:0::0w0m
0&00:000 00:00000

 

0000000m0003

 

00

:00000000

 

0 mm

 

a000000a

uuz

060000 00 0:0000000000 0000H
000000210000 00 00:000>0o
w:0:0£0w:0u0m 0>0000m
0>00000 0000 0006000>:0 00:00
0>u0n0u 00000500> 0000000000 >000m0cmz
"00000000 0000000 000000000000 00 0000:000
"060000 00 000000000000

 

:000m00000m w:00:0000u 0000w000 M00000¢Mfl=

 

SH H3 UUGEON COO

 

0800:0

 

dd 0000MHM0

MM 0:0000oomu00 M“

«00000

 

00000 000000 #0000 :000:0>:oo
n00 030000 Hauouoa 0000 Haau00000<

 

0800:0

 

00z

00:0E0non0m 00000

000» 000000 000 00 u0us0ax0 0:: 000000 :000000 0000:00Ho-0> 00000
0000 00000000000 00 000000 00x00 000 00000 000

0000300000 000 :0 .0000. 00x00 00000800-:0: 0000muu> 00000

0000000 005030 00 00000 :0000-09000 00 :000000 a 0000auu>0 0:000

000000 0000000 :0 000000 00000000 000 000>000un000 03000
0000 000000030 00 80:0 w00:00000 0:00 .0000w>

.u.H.<.z 00 0000000000 00 0003000000 0nu0>0m-a00 00000
A> 00000 :0 000 00003 000000 00x00 :000 000000

000fl50000n 000 no 000000 00000fi0oaao: 00000:-0 00000

”A000000 000 0 00000000 0000 0000800000<

 

0000000
00m 002

- noo.ooo.oo~0

Am~.nao.nqav Asm.omo.000

0n.mos.am 00.000.0m ne.s:n.~ mauoH owamuuoa co 00:00.00 nan 0205000 00 co0uuu0uuoa<
Amn.ono.on0 000.0mo.0000 so.w~0.o0 000.000.0n0 00.000.00 .3000 saunas» and uoauaaaa-aoa mo oa0a> ca «mango
mm.n0n.000 mn.msa.mm Awo.mma.000 Amn.mqs.a~0 040.com.on00 “qua mo 0:» 0. cacao .0»... 0° oaaa> 00 000000
no.mma.o~0 mm.oas.~00 m..mam.mm «0.mam.a n0.owo.mn0 00o. .0ua.a no Auosao00 .a000 0~00au0

“x0000 000000>000 :o .00003m 00 000009 000000m 03000

om.a~o.nqa.amw no.0Hn.msn.q a mo.~s~.n00.q a ms.wno.aqn.s w sm.sn0.mwo.q a n0.~0o.mmw.m a 0aa0a aoaaco>co0 was .ao0uauuao nouu A..000 00.0 000

 

 

 

 

 

 

 

mamas NoaH floaa coma mama mama
N0x 00
000M00mm<
.fl 0000nxu :000000000m mw0000000< 000mw00< 000000mmm: £003 00:1B000000 mfl 0041mmmm nua0suum 0003 000u4_MH

 

 

 

 

xdm0m :000:0>:oo 00m 000mmam mM 0000030 0:0 00000000mm 600m :00o mm 0:080aan04

m N00mmmu 000005000 0000

 

 

251

.2
A.

Schedule

 

Life Insurance Companx

000.000.omqv

w

00.000.0000

 

 

mn.nnn.0¢00

 

0

- 0

oo.ooo.oomw

 

 

000.000.0000

0

mm.mo0.mmmm

 

000.00010000

Amw.mw¢.omv
0N.Nmn.~m

0

m~.o~0000w

000.00o.~mv
00.000.~00m

 

000.000.0000

000.000.000
00.000.00 m

 

000.0m0.0000

0

Ann.nmn,0¢vw

000.000.0000

 

 

 

 

 

 

 

 

 

 

 

 

00.000.n 0 000,000.00 0 00.000 0
000.000.0000” 000.000.0000 00,000.00 0
000.000.0000 000.0qm«¢~0 mo.oom.0
Aoo.ooo.m~v 0 - 0 oo.ooo.nn 0

00.000.00 0 00.000.00 w 000.000.0000
oo.m~ 00.0 000.000.00
oo.ooo.o Aoo.ooo.mv -
on.mmm.0m m~.mqm.mn 000.mO0.qv
000.00m.0v w 00.q0~.q m 000,000.00 0

0000 0000 0000

0 00:00:00

 

 

 

 

 

00.000.0O00 oh.qom.o~ m 00.000.000.00
- » Aoo.ooo.oo~vw - 0
Amo.oqo.00vw 00.000.00 w 00.000.000 w
000.0mm.000 000.000.000 0O0.mno.mm~v
00.000.00 m 00.o00.000 m 00.000.000 0
00.000.00 m 00.000.000 w 00.000.000.00

 

 

 

 

 

 

 

000.mn~.00 0 00.000.0 w 000.000.000 w
00.000.00 » 00.000.00 0 00.000.000 0
00.040400 00.000.00 oa.n~0«¢00

- w - m - w
00.000.00 0 000.000.000 0 00.000.000 m
- ”0.000.0 _: 00.0mm.“
00o.m~V 000.000 oo.0~0.0
- - oo.ooo.00

00.000.00 000.000.000 0o.000.00~

Hm.mmo.~ 0 00.000 0 00,000.00 0
0000 0000 00-00-00

0005005fi0<

o>wu¢H§U

 

:000000:000 umw0:500mfl 000N000< N0000000o:
aucuauasnn< mm 00300000 00000000

M Nmmmmmm

 

 

 

 

 

00:03005n0< 00000

000 090000 0000000 mna0 0>00000000¢ .00
"0000 000000

000 00 000:0000 0:0 000000 :000000 0000:00HnuH> 05000
00:08005600 > 0500a 00000
0:00800 000 00 00000 000 :0
0:0a00500 0:0 005000050 00 0500> 00 0:00000 0000>0d .00
000600500 0:0 005000050 00 :00000000000 00000m .0n
0:0800500 0:0 00500:050 000000 .on
"0000 00000000000 00 000000 00x00 000 00000 0:0
00:0fl00000 000 :0 000000 00000 00000300n00: 00000an> 05000

fi000000 000m 0>00 0 00>0 >000>0 000000000
00000000000V 0:00000E300 000005000 0000 0000 00000 .00
. “0000000 005050
00 00000 00000005000 00 0000000 0 00000uu>H 05000

ANO0 00 0000I0000v 00000000 00000 .00:0w< .om
"000000 0000000 :0 000000 00000000 000 000>000ccHHH 0500c
00:03005fi00 0H 05000 00000
0000000000 00.0 .00000 .00
00:00 .ON
"0000 000000060 00 9000 0:0:05000 0500 .00500>
.u.H.<.z 00 0000005000 00 0:0I005n00 0000>0munHH 05000

00:0au05n00 H 05000 0000B

000000 050000000000x .00

0000>00000 00000 .0

00000000 0uau0>0na0 no 00000000000 000090

00000 0:0 05000 00: 00 000000 :0 .000 .00000 000000 .n

00000000 00000 .00:0w< .0

00000000 00 000000 00 000:0>0< .~

0A> 05000 :0 000 00003 000000 00:00 :000 00000v

0000300000 000 :0 000000 00000500-:00 00000::0 0500c

0003 3000:00 0000600000 000000000 000 000x OH

 

00:0050:H 000A

 

252
Company 9

Company Q is the representative of companies with admitted assets of
about $750 million, thus providing a test intermediary between Company P
which has slightly less than $500 million of admitted assets and Companies
R and S with approximately $1 billion each. Preparation of Appendix I
immediately revealed that Company Q falls into the category of firms which
have concentrated on ordinary insurance. It is the largest stock company
which sells only ordinary life insurance and annuities. However, unlike
Company P which has maintained relatively stable volume during the analysis

1 One would, therefore,

period, Company Q achieved a typical expansion.
expect the adjustments to have considerably more effect on the earnings of
Company Q than of Company P, if the tentative conclusions of the previous
analyses are sound. Reference to Exhibit A shows that this is only partly
true. Total adjustments during the five-year period are $1.2 million
against a Convention Blank operating gain of $61.6 million, and a gain of
$62.6 million after considering items charged direct to'surplus. This is
significant in comparison to total adjustments of less than $100,000 for
Company P, but is still only a two per cent change. It should be noted,
however, that Company Q has only 0.3% of its assets invested in stocks.
The Group II adjustments are, therefore, insignificant whereas they comprise
the largest group for many of the companies.

Even though the adjustments do not have a major effect on total
earnings for the five-year analysis period, the cumulative adjustment to

surplus is over $22 million against an unassigned legal surplus of $38

million.

 

1The increase in premiums during the ten-year period shown on the
fourth line of Appendix I is 127% compared to a median increase for the
twenty-four companies in the First Boston Corporation analysis of 114%.

253

Other factors which must be kept in mind in evaluating the signifi-
cance of the adjustments are that nearly half of the business written in
1962 was term insurance, that the Commissioners Reserve Valuation Method
is used in valuing most of the currently issued policies, and that no
group insurance is written. The December 31, 1962, life insurance policy

reserves were valued as follows:

 

Modal Per Cent Of
Interest Reserve Plans
Rate Total Currently Used

Assumption Reserves For New Business
Reserve valuation plans no
longer used for new

business:
Net level premium plan 3 1/2% 16%
New Jersey Standard plan 3 12

Reserve valuation plans
currently used for new

business:
Net level premium plan 3 6 8%
Commissioners reserve

valuation method (CRVM) 3 60 84
New Jersey Standard plan 2 1/2 6 8

1667. E1

254

 

Life Insurance Company 9

Exhibit A

on.oen.qa¢.m~m

on.o<u.c¢q.m~m

n~.oam.qu.m~m

wN.mmm.ooN.n~m

 

 

oh.ooa4do~.~
co.Q~o.¢m~.N~m

ma.Om~.onn.mo

oh.ooo.oo~.~

mn.moo.onn.mo

sm.~mm.moo.aom

 

< awnunxm

 

~m.a~m.o~
n~.mam.nms.n~m

oh.oqa.qoq.m~»

 

 

n¢.nomdofim
m~.mnm.oom.nmm

 

 

m~.o~m.mmc.nmw

on.mHn.mmn
mo.¢mn.~no.-m

mm.mnm.oo~.m~m

oo.qnm.~no.NNm
om.mmn«MqH«~
mn.mmm.w~n.-m

 

o@.¢mm.~no.mmm

 

nn.mmm.m~m.flmm

Ama.mma.moaqll.

oo.sao.sm~.-m

 

mm.mmo.wmn.-m

 

oo.o~a.o-.~a
oa.oos.a~o.nmm

oo.ooa«amm.oo
n~.oaa.qoo.qmm

oo.m-«woo+¢m
mN.Hwn.omm.nnw

oo.~aa.a~m.q4
$0.00m.~as.aom

n~.ona.oom.wm
mm.~ao.omm.mnm

 

sq.mmo.on~_~
mN.~om.noc.¢mm

00.0nmammm
nN.mNn.nmo.nmm

oo.ooo-oow
ww.~mn.omn.onm

oo.ooo.oom
oo.oOn.moo.oom

oo.ooo.oom
an.aoo.mmo.mnm

 

n~.o~a.nmo+mm
so.mno.man.aao

m~.Hmndomn.on
hm.sou.aam.o m

mo.00n.mooqoo
on.¢no.<dm.o m

mn.~modwmo«mn
~H.n~¢.moo.u m

oo.mmN.nmo«~m
Nm.mmn.mno.n m

 

0m.~no.oo~.q m

o~.m~—.¢m¢.n m

~m.mom.ooa.n m

m0.nno.-u.m m

om.mmn.man.~ m

 

~n.mnm.o¢m.n
oo.o~o.mm
on.~m¢.c- m

oo.~nm~wmo.a
oo.nm~.au
oa.sao.m0m m

o~.umodm~mum
oo.¢mn.mo
mo.nm¢.~¢~ »

oa.aqm.Nms.m
oo.m~o.m~a
mm.maa.aaa m

c~.oo¢4~4m N
oo.o-.nma

-.mno.nm~ m

 

an.moh.amm.m~m

50.no~.nmo.¢~m

0d.mwn.o~o.mfim

ch.~mm.mmn.fifim

mm.~wm.ncw.o m

 

~m.-m.o~ w

nm.no¢.oH~ m

mn.m~n.non m

on.mom.~q~.H m

Amn.mmu.nonv w

 

Aflm.om_.~muv

mo.oso.o~ m

Aoo.mqn.saav

Amo.oos.a~av m

Ama.maa.mm~v

oh.~mm.HH~ m

Aoa.aa~.onac

mn.<¢~.- m

oo.mma.n oo.OnB.~o - om.amm.ono.a Aom.anw«mmo+wq
Ana.mas.smv Asa.-o.-v Awa.oms.anv Anm.ma~.samv Na.mma.moa
so.an~.~om 0H.qsm.oo¢ o~.mms.ooo oo.soa.~sa.a ma.m~o.nm~
Aom.mna.ac m~.oaa.~a Aon.¢m~.a~c Awa.aa~.av Amo.anc.wav

Amm.m-.m-v

o~.woq.mm~ m

 

mw.mmn.m~n.nam

o~.~om.o~m.mHm

~m.¢om.¢~q.uam

mm.mmo.mm~.o~»

Ho.oma.m~o.ofim

 

¢~.mmm.nno.n~m

mom"

«m.~n~.mwn.mHm

~om~

mq.nno.som.wfim

oomfi

no.-~.~o~.o~m

mmmH

 

:uofimaucwum mcwucooou< voumouu< Mgdouucou: nu“: uuduELOucoo

 

Aoa.nmw¢nv Ans.-a.qv Ana.ssqV Aa~.anv an.msa

- - - Aom.amw.ano.av -
Amn.mmn.aac «m.~oa.a~a Ann.nsn.~awc as.mo~.o~m xaa.o~m.s~av
os.~na.oa~ sm.moa.mn an.aon.wma ma.maa.oma oo.mmo.aam
so.man.qm~ mn.mom.an Aam.a~o.mav Aa~.smm.~v os.nno.oo~

m~.mnm.o~m.o~m

mama

 

o>ono mu .uuo» no man u. uucuuumufio

pooh ownu «unfliumsfiu<

coo» uo mchcawun uo mucouowwwn
"mOOum
«unouowuwo
xcoam cowuco>coo con maflnuam nocwgamuca magnum
anuoh
Amcowuowfiuou uo uocv «3925 5.33 9.225
mwcwcuom uonuuom vouufiuumouca wcwocm
mmoacunm nocuwuom vouofluumouca wcwacflwon

mwcflcuuo vocfiouwu
Awm coauuavocc mm coauauso uwz

meagcw mo aco«u«uoamwv flouoa

uuov~05300um cu upcovfi>wo

maficuzuwcouuu o>uomox

w>uommu cowuwn~u> uoauauaoom uncuachx

nuu590ouo mnaauam vouaaunounAn ou nowucmua
“QBOuoH mo «Camuumoomwo

 

 

 

 

owuofluummac:

 

:mofimwucwum McwuaDOUQa umumoooo wMJQHomMN:
Law: mocoEu0wcou MN vouammMu Annouv cabana umz

 

 

 

 

mucosuuonv< "duos

abouuo uocHE uuuuuou can aqua nonoun
ozu Ou monsoon» can nouuofl cwauuou nouucuuh--H> noouo
uuou vouoauouaov us moo-on ouxaw ~Mu manna can
mucyeouauw wcu co nuannu voxaw vouuaavo-ooc ouoflm--> nacho
avowcoa ouauau ou uuuoo ocuuauuaco- mo cowuuoa - uowonuupu nacho
auoumo cfiouuuo co uoauoa wanfluwon you ova>o»m--HHH nacho
umou vouauuofia o» 60;» wcwcuauuu masu .u09~a>
.o.H.<.z cu «mauwuzuom mo ucoaunofioo ouuu>umnuHH noose
A> asouo a« sun sown) mucou- ooxuu cusu nonuov
mucoEMunuu ucu co masons nouUfiaoo-ooc uun~h--m nacho
"Afiwouun yaw a ofiaounum oomv uucoauannc<

MM ucofiuwmomuau mm vomuaflu
sawuco>cou Hum yum

 

 

wEOocH
mEouw mucuwa xcuan

 

 

 

uuzuo
xou oEOocw Houston mama ~>Huuwouusm
Buoy“ noundou can vouuwavnuco: «o 05Hu> Bu owcusu
coma uo nco u. nacho mucous mo ma~o> ca owcunu
uHon mucous so Amonnoflv madam auuuauo
“zomflm comuam>cou co usmnusm Ou uuouwn.uououam ufiouH
acman newsca>cou you acowuaumao scum Amaogv cwuo uoz

 

 

 

a Naummmo

 

 

MN vouamfioo Mdmwcuum no“: mosm< mm

 

 

xcafin coauco>coo Mum uo~nuom mfl womanzo mmm acowuuuomm noun cwoo mm unflauuafiv<
socuusmcH owwq

25)

 

Life Insurance Company 9

Schedule 1

an.a~a.oa m
oo.mwo.n m
oo.mmo.m

 

 

m

 

Ama.maq.qmv m

 

Amm.mms.mo~e
oa.o_o.nm m

 

co.om~.mom m

 

Aoo.mmn.~v m

 

A~¢.o~a.ammvm

no.moo.oflm m

oo.onn.~o w
00.0mn fie

 

m

 

A¢N.NNO.NNV m

 

“no.5aa.mo_v
em.sm~.hqa m

 

o~.q¢m.ooq m

 

m~.o~n.N~ m

 

Aeo.mem.saavm

 

Ado.oN~.~wNv

 

- m
mo.oqo.o~ »
Aao.aq“.aM
mm.¢mn.aa m

 

a saavonum

Amm.mao.mmw1
x~a.smmc
hon.ooo.mNc »

 

Amo.oos.a~acw
Ammqmmmqunll

Aqm.~oH.n~avm

 

 

om.man.mom m
- m

 

 

 

A~I.ams.amv m
- aa.~mo«N~m
Ama.ooo.oam.ac
mm.naq.mo
Ann.qaa.~o~v

 

Awn.aao.mo_v
oq.~mn.aaa »

 

mm.wmq.00o w

I!

nNH.nn~.Hv

 

Aom.qmm.-v m

 

 

Amn.wnfi.wm~vw

Amo.mmm omfiu Amm.~om meg“

 

 

oo.am oo.~na.a
AaN.wms.av m ~m.mo~.~a
o“.~mm.aa~ m m~.so~.~a
Amm.~aqm Ams.somu
mm.nqm.ma~ m -.aaa.ma
comm amaa

om.mom.~sa.a »
om.amm.mmo.a m
om.anm.ano.a »

Amo.mn~.aamv m

om.¢mo.wm~ w

oo.qoa.msa.a »

m

Aoa.an~.onav m

w

m

»

Ama.mma.moae a
Aom.amm.omo.avm

 

 

nom.nmm.mno.mvm

 

Nu.mna.moH m

Ano.ooo fimflw

-.om~.¢H~
Ano.awn.mo~v
«~.ouw.nNm m

 

mn.m~o.no~ »

 

Aao.anq.~av m

 

“am.maa.m-v »
Ammqmmmqmwmqnu
Aoo.oa~v

Aoo.ooo.o~v m

 

o~.moq.~mg w
mn.~mo n

Ho.oHn.¢- w

 

oo.qno.amm.mmm
. m

 

 

 

mm.oam.woo.a m
Ass.mom.quv
mo.ooq.~ma.a
Aon.qom.aaav
mo.noo.mms.a m

 

Om.moN.m~o.o~w

 

AH~.o~n.~qv m

 

mm.n~c.~mm m
nm.q4d «on
oo.HnN.-
~o.Nmo.m~ m

 

am.omm.s~q w
Hm.maa.~

oo.ooo.m

ca.a0a.haq »

nnuflmuwa
ucuaumanv<

o>fiuoanasu

 

 

 

 

nucuaumsnnd “quay
mucoauunnca H> aaouo HouOH

uCDOuum amuwauu u>Huowoc n o» mucus sensuoua “cannons .oo
vacuum mam“ co xmu vacuc« Hanovum u>wuuoouuom .oo
"muouuo nonwa uuouuou vac you» uoaouu
uzu Ou mouaoaxo vow mommofi cauuuou homacouHuuu> n30uu

mucuaumamvo > asouo Huuoa
ucuaawsao

wammquMQ sumo uHGOpuuoHo mo cofiumfiuouauv vuouom .an
unusafisuo wcfimmououn uunu uwcouuuomo vacuum .uOm
ucuEAHJUo van ououwcusu «o nowuowuounun vuooom .Hm
unusafiauo can uuouapunu vuouom .om

"uuou vouofioouaov uu uuomuo voxwu flan Apnea van

mucuBUu-ua onu co muons. ouxam nuuuuavuucoc ouaamn-> aaouu

Avo«»oa uno% o>fim u uo>o mfico>o vouuooaga
mdfiuouuanuuv acowumwBEOo mucouaacw smug you» uauwm .oc
unmoduun ouaunm
0» ouuou cofluwmuauua mo cofiuuoa o humonau>H nacho

ANDH um vouuafiumov uuocqaon “asap .uucow<
”macaw. cfiouuuu co guano" ofipwuuon yaw ooa>oumu-HHH noouu

muoufiuuahvo HH noose “ouch
mecca omuwuuol .NN
uxuoum .-
ovcon .ON
”umou vuufiuuoaq ou Esau wcwcuauuu nonu .uo:~o>
.u.H.<.z Ou wufiufiusuou mo usuauusnvu uuuo>omunHH naouu

mucoauuonvu H nacho HquH

ououao fiaom .5"
uuauaaoa Hmaoa>auca co .uauaaanoaa sua_oa
hunuo can us~n> uoc mo muouxu cw .uuo .nouoc aswaoum .n
noun-flop uwnuv .uucow< .c
HA> anouu cm nus Lows} «gonna monwm can» unzuov
mucusou-ua osu co ouoauu vouufiivoucoc oo-HmuuH unauu

 

:muflmwocwua mmwucooou< voumouu< Nfifiauucou: saw: Buoucoo nunoaounum Huwucnaau 05¢ 03:: MM

sucuaumsnu< Mm «dungeon ouaa-uoo

 

 

m Ncommmo monuuoucn uuaq

 

256
Company R

Company S was originally selected as the firm to follow Company Q
because it is the stock company with admitted assets closest to $1 billion,
as tabulated in the Fortune Directory. However, it was later noted that
Company R has one-eighth of its admitted assets in the form of stocks.
This is the second highest portion among the twenty-four companies included
in the First Boston Corporation's analysis, the highest being Company 0.
Since Company R is approximately three times the size of Company 0 in terms
of admitted assets, it seemed appropriate to include an analysis of Company
R in this study even though it is nearly the same size as Company S.

This decision proved wise because several interesting features were
found in the reports of Company R which add to the understanding of life

insurance company financial reporting.

Underwriting and reserves

 

As can be seen in Appendix I, Company R is the first firm analyzed
which writes a substantial amount of industrial insurance. Group and
accident and health insurance are also important sources of revenue.

The reserves on a few current policies are valued on the Commissioners
Reserve Valuation Method, but most are on the net level premium plan. The
Convention Blank prepared by Company R does not show the years during which
policies were issued under each valuation plan, but the composition of the

total reserve at December 31, 1962, was:

 

 

 

Modal Per Cent Of
Interest Rate Total
Reserve valuation plan Assumption Reserve
Net level premium plan 2 3/4% 90%
Commissioners reserve valuation method 2 3/4 5
Illinois standard plan 3 1/2 5
New Jersey standard plan 3 1/2

101%

257

It appears that all except a few special policies are valued on the
net level premium plan. These special policies were apparently once valued
on the Illinois standard plan using the American Experience mortality table,
but new business for these policies now use the CSO mortality tables under
the Commissioners Reserve Valuation Method.
Procedures which illustrate nature‘gf
life insurance company financial reports

Stock dividends gg_stock owned.--The examiner's report at December 31,

 

1961, notes that shares received as stock dividends are recorded at $1.00.
Consequently, shares having a total market value of $20,763,842.76 on
December 31, 1961, were carried at a book value of $33.00. This book value
is adjusted to market value each time a Convention Blank is prepared through
the use of the "non-ledger" technique in Exhibit 13 of the blank.

Accrued interest pg§£.ggg.--The examiner's report reveals that
$10,272.38 of past due interest and interest on securities which do not
meet the qualifications for admitted assets is treated as a non-admitted
asset. This information is reflected in Exhibit 13 of the Convention Blank,
but is not shown in reports to stockholders which are restricted to the
statements on pages 2, 3 and 4 of the blank. Even though the amount is
small in this firm, it might be significant in other instances, so should
be set forth in order to show that such loans have been made. Unless this
is done, a complete report of accountability is not made. Naturally, this
item would be combined with other factors in condensed statements, but
should be shown whenever detailed statements are presented.

Depreciation g£_electronic data processing equipment.--The examiner's
report points out that depreciation on this equipment is "computed on the

basis of a two shift rental cost, as though the equipment had been rented

258

instead of purchased." Here again is an example of the philosophy that
almost anything that is immediately conservative is acceptable.

Generally accepted accounting requires that the facts be reported,
not what the facts would be if something else had been done. If equipment
is owned, the cost of owning the asset must be depreciated over the useful
life of the asset if the statements are to properly bear the label
"generally accepted."

The procedure adopted by Company R reflects a false sense of need
for comparability. Analytical comparisons of "what might have been" with
what this or some other company actually does are often extremely valuable,
but they should be treated as supplemental analyses. The formal accounting
records and primary reports should be restricted to what actually did

happen.

Adjustments not previously discussed

Inasmuch as the installment method of reporting profit on sale of
assets is followed by some firms whose statements are given the generally
accepted label by their independent public accountants, there is some
question whether Adjustment 23 is necessary. It is made, however, in order
to focus attention on certain aspects of life insurance accounting and
because the statements are clearly acceptable with the adjustment whereas
there is room for argument if it is not made.

Certain real estate was sold in 1958 at a profit of $1,276,464.80,
but mortgage notes were accepted for most of the price. The profit is
reported by the company as a realized capital gain, but the unrealized
profit is considered a mortgage note not admitted. The final result is

that the profit is added to surplus on the installment basis.

259

Interestingly, the examiner's report at December 31, 1961, includes
the portion not realized at that time ($489,069.82) as a liability instead
of a non-admitted asset as is done in the Convention Blank by the company.
The examiners do not explain what makes the item a liability. Perhaps it

is merely a matter of convenience since the account has a credit balance.

260

Life Insurance Company

5
cl

 

 

th.amm.mao.nmvm non.c~m.mqo.mmvm

Aaq.oom+wsq.sv ma.nmm.m~n.o~
An~.som.mm~.m~cw Ams.oms.aa_.mqvm

Amq.oms.~n~.chw
Asm.00aqo_s.nmq
Amm.m~e.ooa.NMvm

Aan.maa.ooe.~me
o~.ooq.mns«-
Ase.maz.oaw.nmvm

Aoa.mea.ozm.mmem Aom.omo.o~z.mqvm

Amq.am~.omo.swl Ama.~am.mmo.m~M
Aon.oma.oaa.osvw AmN.qom.m¢a.m~c»

 

 

Ace.q~m.~so.amvm

Ams.omq.ae~.msvw

“am.man.ooa.~mvm

Amn.m-.o-.mmvm Aom.oma.om~.mqvm

 

so.mmm.owm.eo~
«m.moo.oqm.om m

oo.o~N.oqo.oo
mm.m~a.aem.es »

an.aqm.o~m.om
ma.aco.osm.mm m

No.aao.moo.oo wa.mam«wos.oo
mm.mom.oqm.oa m No.~so.~mq.aa w

 

 

oo.ooo.oo~
4m.moo.osz.om w

oo.ooo.oo~
mm.mma.hao.as m

oo.ooo.oo~
«n.5oo.oom.mn w

oo.ooo«oo~ oo.ooo.oo~
mm.mom.ooo.0a » No.~qo.~mm.aa »

 

mm.omn.aao.es
o~.mam.mos.~m m

ma.aso.oom.mn
Ana.mmm.mmo.mv »

mm.mom.oqo«oH
mm.moa.oaa.~q »

No.~qo+mwN.aa H~.oqoq~mo.a~
Aa~.mmH.mmmc w Amn.noo.oom.aacm

 

 

Asm.qmm.mao.av »

nn.qmq.moo.mm m

Amm.omm.mmm.0avw

no.NmN.N¢¢.qH w m0.0~m.mmo.mm m

 

oo.ooo«omo.o
oo.ooo.ooq.m

Aoo.nmm.q_h.zv
oo.oom.~m~.mm
Aca.o~z.oma.asc
Aqo.mo~.os~.nc m

s¢.ooo.amm.o

oo.¢-.wow.m
m~.mon.mom.cn
oo.wqh.fimm.m m

oo.ooo«0m~«n

oo.~m¢.~m~

Amm.¢~a.nw¢.mv
Aoo.nns.uo<.nv »

oo.ooo«mwa.m

oo.ooo«mwmlq
- oo.ooo.ooo.m

Aam.o~m.q0mv -
oo.mnq.wmo.m oo.oma.ooo

m~.oo~.~om.-
o~.~mo.o¢o.m~ m

Aos.omm.ooo.ac
oo.ma~.onn.n a

 

a~.mom.oom.sz_ ~q.¢on.mmn.m~ m

o¢.omo.nHM.MN »

nn.non.mmm.~m m

mm.m¢o.nmo.c~ » oo.o~n.nmu.om w

 

 

An¢.oom.m<¢.qv wh.mnm.m~m.o~ w

Amm.ooh.o~¢.mavm

0N.oo¢.nnq.~N »

Anq.hm~.omo.oc » Ana.~an.nmm.n~c»

 

 

Aoo.ooo.oan
oo.mna.oon
mo.nma.emo.~

Aoo.an~.aoe
mq.mq~.asm.aH

om.o~m.mno m

Aoo.oom.onaq
mo.n¢m.ao~
so.~mm.man.~

Aem.aoa.o~ac

Aom.om~.oeo.aav

Ho.o~m.oo~.H m

oo.ooo«dnH.~
mm.onn.mnm
on.m~¢.no~.n
Amn.nwo.mN~V
m~.oo<.ooo.o~

~c.~mo.mom.a »

mn.~os.oon q¢.oon.mme
oq.ao~.~qs.~
Am~.~oa.~oc
Aa~.nn¢.omc.a~c

«N.Aoo.nan.n
mam.ao~.maV
Aam.oao.o~q.oav

On.nno.oas » on.Noa.HNo »

 

so.a~s.oqm.oz_ qo.mmo.aom.s m

m~.mom.mmn.mm »

hm.nom.owm.m »

an.~nm.ooo.o~ » mo.ooo.onu.o¢ »

 

am.mHm«~H
Ama.mmn.o~av
Am_.mae.aqn.a~v

sm.sno.h~m.n

ag.mon.mmo.s¢ » m~.s-.oma.na m
«Baum

mom“
Nos «0
ou-uuumu<

« usages»

 

 

oa.mmm.n
Aoa.aem.zmo.ac

oa.wmo.moo.ma

mn.mm~.oa~.m

0H.Nna.mom.~H w on.mnm.cnn.- w mm.Nmn.~¢s.m a

momfi

Ama.mno«oom.wa

Aos.mmm.oooV

Aom.m~e.moa.oav
nm.man.ono.oa

ma

fin.auc1w~
Aom.mon.nom.uv

¢~.nn~.non.om

m¢.-£.hmm.n

mo.amo«0a
Ase.mnq.o-v

an.msa.~om.oa

so.oao.aa~

an.oa~.~an.na »
mmmm

anon

 

 

 

mw couammuu magmas-u

you» no was an wocuuomuwo
nook mwsu manoeuwsnp<
nus» uo wchwaon an oucuuouuwo
"wooum
oucmuowwwo
JCoHn coflucu>coo you wo~aham pwcwwmmoc: wcfiucm
aouoa
mudguam cfiuvwom magnum
mwcwcuuu vunwnuox uuuuwuumuuc: mewvcm
wwcwcuqm pong-aux vouuwpuuoua: mewccwwon
mmMWdhmw pmcflmuo»
puuuwuuwuuca Amm.c0wuuavouv mm COMuwupo mum
«Sousa uo acowuwuoauwv HquH
avauum>wv smoo
upcovw>wu xuoum
xuu «sauna gunwuum vco
muuauucoU hocuwo nova: huwawnuw~ vouuuwov ou uuwacwua
vomnoduu au>houuu ou sou ufibafloun vouuuuov cw omcwnu
uucuaumnnvo on. wnficonuwcouuu u>~ouwx
a>uouou Hawuodm
9>uooou oowuoaao> uumuauauou muquc=~o>
o>houou cofiuo3~o> uufiuuusuun %h0unocut
"aucDOuu- mafinhsu vow-“unbuna- ou youucuuh
”MIOunH mo acowuwnoamfio

 

 

 

 

 

:aoflmuucfium dmfiuo300uo voumuuua Naaouoaum:
cu“: oucufiho«cou mfl vouammmu Anaonv «sauna uuz

 

 

 

ouculuuanvo Hauoh
hush uoaoun
onu cu noncoauu van uuuuo~ owcuuuu wound-uhaanb nacho
umou vonwuuoao u. uuooo- voxwu HA. mun-u can
nucolououa onu co nun-co uoxuu vouuwiuoucoa ouuamuu> A90uo
«vaguon ounuow ou uquu acauwuwsvuo mo cofiuuon.o nowoncnpn naouu
ouomou cwouusu no nouno~ vacauoon uou uvw>OhMunHHH Asoka
uoou punuuuoau ou aueu wofiahnuou ussu .uo=~o>
.u.H.<.z cu noauwuaoou «o unalUnnnpo ouuubou--HH nacho
A> nacho aw on: gown) sauna. vouwu Dona hoeuov
nucoauuouu on» no auoumu vauuafluo-co= uu-Hmn-H nacho
"Aawouov paw d auavosum «may nucufluuanv<

 

 

 

 

«loocw MN nooauaoomuwv MN vouaqHu
mason ououon sang: nowuno>ooo you no:

honuo
neon" vow-«oh on. vouuwavo-oon uo o=~o> ca swansu
nova mo vac u. vocab nuance wo oaaa> cw owcono
vaou muons. co Aoouuouv news» gouge-u
"nonun seguaobcou no as~nu=w ou uuouun vouuuau manum
xc-Hn co«uao>uoo you uncauquono [can Anuoqv swam “oz

 

no“: oouu< mm

:mofimwucwum wcwua30uu< voumwuu< Ham-pocoo: saws oocnfiuoucou
xcoum cowucu>coo mum unummam mfl «mucosa van occauouomm
m Nmummmw oucnununn swag

 

 

 

 

Shh Gd '0

 

mm.mmmmmmmqm«

Schedule 1

 

Life Insurance Company R

261

 

ma.mnm.w~m.o~m Aam.oo~.oac.navm o~.oo¢.nms.~Nm Ams.am~.omo.ov » An~.~an.mmm.mmem Am~.som.moH.m~Vm ascueumans< Hauoa
Aoo.ooo.om~v m Aoo.ooo.0n~v w oo.ooo.o-.~ m u m u m . m memo;
cou pm>o m>uwwou ucaw COHmcma cw manages“ umuuam .mo
"and; umaoua
mnu ou mumcoaxo vc- umuuod camuuou humucmua.-H> aneuu

 

 

 

oc.mnn.mom m mo.n¢o.~o~ m nm.onn.wm~ m m~.uQ¢.0On m ¢¢.m0m.nmq m mn.mwm.mn~.~ m manoeumanon > nacho ~nuoh
mn.wmo.mq Ans.mmmdqmq ou.am¢.nq~ - u - ucoaawavu muwuwo ~80; ~mwuuam
mo m:_w> soon CH owcmnu pew haucm wuuu>wm .nmm
- Anz.o-.~o~v A_m.N¢n.oenv Aoo.n~e.aaev Aoo.-a.ame so.szo.-~.a touaaEOU sanctuuszo
wo ua~m> xoon cm swoono paw muuco omku>ux .nmn
Aqo.~mo.~qmv Ano.ooo.noqv Aon.mmo.~mmV Amo.mmm.wm~v Amn.oo¢.o-v Amq.gon.namv ucuaawavo van ouauwcuaw mo cowumgoouamu uncuom .Hm
No.oom.mom m oo.<-.¢mo m 4c.-~.n~o.~ m ow.mo¢.o~o.~ m o~.mmw.m- m o~.~n~.oooJ~ m ucoanouu can wusuflcham uuouwm .om

"uu0u nouofloounou an uummmw poxfiw -o zuumu paw
mucoaouaum usu co muuwmm umxuu vouufifiua-coc ouaam-n> aaouo

 

 

mo.maa.qmo.~ » no.~mm.mom.~ » on.o~s.ao~.m m s~.noo.man.m » as.ao~.~¢¢.m » om.noa.ma~.o~ m mucueumancm >H nacho asses

m_.om04~a am.mnm.aa ma.~ao.a~ Amq.o~oqamv Na.amn.m ~m.aam.aa AH: euuH mu sauces sun. as nunsmcsnc muses
cofiuuoaavuo uuonwu mucouowcfl cuHaoL can ucanou< .NQ

mo.¢oo.50n a~.qnm.~ms no.naa.oqn o~.aan.m- “a.o~n.oo am.mmo.onn A~>touou asaEuta couscous cu coautoaoua ca
nmuuomouv «60wmuwfiaoo muauuamcw guano: can ucouwuu< .uc

am.~qo.m0a.a m aq.mza.mmm.a m am.qmn.omm.~ » am.ooa.mma.n m oq.mmo.-m.~ m no.-~.q¢o.oa m Avoatsa use» ~>we . so>o haco>~ nuuauozaa

szu-uuapuav noofiuufiesou oucuuamcw sued uuo% uuuwm .oq
"avofiuoa unsung
ou uuaoo comcwmwaoua mo conuuoa u human-->H naouo

 

 

 

 

 

 

 

 

 

 

 

 

 

Aoo.amm.aov » Aom.ooa.o~av m Amm.moo.m~ae m “am.~o~.mav » Am~.~oa.~oc » Asa.mwo.ozuv m “Noe u. nougazuamv mmucqzap sense .mucuw< .om
Hausa-n awouusu co uuuoofi «Hafiunon new wvw>oum--HHH nacho
ms.msa.aom.5_w Amn.qm~.oao.mavw na.oos.ooo.0am Amm.aao.o~s.oavm Aa~.nme.oos.o~cm Aoa.o¢n.ooa.aqvm ascaeumanua HH aaotu annoy
Aao.o-.qmaq‘ Amm.moo«wwswnll Am~.zms«w~mv A-.aom.osav ~a.ooo+uoo.a - scaoa swumutoa ca caucus sonaa.osc= .m~
Ao~.mmm.hs_v Aam.o-.smav - - - - sauce swawuuo: .NN
o_.mo~.mmm.aH Am~.mmq.noa.m~c o¢.mnm.mna.a~ Aoz.qoo.enn.mv An~.amm.msm.anv Amo.oon.omo.oav axooum .HN
Aoa.nsm.mwv m a~a.oan.ammc » Ano.zno.mm~v m azm.mz~.a~aV » oo.mnm.~om m q¢.o~o.oa~.a » mason .o~
“quU vuuwuuoEo on ion» weacuouou oacu .n~:~u>
.o.H.<.z ou uofiufiuaoom uo ucuaumnnva ouuo>omnuun guano
oo.ozm.mao » ao.o~¢.oc~.a » ~0.~mo.mon.z m en.nmo.ooa » on.~on.-o » ~a.neo.no~.~ » mucueuuanu- H nacho a.uoa
oo.aooqu Aoo.mm~v no.q¢aqaa aza.m~qv q¢.-m mm.ana.~oa «so... .aouc-Hauu.ax .Oa
om.oon.~ao He.m¢o.ao~.a oa.~no.oa~._ no.o~o.~ma c«.-o.a~o ne.amn.ooa.~ «wanna.» Hague ..ucow< .q
- m - w - m sn.nwm.q » -.ona » - m sananuaav-ca vouuv«.:ou .a-oa .n
nfl> uDOuu cw on. cues) mucous voKHw saga uocuov
mucmaouuua on» so can... mouumfivloaon onluhauH nacho
Nome aooa oeoa omoa mmoa an-am-~a
acoluunfio<
o>wu1~alsu
fl ofiovosum :uofimwucwum mqucsouu< vouuouu< Nauouosoo: saw: ILOuuoo uuquUuqum «ouucncuh mam uqu MM

 

 

.uno-uoaqo< mm uaauueuu coda-son
M Naommmu caucus-an on“;

 

 

262
Companz‘g
As noted above, this firm is the stock life insurance company with

admitted assets closest to $1 billion.

Underwriting and reserves

Company S wrote only industrial accident and health insurance during
its early years but has written ordinary and industrial life insurance for
over forty years. Life insurance in force is currently divided approxi-
mately 55 per cent ordinary, 44 per cent industrial and 1 per cent group.
Accident and health insurance premiums comprised roughly one-sixth of the
$178 million of premiums in 1962.1

Reserves are computed almost entirely on the net level premium plan
with interest at not more than 2 3/4%. Policies originally issued at

higher rates of assumed interest have all been revalued to lower rates.

Adjustments not previously discussed

Company S has obviously followed a policy of rigorously charging off
all doubtful agents' debit balances, so no provision is made for losses
from that source.

Adjustment ll, Unlisted assets--stocks 2f doubtful value.--This item

 

provides another example of a basic philosophy of insurance reporting.
Assets are either fully qualified as legal investments for insurance
reserves or must be eliminated entirely. Yet, in this instance, the stocks
had fully recovered their position within two years.

Adjustment 3;. Difference between cost and market 22 stocks in

 

Adjustment lZ,--Under generally accepted accounting principles losses which

have occurred must be recognized even if the asset has not been disposed of.

 

1See Appendix I.

263

This entry demonstrates how the stocks which are the subject of Adjustment 17
could be reduced to market, thus taking up the loss in the year in which

they lost status. The account established with this entry is a contra
account which should be deducted from the asset in order to tell the entire

story and extend the market value into the total assets column of the

balance sheet.

264

 

Life Insurance Company g

Exhibit A

 

 

 

an.m_o.n-.s » nn.mzm.n-.s m a-.omo.oam.mV m no.zmo.hae.a » oo.o¢o.~oa.n » mn.no~.ooa.a »

“no.wso.oma.¢q ma.¢mm.~s_.m Aa~.azo.emm+nql. Amo.ao¢«q¢a.ae Aa~.nza«aaw«mw Amu.aoo«oemu
oo.oom.o~o.m » a-.omo.mam.mv m mo.amo.aas.a » mo.oao.moa.n » nm.no~.owa.a » oo.oom.o~m.m »

 

 

mm.mo~.omm.a m
nq.mmmdqu.ma
ma.mms.aaa.oo»
o~.aq¢«aa~qaa
on.eno.~am.o »

mo.omo.~oa.n »
e_.oaa«oma.nm
2.856863
ma.mms.qaz4om
«e.oa~.ooh.c »

mo.~mo.-e.~ m
no.m~mq~mofiuo~
N~.vo~.moc.modm
NN.owwdoandm
om.nme.man.N~ »

mn.mza.mmw.q » a-.omo.m_o.mv m
ma.amo¢ms~.a~_ om.m-.moo4m_a
o~.moo.mos.amHm sm.am~.aaa.eaan
am.am~+wan+¢aa ~z.sa~«oos«noz
Nm.o~n.ooo.o_ » -.mao.oo~._— »

 

 

no.on~.omm.u m em.mqo.non.mu w o¢.No~.oo~.~ » nn.omo.N~¢.m o mw.mm~.mon.e »

 

om.qu+mn~dw‘ om.m~o~o¢n.~ nq.now1mon«w‘ «o.mnmqaan m mm.mmn~¢mnfi~
oo.ooo.ooo.o . u - oo.ooo.oo3.n

ma.ono.oma.m Aoo._aa.oonc Amz.~mo.~0ac
mm.ooo.mq~.~ A an.ama.maa.o » ma.~no.aoa m

No.noo.nwm.w
No.w~N.mm~.m m

Acm.ama.Noa.mv
Aas.mmm.mon.~c m

 

no.¢¢m.o-.~o mm.on¢.onm.m— » on.om~.nqw.n~ w On.omm.mon.o~ » Ho.oom.o¢—.¢~n ~<.mos.ooo.m~»

 

ma.omm.~sa.m » Aa~.a~o.onm.mv » Amo.aos.4sa.ac » Aa~.nza.mam.se» An~.aoo.oeov w
No.n~w«a-«mn Amo.n~aq-~«ww

Aao.on.omo.sV

cm.an.Ho~ ~m.<-.n- o~.nmo.ma~ m~.¢o~.mo n~.n¢o.~o

nu.on«.-m.~ mm.oon.mmn mn.h~m.~nu oo.oon.wn~.~ um.oan.an~.~
. . a o~.~om.um On.n~m.m¢

mm.n~w.oum.n Anm.qno.nmfi.ov Anm.mmo.omm.~v A~o.nNn.~n¢.wv nn.~mo.m~

~n.ono.oon.~ m Ago.mmo.0m~v m as.~nm.mo » Acn.Nm~.nowv » -.nn~.ocm m

 

an.No~.n~m.oo q~.~No.omq.o~ w no.4nn.mm~.¢m w mm.moo.mam.- » ow.~m4.o~o.o~m oo.m~¢.nmo.oH»

 

- - - oa.a~aqoo oo.som4sa

- - - x~o.n~a.a-.nv -
Ama.zao.zoac so.moo.ona Asa.aan.moV so.a~a.aua a-.~N~.mao.ac
Ama.n~o.oao.nv oo.amo.a~a.o mn.«-.aHo s~.maa.nqm.a Ao~.ooo.amov
«m.mza.sa~ an.oa~.omq mn.~mn.aom oo.men.o~ «n.na~.on_

Nn.ame.man.oam ma.mom.mon.na » no.~ao.soo.a~ » so.ooo.nmo.o~ » ~n.no~.ann.na» «n.hoa.oaq.mam

 

ll

 

 

mass" Noaa “was ooaa omaa mama
Hon uo
«unmouum<
.fl uunusxm :ouHmwchum umwucnOuu< vuumouu< Nag-hoowm. sud:

 

manan couuav>aou MMN nzummam mfl coma-co use usoHuuummm
m Nmuummm ouc-uammm swag

 

 

u>on~ an .u-om mo was an mucouowuwa
knob canu oucquuanv<
uaom mo wcaccHwon us mucououuao
"wOOum
mucououman
xc-An oowuc0>cou you unfinhsm vocwwauacb wuwucu
«mewchuu tuna-um: vouuHuuuoucD wcwvcu
uwcachqm vocanuom vouufiuuaouna unaccuwud
Midwauno nocflmuou
scauuopouv mm cofiuwuvu uoz
mucosa mo «COMuHuonuwv ~ou0H
uuoogonxuouo cu nvcuuflpwv sumo
unaua>au xuou. - we show as. ea an uaaam
ucnu huaumcauaou hufifinuuoa van uauluuo>cH
o>uouou cofluoofla> uoauauauou huOuuuCnx
“cannoauo unanhau vouofiunouano cu homuncufi
"albucH wo unowuquAmHa

:uofimauaakm addud30uuo voumouu- Nfifiwuocom:
nu“: oucqaLOwGOu MN vaummmmw Auuo~v «abuow you

 

 

 

 

vouuwuuuopcs Aw“

 

 

 

 

nuculunduvn unuOH
you» quoun
ocu ou o».¢0&ko van wonuou :«ouuuo pound-uhuuH> nacho
uuoo vououuouaov an «oven. voxau "do huh-o pan
auonlou-un «nu no nuance voufiu vouuwBu-ucoc uu-dmau> nacho
avowuum ouauou ou nunoo acauwuwscu- mo cowuuoa - homuocan nacho
nuouoo nu-uuuu no avowed sapw-uoo how ouM>0um--HHH nacho
uoou vouwquII ou aunu mcaahnuou unnu .ouo~u>
.u.H.<.z cu coauguaouu mo unuauuanvn uau0>o~auHH nacho
A> abouu =« on: soap: uuouu- noxwu annu uufiuov
museums-u. «nu so can... vouuuloouaoc oucfimnnu abouu
"Ana-uov now A o—avunum oonv nuauluuanu<

 

 

«Bound WM unawuquonuwp MN vonuofiu
macaw «howon xa-fin couuco>cou you “02

uuo vowuqnu h~u90«>oun cue-nu Baum albucH
uou «Ibocu Houovoh mama o>auuoouuom
nfiuuw pea-Ho» val vauuwavouaoa wo u=~o> cw own-Lu
hour uo use an vocab cue-no mo on~n> aw owauno
vac. causes no Anon-OHV nag-w auuwnoo
"Jana. acauaubcoo co Izdnhnm ou uuohuo vououam IEUuH
saga: coaucu>aoo boa usuauasoao scum A..oav ca-o as:

 

wuclruoucou may voungm udaaem nu“). uoufld 0H

Ioub

auum.wm uauluusnv<

265

mn.cmm.~c~.mw

 

 

   

 

Ah~.aao.omm.nvm Amo.moq.es~.avm Aha.maa.mam.svm Am~.~oo.osav » oo.oom.o~o.m »

 

 

 

 

 

 

 

 

 

 

 

 

 

SI.
Ye
m.m - m - a - A No.n~a.-~.n m a~o.m~m.n-.nvw - a
3
Oh
at.»
m sn.snn.~ma » ~m.qz~.m- a o~.m~o.mm~ m o~.so~.mo a nz.mso.ao » ~m.-n.mom a
m Amn.oaH¢~oaV Asm.a~o4me ss.nmw4s- Aom.«qs.moe Ana.m~n.~mv o~.mn~«mao
w Aoa.omm.ammc Aam.mwm.ammV Aom.maq.o~mV Aam.mow.momV Aoa.zaq.os~v Aoo.amo.msm.av
m ha.amm.nao » ms.~me.~oo » «n.mqo.amm » oo.o~n.ass m oo.ooo.san m nm.nao.aan.~ »
.m
L
a~.cms.aam.~» nn.oan.mna » ma.n~m.anh » mo.oon.mMa.a » am.omn.maa.a » on.moz.anm.n »
o~.aaaqm. Ama.n~nu Aao.oaa.av Aoo.ao~.ae th.nm~v Hm.amnqo
n~.ans.oaa Aqm.msm.Sav Amo.aso.o~v n¢.ana.o Amm.mmm.mv ne.om~.¢na
om.mmm.ooo.~m am.nos.nha a oo.mas.mna m oe.aos.mna.a a nn.nom.nma.z m ea.aan.ooo.n m
- a - w - » oz.a0m.a~ m on.nam.oo m Aoo.<_a.oav »
m~.mam.o~m.mm Ama.qMo.aa~.ocm Amm.mmo.omm.~vm aao.n~a.aas.mc» mn.~ao.o~ » nn.noa.oao.a »
Aqn.zNo4~o~v Ao~.ao~4soau Aom.swm+woqun. aza.o¢a+smsu Ans.mso.~aau -
am.snm.~an.mm ”ma.amm.oao.0vm Amo.asa.o~a.wva Aoa.oeo.omo.mv» mo.osn.ae_ » nn.noz.o~o.a »
ah.omo.ooa.am Aao.mao.om~v a ma.aan.no » Aoo.~mz.momv » -.nna.osa m ma.os~.noo »
- - - Aoo.ao~.nav “on.nmo«asau oo.qnm.s-
ce.mam.maa Ann.mmm.oaac an.aom.o aas.~na.maav mm.oha.SAo.a ma.~nz.mon
Aoo.wms.o~c ~n.mom.a~ Nn.mms.as oa.omz.ac no.~an.s~ as.aon.az
mo.os~.aoo.zw Aoo.H-.~sv » om.0zm.m » no.ono.n A “on.o~_.ac m on.ome.mn »
Noma Homa coma onus mmoa nn-~n-~a
uculuuafiv<
u>uuufialau
fl ogsvuzom :uuamauawuh umuuu900u¢ vuuuouo¢ Mud-nonoo.

 

 

 

 

m.Nmuummm ouc-uzmmM

 

 

 

 

mucuauuznv< HquH
xwu «Sousa Monmouh mmma oowuuoouuum .oo
"hush nonoun
onu ou mowconxu van momma“ canuuou uuwucuuhucn> nacho

mucuaumafivu > noouu “ouch
unmanwouo mo oaHn> cw uwcwso use you human omuo>o¢ .Nm
ucoaawavu van uuouficuau wo cowuawuuuouu uuouua .Hm
unmanaavu pan unauwahau vacuum .on
"uuou wouowouunou um macaw. conga HH- hpuau use
oucuaouauu on“ so muons: vmxau vouu«fiua-coc monfim-n> abouo

mucuauuaqua >H nacho fiuuoh
Add auuH no humans Qfium cw vouuUumvv numou

cowuwuwauua uumuwv oucauaucw sud-on new acovauo< .Ne
Ao>uouou Bawfloua oocunoco cu noduuoaoua a“

3.5303 23.33556 our—932: guano: van unovauu< .1u
Avofiuoa has» o>mu a uo>o m~ao>o vou-uofifio

3:93:33 acowuufiluou 3:933“ am: you» ugh: .0.»

. "ouoauon unauau
ou mquu co«uwua:vua mo cowuuon a powOOunbh nsouu

Nd usufluuzfivo
a“ axUOum co uuxuql vac uuou cooauon mucououuwo .Nn
"muoumq awouuoo co noooog canwnuon ham ovH>oumunHHH Azouu

unculuuauvo HH aaouu ~nu0h
uuuuausuoa no on~o> any c« nomaanu
ouonu wo ufiauou u no «swam Hnuaa-u cu «wanna .nm
uxUOum .~N
"uuoo uuuwuuoa- 0» Sega mudguauou «any .aooanp
.u.~.<.z Ou uuwuwuzuou wo unufluuSnvo ouuo>o¢auuu anouu

aucuauuanvo H “none aouou

m=~u> Humansou mo axuouo---uoann vuuuaaap .nu
auuau- usooooauooaax .0"
avocados uaauu .ouaow4 .e
o~nwaaaivqcfi vouovaocou cocoa .m
“Ab aaouo ca sun noun) cue... vouwu Wax» nosuov
uuauaou-uu osu no ouono- vouuwloonoon oooumuum nacho

 

us amwr.nuouaoo .uau-ou-um assoc-can on“ use: mm
.ucu-u.:qu¢ «a uasuonum cogs-uuo

266
Company‘z
Company T provides a test of the materiality of the adjustments in a

firm with admitted assets in the vicinity of $1 1/2 billion.

Underwriting and reserves

This company does a substantial volume of reinsurance and sub-standard
risk business, but writes no industrial insurance. 0f the life insurance
written in 1962, 53.6 per cent was term insurance and 17.4 per cent group
insurance.1

The net level premium plan is used in valuing reserves on policies
issued by the company. Commencing in August, 1962, the 1958 CSO mortality
table has been used in valuing reserves on new business using a 2 1/2%
interest assumption for participating policies and 3% for non-participating
policies. During the 10 1/2 years preceding adoption of the 1958 C80
table, the 1941 CSO table was used with similar interest assumptions. The
maximum portion of premiums is therefore transferred to reserves on policies
issued by the company.

Company T participates in several special plans of reinsurance. In
these plans, the company uses the same reserve plan as the ceding company.

A wide variety of methods are therefore followed on this insurance.

Adjustments not previously discussed

Adjustment 3;. Provision for possible losses on bills and other

receivables.--This adjustment is included to provide another demonstration

 

 

1See Appendix I for other pertinent underwriting data.

267
of the simplicity of setting up contra accounts for likely losses rather
than considering the entire asset non-admitted when there is any doubt

about its value. The 20 per cent estimate is, of course, arbitrary.

 

«E

I-.. 1- -

268

I
A

Life Insurance Company

Exhibit

 

 

 

A~_.na~.s_n.av » aa~.ma~.sam.5c »

A~m.~on ~m~ «NM

Ana.Mzn.zns.-vm

mm.~0¢.o~n m

an.a¢w.mmm.~ »

Amo.no~.amw.av »

 

 

qo.mmoqn-.m~

on.en—.n~m.q~ w Ams.n~m.umc.-vm

he.ozm.o~o.an

fiam._am.zm~.~mv

mN.wo~.~nn.mm~

00.n0m.nom.mmfim

 

quuH
Nmu mo
ououuuum<

< uqusxm

 

Amz.om~.~oa4m~w
mn.~sa.oaa »

Ass.aoa.m~ov
aa.osm.amm.a

cs.mmo.~N~.m

Ano.~mm.mooqmwM

m Anm.mo~.~mw.~v w oh.on~.nHm.¢~ m

 

 

A~_.ma~.san.hv a

Ana.nam._ms.-vm

 

mm.~¢o.oHn m

mu.mqw.omm.~ m

Ama.mom.awm.av a

 

aa.sa~.~mm.oa~
mo.aam.ooo.mo~m

mn.nm~.omo«wma
me.oao.qo~.ooam

o~.qam.mna«wha
mm.omm.qoa.saam

-.mmw.oss.mna
Ho.omo.oma.onam

mo.mao.ana.msz
no.mas.oeo.~sa»

 

 

 

oo.~ma«mmo.~
mo.aoN.mmm.oo~m

oo.~ma.amo.~
mo.hs~.m~n.noam

oc.~maqamo«m
an.qow.~ma.zaam

oo.~mm¢wwoqm‘
_o.anm.moo.4n~»

oo.~mnu~mmdm
mo.~¢n.mmm.mm~m

 

 

mo.as~.m~n.moa
mo.o~o.~om.on m

mm.qom.~m~4Au_
Anm.omm.mm~.mv m

_O.nmm.mao.¢nH
«n.5qm.mmo.ufi m

mo.ch.wwm~omH
mm.nHN.o~n.<~ w

aa.oon«mdmdmnfl
No.4mm.¢mo.m m

 

 

a~o.oms.smm.qv »

mo.mo~.mmo.mm w

on.mm~.oom.s »

ma.amm.oom.h m

mn.m~m.nm~.o~ w

 

 

oo.ooo.ooo.n

oo.oom.ms~
a~o.oam.~ho.Oacm

oo.ooo~0m~.q
oo.ooo.ooo.m

mm.m~m.fio¢.a

oo.ooo.ooo.s

Ana.oa~.aan.ae
ma.oa~._an.a

oo.ooo~ooo.¢

Ann.ana.moo.sz
am.amo.moo.an

o~.nan.omm.- m mn.mw~.oam.m m nfi.fimm.00m.m m

oo.ooo~oo~4¢

m¢.onm.qn
no.nnm.omm.m~ m

 

 

 

n¢.n~nwnmo.mm m

mo.Nmn.wnn.m~ »

om.mmH.¢no.nN m

na.aso.aa~.- a

n¢.oon.@~m.mm m

 

«o.wmo.n-.m~ m

An~.on~.~¢~.mmvm

AH¢.noo.m~ov w

45.nno.z-.n »

Ano.~mn.moo.o~v»

 

 

mm.oon.an

on.onm.a
Ano.mon.~mac

Ho.oa~.omn.q~

AQ.NQO.Qno m

~m.¢¢¢.ao

an.mao.o~n
Aoo.~mm.ammV
Aon.mmm.mom.s~c

oa.~ow.qnn.~ m

oa.o¢n.-s

ao.ona.oam
Amo.moo.moV
a-.oom.~nm.ac

A~n.¢~n.owv m

8686?!

mo.mmo.qma

oa.~nn.oam
Aca.aoo.s~v
Aoo.ama.~aa.~v

nn.no¢.cam

Aoo.oam.ooa#¢u
on.mm~.om
so.oae.mom

An~.amm.nnc
Ao~.ns¢.os~.~av

» Amo.~oc.~ov m

 

 

ma.«~¢.o~o.oa »

-.mow.owo.~n m nn.o¢o.mon.o~ w mn.~mw.omo.m~ o N~.n¢o.-o.o¢ m

 

 

Aom.oa~.mmo.av
Asa.osn.zo~.oav
Aqn.oan.~aa.zc

amo.ono.~ao.av
"o.n~n.ama.n~
Amo.amo.osav

Aao.nmm.aqov
mo.mma.aom.a
AwN.eoo.maa.zv

n00.000400nq¢v

Amo.m~a.~¢~v
wn.o-.¢mn.~
on.~o~.o~o

Aoo.a~m.qsnv
¢~.moa.~ao.na
m~.o~n.aa~.a

wa.oqo.am~.on m o<.H~m.¢wm.mN m oo.-o.-w.o~ m o~.noo.hwo.- » mn.u~n.omo.om »

Noa~

good

:uu~m«unwum acuucaouu< voumouu< Naaouucoo:

l

owma

 

xcqan aowucu>coo mum asammsm MN oomaoso vac oaowuoummm

mmm~

nu
M naummmu

 

 

mnafi

 

w: nuns-howsoo

 

oucouauau swag

mm

o>onu ma .uuoz NO one an oucouomen

you» wash manoeumsmv<

you» wo wcflCwawn an vacuumwwwa
"mooum
moconNWwo

xcufin cowucu>cou con m2~dh9m nocwfimmmca wcaucm
dauoh
anagram ca-vaam weascm
mmcflcuwm nonwuuum vouuwuumoucs wcfiucm
mewcunm pocfiouom vouUHuumouco wCMCCHwon
wwdwcumw uucfiauu»
@3333
uncucw mo unawuamoaufin fiance
muovHOLJUOuu 0» mucooa>wu cmwo
mnouaonxuoum ou mucovq>au xooum
upuomo» newuuodw>uu Baum nowwcoua
mcwconuwcmuuu u>houom
w>uomuu cOwuwa~a> mowuwuoumm mhounucmz
nuucnouuo madman» nouuwunouaaa ou umumcmus
"uEOUCH mo acoHumuoamwo

 

 

vouowuumuucn

 

:noflmuocwum.mmwuc306oa coumuuuo mafiauucum:
soc-BhouoOu mfl uuuamHMu AmmoHv «sauna mum

nu“

oucuauuafivo auuoh

uno% honoua
ecu ou evacuaxo use monmog awouuou.»owucuua--H> noouu

unou vanauuoec uw mucus: voxwu “Ho huh-u can
auculuuuun onu co uuoouo poxAu vouuaavoncoa oun~h--> anouu
unawuon ououaw Ou oquo sawuwuwnuuo mo COwuuon o howoouupH unauu
«woman cwuuuuu co «unmofi mapwmmon haw oow>oum-oHHH anouo

unou vonfiuuoao cu Eunu wcwchouo» usnu .mo=~a>
.o.H.<.z o» mowuauauou mo unusuaofivo umuo>omuuHH naouu

ha aaouu cw ouo coax: uuomu- vougm coca ponuov
manuaUuauu ecu no uuoano nouuwauq-coc oun~m--~ abouo

"Aamaumv you a uaavonum ooav uuuuauuzmu<

 

 

 

 

 

 

 

 

«SOucu Mm mCOHuwmommHo Md vomuaau
«Snug ouowon xcngn cOwuau>=oo Mum uoz

xau mecca“ H-uoouh wnm~ o>wuuqouuox
macaw van-Ava was nouuwflo-ucoc «o unga> a“ own-no
you» mo use an vocab nowuuunuoo no on~o> nu omcuzo
vfloa uuouan co Ana-nonv unwom "dawn-u

“Manda cOauao>cou co unanusm ou uuouun venouou ulUuH

gonad nowuau>coo non «noun-none loan Anecdv cane no:

 

vouaummm .ucaau-n as“: oosu< mm
noun mmum mm uauauunqoe

 

269

Schedule 1

 

Life Insurance Company T

 

so.mam.a~o.mz» Am_.om~.usa.m~vm aas.aoa.m~oc » «a.mmo.a-.m » Ano.~mm.mmo.0zvm m~.oea.aam.sam wucueumaas< “when

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

. m u m - m oo.ooo.ooh.c m Aoo.ooo.oo~.¢v m o m «Hausa mnmfi co xmu paces“ fiauuuoh m>fiuumouumm .oo
"ham; uoaouq
usu cu noncomxo ucm mommOH aaquuuu humanouauum> enouu
mm.omm.an m ~w.q<s.ao m oh.oSn.-q » om.mao.sma m o~.mm~.on » H~.~mo.hno.a m mucuaumaana p aaoto "much
aaa.amoqwanwln Aao.ms~.am~v Amn.ao~.ms~v aam.~mn«mqull Am~.anm«qmav Aoa.om~«omau unmanaaao we. massacssu mo coauaaoouaov unease .aw
on.m~o.oam m om.mmn.Onn » oq.<sm.oao m om.zmo.mwm m so.o~o.em~ » aa.~mm.ama.a » “assesses so. assuacuau vacuum .Om
"uwou uuumwumunwu um wuummu pmxaw ”Hm zuuou mam
mucmaouuum ecu co muommn noxfiu unguaavuucoc woodma-> QSOuU
05.0mm.n m an.mao.0am m as.mma.oam » oh.~mm.oam m oo.oos.mom » nn.mco.o-.qu mucmaumsflca 9H nacho saucy
so.e~owwH mm.0mm.a Aoo.mo¢«m~v nm.mon.mm oo.nms«s~ mm.mmoq~oa has Essa mu tsccqa mass as soutmcmue muses
coHuHmwovuw uuouwp oucuuaacM spans: van unspwuo< .mq
am.ooo.~na am.aoo.~o Ama.m¢n.o~v No.nao.m «n.55n.aoa ~n.nss.sos . Am>tuuou sunsets monsoon: as acastOQOta ca
voauuuoov wfiOwumwBflOu oocouamcH Lagoon new ucuoaoo< .Hq
Aa_.0mm.oqav m oz.mna.mas » os.omq.mmo m ma.mms.ea~ » em.hqs.¢ma » ma.ans.saa.mHm Acoauua Hams span a s~>o sacs>m swusuoaau
zfiwumuuwpuwv unawmmdhuoU uocmuaaaw swag and“ amuam .oc
"muofiuon magnum
cu mumOu acauflmfiacuo mo coHuuoa n umwoanubH nacho
Amo.mon.mmav a Aoo.~mm.ammc m Ano.aoo.ooV m Aoa.aoo.ch » Am~.aan.nnv » Aoo.oaa.on~v » mucuaumsfiua HHH agate sauce
Aoo.monqwnav A_o.an.mm~w Aca.zomwww‘ no.5aa Asa.wn~4av Asa.onm.mv AeoN an uosuaaumue moana>auuou suede van azaan .mm
Amo.moa.amc m “no.oom.anc m Ana.asn.noV » Ann.nmn.m~c » Ao~.aoa.¢mv » a~n.mms.ao~v » fines so nausezumuv "assuage “sass .mucow< .om
"muomma samuumo :0 nonon manwmoon uOu ou«>o»m--HHH nacho
”c.0mm.oaq.qam Aom.mmm.moa.s~cm Am~.oom.~nm.ac» Aoo.aoa.~aa.~v» Aoa.mso.oe~.~ac» Aan.maa.m~e.~va mucuaumafisa HH nacho fiance
Anz.oo~.moe Amm.aqm.nav Ams.aq~+mmw. Asa.qo~.amav - - aaoum mass as mucqaumahcq
nunuo mo ufiomo» a mu «cwuw Haywaoo aw uwcwno .mm
mo.osm.~ Aom.ona.aac Amq.nmm.nv Ada.o~n.0zv a¢.nmo.m ~a.mma.om muons» _.ou scuaumm>cH ..m~
- Awa.m~m.asv Aos.hoo.aaav fi~n.sao.oomv a~w.4m~.-nv ma.oaa.amo u:.o_ swomuuo: .NN
oq.mnm.mmm.m~ Amo.am~.mom.s~v a~n.oom.o~a.av Aan.~am.o~a.nc “No.ano.4~o.~ac nan.~ao.noo.sv mxuoum .HN
Amm.moo.moo.evm ca.seo.a~a m as.oao.aan m so.ana.oma » ae.nmo.mo » oa.nmN.mmo » mason .o~
Human nonfiuuoEw Om Bony wcwcuauuu mazu .musaw>
.U.H.<.z on mowuwuouum mo unuaumofiua unpopum--HH noouo
as.amo.sno m oa.amm.st.a » aan.smn.o~c m mm.mom.sam » Aoo.aoo.a0v » nm.ms5.maw.~ » sucuauusnu. H nacho zauoa
Asm.sno4moqv Aam.omeqo~mv aaa.aom4muov mm.~so.s¢n “so.mos4momv Aao.omo4aonv uwcqnuuo anagram .m
No.osm.~oa so.o~o.~q¢.a an.nom.a~ Ana.mmn.nv oo.m-.o on.mmo.co nuanmsaouuu sozuo van «Hahn .m
m~.~oo Amn.-v th.aev Aon.asnv mm.nao oo.saa messaaoa annoasanca co assuazapuaa suaaoa
“onuo van ~3Hn> you uo auuuuo cw .ouo .mouoa Indiana .m
«n.onm.oo~ m mn.omo.Man » m4.oae.nmc m mn.mnm.nm~ » ~o.~ao.asn » o~.nom.e~s.~ a soon-aqn “anus .aucow< .s
HA> anouo am one sows! uuunn- voxwu coca wusuov
mucuaouquu «Au co auoooo nouufilvouaon cough--H naouu
Noaa zooa ooaa mama mama an-an-~H
u¢0luu9«p<
vbwuomnlnu
fl oasvonum :oufimwucanm deucoouu< voumwuo< Mud-uucoo: nu“: lhowcoo aucoBUu-um Hague-nah mmm axe: MM

 

 

uuauauannu< mm.oaauonum coda-goo
M Naummmo oucauamcH owwq

 

 

in..-

 

270

Company U

,Company U is the next largest stock life insurance company after
Company I in terms of admitted assets, but there are four mutual companies
between them. Total admitted assets of Company U are over $2 1/2 billion,

which is $1 billion more than for Company T.

Underwritidg and reserves

In common with most of the well established, largest firms, Company U
values its reserves on the net level premium plan. Group insurance com-
prised over 60 per cent of the life insurance in force at December 31, 1962,
and provided over half of the premiums in 1962. As can be seen in Appendix I,

a substantial portion of these premiums are for accident and health insurance.

Adjustments not previously discussed

Adjustment lg, Accrued interest receivable.--This is just another
example of a non-admitted asset which needs to be re-instated to the
financial statements if they are to conform with generally accepted account-

ing principles. The principle is the same as for other non-admitted assets.

271

Exhibit A

 

Life Insurance Compady U

 

 

Anm.oco.nsa.~v m Anm.oso.msa.~vm Am~.-m.oqo.ov »

qu.nm¢.m¢m.~ m mm.m4¢.o¢d m om.nmfi.~mo.~ m

 

 

Amn.q~o.wmmdm~M mm.¢mwd_0n n Ana.wo~4doa1fl~%
05.noo.~mo.m m AMN.-m.oqo.mvm «n.5m¢.nqm.~ m

 

Anw.oqo.n¢~.~vm AmN.~Hm.oqo.ov m

om.mom«moo«m1, Aan.m0asdzaaaq. Asm.ozm.aqsqwq
mm.mss.oqm m om.amz.~no.~ a oa.aom.uoo.m »

 

an.nmm.mqm.m » nm.m¢¢.o¢m m om.nnH.Hmo.~ m

 

 

ma.Nmm4Naa4¢m
mn.aao.osa.na m
oo.ooo.oos
nn.aao.osa.qh m

om.ams«w~o.am
“n.4os.oem.qmm
oo.ooo.oos
aa.qos.oas.¢mm

 

~n.amq.~hm.ma
mm.smn.mme.om»
oo.ooo.oos

No.mnm.omn.nm
as.¢om.omm.nwm
oo.ooo.oos

eq.qom.omm.mmm mm.qam.m~o.omm

~0.moa.smm«am
om.oom.mmo.aam

oo.ooo.ooq
om.oom.mo~.aom

 

 

 

on.sem.mamqao
azm.soa.~nn.o_cm

mn.aao.osa.sa
o_.mmm.q~a.a m

mm.qmm.mwo.om 4o.oso.oqm.am
on.mo~.aas.n m Aoo.Nmo.o~a.avm

as.sow4o~m.mm
om.aoo.wan.a »

 

 

as.mmo.~sa.nn m
oo.ooo«oom.m
8.80.08.S
nm.na~.aoo.o -
oo.ooo.mno.n oo.ooo.am~.n
Aqm._oa.oom.mvm aq.nmo.ma~.aa m

am.mmm.mmo.o_m
oq.m~w.qm~.s

 

mm.moo.amm.sam
oc.ooo«ooeq~

s~.oom.zm~.aam
oo.ooo.ooh.m

os.omo.amn.a »
8 . 80.ng

 

oo.ooo.m~n.¢ oo.ooo.oom.q oo.ooo.omo.q
o¢.owo.mm~ m 45.00w.nnm.n m mm.moo.o4w.u m

 

Na.moo.mn~.om no.~ao.~oa.mam os.mm~.mmm.aa m

 

Ann.q~o.mmm.o~v mm.¢o~.~0m.m m Anm.moN.0¢m.HHVm

 

Aam.-N4Nw~u om.omm.amm
«5.5mm.nsh.~ mo.nan.mos
A_m.mmsv oo.amn.~

no.wnm.mno.m nwm.omo.oo~.m~v

mm.naa.som m so.ona.nas m

nm.~n~.mom.n~m mm.ono.owh.cflw mn.onm.woo.nam

 

mm.m0n.moo.~ » azm.ooa.0aa.avm Aqn.oam.zqo.ov»
Aao.mosqamv Amo.mam.ozmv Anz.~Na.sm~u‘

 

s~.~on.nmm os.qan.m~o ma.n~o.mo
om.mec.w ha.oen aa.oms
wa.q4¢.wan.~ Ama.mso.qo~.~v Aam.a~s.ao¢.oe
on.~na.wan » Ama.o~m.nav » Aao.~oa.aoac m

 

as.oo_.~oo.ao no.aos._o~.~am “n.50n.oan.a~ A

34.1

Awo.mma.mmo.ov
Amo.za~.m~ov

-.oqm nu
m¢.omo._nn.na
c~.-o.nma

mn.~un.m0m.¢~ w on.nmN.n~n.n~m m~.n-.mmn.n~ o

 

Quuun
nun «0
ou.uuuuu<

Noo~ goo"

4 uanusxu

 

:nofimwunuum uflauasoou< vouuouu< N-.uoc :

oq.~qo.mon.m~» aw.saa.mnq.oaa na.aoa.soe.azm

 

ma.nsn.om Anm.oon.n~q “we.mm~qnav
Ao~.naa.mao.zc mo.m~m.ams.N mo.naa.a_o.a
oo.nma.mo~ ma.~mo.o- Aso.sao.o~v

mo.omN.Nno.<«» om.c~m.nnm.nam o~.oo~.a~n.-m

It

coma onofi mmm~

 

nufim ouaqflhowcou

 

 

xa.~n sawuco>cou you umwmwam aw uuwwwzu no. udoau.u

 

 

m Nc.mioo ouo.u=uaH on“;

 

 

o>ona m. .uomz we was u. uocwuuumflo
an.» many macrauuonu<
your mo mcaccwmob u. mucouswwwo
“wooum
oucuuowmwo

xcofin cowuco>cou you undauom vocwaumoca mcwvcm

munch

.:HAh:m cwuvfimm wcfipcm

mwc«cuum pucfiuuum vuuuwuunouca mcflucm

umcflau.m nonauumx uuuuwuuuouca wcficcHwom
mmdaccuu nmcamumu

AMM cofluuauonv mm cowuwuo.

oz

«Sauna no nco«umuoamwn Hauoh
mumpgonxuou. ou mucuuwpwu sumo
uuuvgostOuu ou mucuvu>wv JUOum
unauu .wuuudonxuoum ou um«u:.uh

~>uoauu hucmeaucoo

o>hoouu cauuuaaw> unaufiuauon %uou.u:.t
"ouCDOoo. usdausu cou.Huno»na. ou sauna.»H

"cabana mo .COwufimoamfia

 

 

 

mouuHuuumucn

 

:uuamwucfiwm.mcfiucaouu. uuumwuu. wawuucmm:
saw: ouc05L0ucou mfl vou:NHMu nanomv uEOuaH uoz

 

 

 

 

.ucuaumofiu. H.uoh
uaou vouauHOI. u. one... noxwu "H. auu.u us.
mucuflou.u. onu so ago... noxuw usuufiap.-aoc oo.~mu-> guano
avoauun ouauau Ou uquu oowufi.«:vu. «o cowuuoa . house-->H aaouo
.uouu. aa.uuou co ouuuo_ uanwuuoa you upw>0umn-HHH aSOuU
uu0u confluuol. 0» Hana weanuauo» oanu .uoo~.>
.o.H.<.z ou cowuwuauon «o uculuusfiv. onuo>um--HH aaouu
Ab aaouu a“ a». noun: nae... conga u.:u uozuov
uucnauuwum any so nun... oouugao.-coc uu.~m--H noouo
"AH“.uou you ~ wfiaoonum oouv mucufiuuano<

oaoucfi Mm MHMMMMMMNMflm Md uuumufiu
unuuw uuowon xcogn coaucs>cou Hum mum
manna nouuHou we. nouuwau.-coc uo o:~.> cu omc.nu
».o» no one u. vocab novufiuooou «0 avg.» a“ unsonu
vHo. nus... co Aoouuofiv .n«.u ~.uun.o
"sa.~n cowuou>uou co .suauam ou uoouua nououcu .lUuH
ad.~n coauc0>coo you .cowu.uono Iona a..oaw c«.@ an:

 

 

 

 

 

aw moumaumu unmask-m nu“: oouua mm
lash nu.u MM u:fllu.3 v<

 

 

'

U71.

 

Life Insurance Companx

e
1

U

.0
e
h
C
S

 

 

mm.¢o~.~on.nm Ano.m0N.0mo.-vm

 

Aam.mmo.o~o“

_ Aam.zma.ammv m om.0mm.amm
Aao.ann.m~ae

m Aoo.mo¢.HmV m Amo.mfim.m~Hv

Aq~.Heo«na

mm.m0n.moo.m m AHm.moh.oHn.~vm Aam.o~w.«¢¢.ovm 05.nom.~mo.m m

» sa.aao.amm.m m
Aoa.onn«~mev

» Amz.-a.quV
mm Amh.moo.a0mm Ana.aas.masu

 

 

 

 

 

 

an.amn.~mn a an.own.ooa m ma.m0n.sos m ma.oma.amm m No.mna.msm m so.m~m.oao.s w
«5.5mm.nsa.zm mo.m~n.aos m sa.H0m.mwm m os.san.mmo m mo.mmo.mo m Ha.omm.oam.NHm
om.smo.m~ mo.aa~.o~ Aaa.oqm4wmu m~.moa«wa No.o~N.oo am.nm~.aa~
am.~mo.~aa oo.~wm.m az.qs~.m Amo.wna.av om.nm~.mm mm.moa.ow~
-.omn.0mn.am mn.s~o.aqs » q~.aam.ams m oa.qoz.o~o m Ao¢.aam.o~v » q¢.~oo.aoo.~am
Azm.m~sV m so.zmm.z m om.mas.~ » a~.oom » aa.ans » Aoa.mow.0c »

 

 

am.mmm.mao.nm Aam.omo.oo~.navw

mo.<¢4.mnm.fi m Amo.oqo.¢oN.~vm Amm.HHc.no¢.oVw Amw.oom.mmo.~Vm

 

 

 

an.mao+mmq¢w

oa.~mq.os
q¢.s-.~zn.q

qm.o_mdomm

oa.a~w.m
Aqm.mmo.~ma.m~v
Asa.aHn.o~mV m Aoo.oqa.s~sc

an.moN.fiN~

mo.woo.~

“on.a~n.qmm.ac
m m~.Hma.owo.m m oo.mos.mom m Aoo.moo.oav

ma.a~o«wma na.m~m+ooa -
mm.~zm.oa
Asa.msa.nnq.wv

» oo.eo¢.~om »

An<.qms.mv
Aen.aoo.man.ov

so.mom.s
Ann.osn.snm.~v

 

 

 

 

 

 

 

 

 

 

 

mm.aaa.ssm » no.0ma.Maq w om.~me.mam » Ama.o~m.mac m Aeo.~on.mozv » qm.q¢m.ona »

Asa.omo«aav oa.omm«wm -.~an.aa Awa.maa.av am.zao«0a ms.m~o.a

Amo.mam.o~v Aso.mmo.qzc “Nm.oam.zev oo.-~.~m mm.zmm.az _s.ama.qm

ew.aoo.mom am.oow.aos Na.n0a.mom Aom.ao~.qmv Amo.eos.nmac -

oo.nm~.q m Aan.ozm.Mac » Aom.qma.smc m A~N.aoo.nv w Amm.aan.qc m _o.mmo.no w

New. zoo“ coon anaa mmmz an-am-ma

mmmmwmmflma
o>wu.fiafiso

w azauusum

 

mucofiumznv< acuOH

mucufiuusau. > nacho HouOH
unmanaavm Us. ouauwcuaw uo c0wuawuounov mucosa .fiw
ucmEaHsao cc. uuoufichau uuouom .Om
"unou pouuwuo»nov u. «no... poxfiw Hg. mhu.u cc.
aucmEOuauu on. no muoum. poxau vouuufiua-coc uu.~muu> nacho

aucoauusnu. DH noouo finuoh
Ada EouH a. soccga tau. ca voupwwouv uuuou

GOwuHmwauu. uuuuwo mucouaucfi guano; pa. ucovwou< .N.
Ao>uomuu Ebfiaoun vacuums: ou GOwuuoaoun CH

vouuuuocv acowmoflaaoU mucounmc« nufloon we. uaoouuu< .Mq
Avo«poa u.u> o>Hu . cu>o mgoo>u vuu.uo~H.

Aguauuwnuav oconufiE—Ou oucauamcw 3: have» an»: .0.

navauoa ouausw
ou auuou cowuwwwocu. mo cOauqu . uuuonu->H nacho

ARCH u. vuuqsflumuv myocaaon ufinuv .uuaow< .om
”mun... caauuou co momma“ mangouoa you oufiooumnuHHH anouo
«asylunanu. HH naouu ~.uoH
macaw .«:u c« nucuauuanu.
conuo mo uanuou . a. nc«.m ~.uwa.u a“ owa.£o .mN
ud.o~ owamuuot .NN
uxuoum .-
upcon .o~
"uuoo vanauuoa. 0» Busy mcacunuou many .uu:~.>
.u.H.<.z ou uofiuwuauou mo unuluuanv. uauu>om-nHH aaouu
.ucuauusmv. a macho ~.u0h
o~n.>«uuou uuououcw popuuu< .m~
.aooa.-ou.«! .o~
uwc.nuxu cwwouoh .m
nooc.A.A wagon ..unow< .c
UA> unauu 9. on. Lowe: and... voxau.c.nu uuzuov
.u:uflou.u. osu so «an... vouuwlp.-coo ou.Hma-~ nsouo

 

 

:modmwucwum wwwuc2000< voumuou< Magauocuo: nu“: Shaucoo nucwauuwum ~.Huc.oflm ecu 01.: MM

 

nucmsuuofiv< MM oflaumnum voflwuuoo

 

m N6.mmmo ou:.»:ncH ouuu

 

273

Company 1

This is the largest stock life insurance company in the United States
in terms of admitted assets, so completes the_test of the materiality of

the adjustments.

Underwritipg and reserves

Substantial volumes of accident and health and of group insurance
are written. Group insurance in force at December 31, 1962, comprised
81.6 per cent of all life insurance in force. 0f the business written in
1962, 72.7 per cent was group insurance and 11.0% was term insurance. No
industrial insurance is written.

Life insurance reserves are valued on the net level premium plan.

The portion under various assumed interest rates is comparable to that of

other large companies.

Adjustments not previously discussed
Adjustment 12, Accident and health insurance premiums over three

months past due.--Company V carried these premiums on its books even though

 

they are not admissible under insurance regulations. They are treated as
non-admitted assets in the Convention Blank. This adjustment reinstates
them to the balance sheet, but a large provision for losses is established
with Adjustment 34.

Adjustment d4, Provision for possible losses pp accident and health
insurance premiums over three months pdst due.--This adjustment is used as
a further demonstration that full accounting is best achieved by carrying
receivables on the statements at the amount management expects to collect.

This is achieved by deducting a contra account of the amount of expected

274
losses from the asset account. Stockholders would then receive full
information from management. The 50 per cent provision is, of course, a
purely arbitrary provision used to demonstrate that contra accounts can be
used for large as well as small expected losses. Naturally, as soon as a

particular premium becomes uncollectible, it should be eliminated from

assets .

275

Life InSurance C0mpany V

Exhibit A

 

 

flow.mam.oza.amaem nom.mzm.0aa.amacw

Awo.aaz.oqm.ooacm

 

 

AoH.omm.HnH.sNavw

Ama.mma.mma.aazcw

aam.mom.ooo.omavw

 

 

 

Aos.msm.mhmqmmu
Acs.on.omm.NoHVw Amo.maz.osm.mmavm

N~.nom4mmw ma

Awo.mmh.mmaqmmu
AoH.omm.HnH.saavw

 

 

an.~qa.qa~.moa

hos.moa.ma~.mav

no.0oa.qu.flq~

Aow.mam.0zz.amacw
~s.mma.amqqaa~
on.mam.ozn.oHa m

 

Amo.maa.osm.mmavw
«a.oN~4ans.ao~
so.ana.amH.~o a

Aan.oqoqnnm.~v
Ame.¢ma.mma.aeavm

Ams.qam«omaqnav
Aam.nom.moo.onavw

Anm.¢¢m«m~m«mwv
Aos.o~m.omw.~oavw

 

 

hea.omm.ama.qhaew
«s.smoqasa«¢m~
~n.q¢m.oon.oo m

Ana.ama.nma.aaavm
ms.oms.ono«mau
oh.csa.qmm.as w

Aan.nom.ooo.omavw
mm.mmm«ma0qu~
mo.wws.sos.mm m

 

 

oo.ooo.ooo«o
on.maw.oam.soH m

oo.ooo«ooo«o
oo.ana.ama.on w

oo.ooo.ooo.o
~m.<om.omn.qm m

oo.ooo4moo.o
oa.osa.en~.nm m

oo.ccc.oam«o
mo.mm¢.soq.as a

 

 

 

so.anw«~maqon
om.aoo.maz.mq m

mm.som.omm.qn
qm.mmm.osn.a »

oh.os~+Qm~«nm
No.amn.mmm.aa m

8831.3..43
Amm.asa.oo~.~av m

mm.mwm«on.~m
Aam.amm.omo.smV w

 

 

 

Aoo.mnm.oma.mav w

oo.qam.amm.~n m

oo.moo.ams.o m

oo.¢m~.non.nn m

oo.moo.a~a.~¢ m

 

 

 

oo.ooo«oomqma
Aoo.~wo.mmo.av
Aoo.ooo.oos.sav
Aoo.mam.omn.mav w

oo.ooo«mom.ma
Aoo.omm.maa.av
oo.ooo.ooH.HH
oo.mam.oos.om m

oo.ooo4do~.aa
Aoo.amo.aaa.mv
Aoo.ooo.m~q.oav
oo.ooo.oma.h m

oo.o@@«ooa«ma
oo.qma.aoo.n
oo.oo¢.oo«.w
oo.ooo.oom.s m

oo.ooo.oo~qo~
oo.wmo.~o~.s
oo.ooo.n~o.o~
oo.ooo.ooo.o~ w

 

 

 

om.oo~.mwm.m~ m

em.a~m.mma.qm A

No.o~n.maa.m~ »

No.Nao.am~.m~ »

ao.OOa.omo.m~ m

 

 

 

-.now.owm.mH w

Amo.wma.mma.n~v m

 

Aem.oss.nnm.~c a

Am¢.cnn.owa.nav w

Anm.¢¢o.mnn.nnv m

 

 

- - - am.m¢o«mmo«s aam.mso«mmo«¢v
Nq.mmo.a~a oa.~nm.mmq ma.ma¢.nnq oo.oma.qmm so.nnm.umm
Ho.nmo.nw~ ~s.ooo.om~ Nq.mam.sam a~.¢ao.~aa mm.mmm.dma

Aao.qma.amv mm.¢as.mq ma.q¢o.s~ nos.mon.¢mv Ano.oon.omav

no.¢oq.ooo.mH

mq.~qm.qu.H m

Aom.ozm.moo.amv

mw.mqs.amo.a m

ANw.mmm.NnH.¢v

nH.naa.H~a w

an..ouo.omo.mHv

Anc.ono.mv w

Aaa.mNo.ns~.onv

mm.snn.qaa w

 

 

mo.aom.mma.aa »

~m.eon.-m.¢n m

 

mm.ooa.m~a.mm »

ao.non.¢w¢.o¢ »

«m.¢¢~.nom.aw m

 

Aoa.qos.~noc
Aoo.~on.mma.aV
Aoo.ms~.mHv
Aza.amm.nmmV
Aam.mos.sow.ozv
ca.m~n.moH.H

oa.woo.o-.o¢n w o~.¢Nm.an.mN m

 

mEouH
Nux wo
ouwmuuuw<

 

< “anaexm

mead

Ama.amm+Mo~%
noo.Nom.onmv
Aoo.~mm.aqac
Ao~.omo.mm~v
“N.soa.oao.o~
Na.mma.amm.m~

so.¢ma.qw~.om w

Homa

:mufimwucaum umauanoUu< commoou< Naamuomwm:

Aoo.zmw«mmmu
moo.ooo.oao.av
Aoo.amm.omv
Ana.nom.qav
ma.mos.ona.m
Aao.mom.mmav

om.m~o.~es.om A

Good

Aam.w¢o.mnoq¢.
Aos.n~m.mmav
oo.nmo.a~
Awm.o-.womV
ma.msa.mmm.mfi
Aam.mmm.moa.aV

ma.aaa.o~o.a~

mama

 

 

 

xc.~m zOuucu>aoo uom unammam.mw mowaoso cc. uncuunuomm

ounauauaH «wag

M Nnmmmmu

 

Aug: nuanau0uooo

 

Aoo.ooo.nanv
om.mno.a~m

Amm.o-.aonv
~o.aom.no¢.om
Ha.mma.na

w ow.~oa.h~o.Nm w

ma

 

 

 

mfl_mwmmmmmm .uowuunm
scum name

 

o>onm mm .umuz wo was an oucuuouMfio
pooh mfizu mucofiumsnu<
umox mo wcwacwwon um oucuuowwfio
“wooum
oucwumuwaa
xamam aofluCu>cou you mnaauzm vocwammoaa wcfiucu
HmuOH
msHQusm cwnvfimm wcfimcm
meHChwm uocwouux umuoauumoucn wcHucm

mwcwchmm pocwmuum vuuuwuumoucn wcaadfiwom

 

mwdficumu umcfimuou
coauuavuuv mm cowuwupm uoz

 

 

 

Ole

Umuuwhumwhcfl

«Bound mo unowuwmoamfip HmuOH

Amnaa ca goons conaaas cam sanszucav muuuaonxooum ou muaan«>ao

wcficosuwcunum w>uwmom
o>homuu huawaNucoo
w>uwumu coaumzam> mowufiusomm mucumncoz
"cacaoUom maaausm coumflunouaam Ou muowmcmuh
“escocH uo maoflufimoamfla

 

:umamwuaflum,mcwuadouom uuumouom MAHouocow:
mwwm ouamEuowaou mm pounmmou AmmoHv msoucw uwz

 

 

 

munuaumonum Hmuoa
umwm umaoua
ecu ou nonconxu vs. muumoa camuuuu wownnmhenuH> anouo
umou uuuwuuoE. a. mum... uuxwu Ha. auuou pan
mucuBUu.u. as. so «momma moxau vouufiaumsaoa ounamunb aaouu
uuoauoa
oununu 0. .umou coauwuwavu. mo nowuuoa . wouoonn>m asouu
«no... a«.uuuu no auoaoa oanfiumoa nan ovw>oumunHHH noose
uaoo ponwuuoa. ou aunu unashauuu ndnu .mosam>
.o.H.<.z ou uuwuauzuoo mo unusuasnp. oouu>0mnnHH naouu
A> noouo an on. auflna «no... vuuuu ouau nonuov
auauaouau. onu so mum... vouuwao.-coa comma-um naouo
"Aawuuou “cm H oasuwnum oomv uuauaumanu<

 

 

 

 

 

 

uaouow MM mooauHuOMmau MM oomuuau
macaw ouowon xauam nowuco>aou yum uoz

Kuu .auwu» Hound mo ucuaumanu<
vaaw ouamaoaa. unusuuwuou ou aoauapwuuaou
.uauuaooaou nouwuosunnc: now u>uunou a“ «mango
menu“ vouwauu cc. wouuaafi.uaoa mo 09H.> nu owcanu
n.0m no on. u. wanna .oauaunuo. uo 03a.> aw owcmno
vaon ago... no AnuauoHv and.» Huuaamu
"xa.Hn noauau>aoo no usanuam ou uuouun unusuam unsua
Adaan nauuao>aou you uncau.uuao Baum A..0Av awao uoz

 

.Iu nus: sauna mm
mo unusuasnn<

276

V

Life Insurance Com an

Schedule I

 

NN.nom.¢N~.w—m Amo.mmn.mm~.n~vm Ann.oqo.mmm.mvm AN¢.¢nm.omH.n~Vm Anw.¢¢o.mnn.mmvm Aoc.own.omw.mo~vm

 

 

 

 

 

 

 

- m . a - m aa.mso.mmo.s m Aam.mso.mmo.sv » - m
«q.mmo._~a » o~.~nn.mae m na.mas.nas m mo.oma.smm m so.mnm.~mn m o~.mma.a~a.~ m
a~a.ona+amv aq.~as.oma - - - -
Amm.s-.q¢¢v Aqo.oon.oomc Aoo.aoo.mamV Aem.moo.an~c Aso.nza.ma~v Ams.~am.moae
No.nao.naa.a m ma.omn.mao m oa.nsm.mma a oo.oma.Mmo m mo.o~o.mmn a so.nna.omo.m m
Ho.mne.mmm » ~s.ooo.om~ » Nq.mzo.shn m a~.s~o.aaz m om.anm.ama m so.msa.amn.0a m
ha.~as.s~ a~.mma.o~ Ama.nas.omv Ana.n~a.~ov Aom.aow4oav mm.mam+as~
m~.~ao.m Amm.aon.mV Ame.-n.av ”oh.aqo.qmc Amm.ooq.nev oo.mmo.a~n
on.mma.ao~ m oo.o~m.~m~ m mm.anm.som m Na.ama.am~ m oo.ao~.moa » o~.moo.osmem m
“so.sma.amc » mm.¢hq.os » na.¢¢o.s~ » Aos.nom.qmv w Amo.oOn.ooav » Aoa.m<s.sav m
Aso.oam.mov ~o.~oe.ma oa.-s.a~ Ao~.aomdo~q ANq.amm«noaum Aoa.HNm«nmv
Ano.moo.-v » Amo.mm~.onv m mn.-~.n m Ao~.omn.nv w Ano.~ac.sav » Ao~.a~z.aav m

 

mo.mm¢.ooo.n~m Aon.o~N.woo.nwvm Auw.nam.~na.qvm Anq.omm.omo.m~vm AHH.m~o.mq~.omvm Aqo.nma.~sn.cduvm

 

 

 

 

 

 

 

 

 

 

 

mucfleuusnv< kuOH

«Ecqu and“ co xou ufiouca ~.uooom obwuu.0uuum .oo
"nous uoaoun
onu ou momawaxo cc. mummofi cwounou nowadays.-m> aaouo

mucuaumanu. p aaouu anuoa

qufiAwavu we. uuaufichsw
mo o=H.> 3000 as: aw omensu now mhucm omuo>om .Nm
ucoenwzuo on. unauacuaw mo coauafiuouauo uuouwm .fin
ucufinunao cc. ouauficuow vuouom .om
uuuou vouowuuunmv u. uuomm. omxwu MA. wanna on.
mucuEUuau. «nu no muwmm. voxwu nouuaavn-coc ouoflm-c> noouo

unauauunnn. 9H nooko "much
AH. aouH m. awccma Neon a“ pmuuowwuv mquu

cowuwuwovu. Duncan mocwuamcw Ludauc vc. ucouwuu< .m.
Ao>uumuu BowEuua vacuums: ou cofluuonoua CH

vuuuouovv unoamwdnBOu mucouomca guano; we. ucuufiou< .H.
Avofiuon zoom m>wm . uo>o m~c~>o nou.uo~H.

mfiwuouufinu.» acofimudhEOU mucwuoucw mug“ comm umuHm .oq

"upowuoa uuausw
ou «amen cowuwmwavo. mo coauuon . umuoa-->H anouu

mucuauuSHv. HHH uaouu unuOH

Axon a. puuqfiwumov 02v yuan msucoe mougu
uo>o wSoHEoua oucauomc“ n»...: on. ucuuwoo< .cm
Axed u. vuumfifiuuov moocaflon “anon .uucow< .Om
"nus... cwauuou co momwo— ofinwumoa pow onw>oumonHHH Asoka

mucuaunonu. HH aaouo guuoa

 

mo.aqm4wmmqu Aom..mn.nmm.om% Awm.~nu.fifla.nM. Anq.oam.mmn.omM AHH.n~o4~m~.onM Aqo.nmn.oaa.¢~dq. meOum .HN
oo.onm.q¢ m oo.m~m.o~m.~ m oo.oom.onn.~ m oo.ooo.~o~ m Aoo.ooo.~ov m oo.mun.mnm m avcon .om
. “uaou vuuauuoaw Ou flung wawnuzuou was“ .uo:~.>
.u.H.<.z cu auwufluouou no uoueumnnc. u.»u>o¢-oHH naouu
mq.~qm.szs.a a nm.nq¢.amo.a m ma.maa.a~m m Ame.omo.ov m no.snn.saa » «n.0na.aan » uuauuuusfina H aaoso sauce
n~.mnn.nm~ Amm.n~m4om~M Aan.c¢m.~¢v mm.qflo4nn .m.q~nqamm ~¢.m¢o.oou oov uu.a ozucoa ooucu
uu>o mEDwauua oucounacw zu~.on vs. uoooauo< .ma

mm.n-.co Ho.nn~.N- sn.¢¢o.mw fio.om~.oq no.no¢.n~ mm.~o~.-~ uncon.-oumaz .oH
oo.ooo.nna oo.ooo.mnm oo.ooo.o¢w Aoo.ooo.oflmv Aoo.ooo.mnmv Aoo.ooo.~m~v omcanuxo awauuom .m
Aoo.osm.av Aoo.omo.mv Aoo.mqa.~av oo.oo¢.m~ - - cannsaauac madam .a
oo.es~.- Aoo.aaa.~c floo.~an.ac Aoo.a~o.ae oo.moa.o~ oo.mn~.on unauaaoa aaaoa>avaa so soauaaan-aa soaaoa

cacao vs. oo~.> uoc mo ououxo cu .uuo .uouoa abwaoum .m
ao.nmo.o- mn.omm.~0m Aom.nN~.~nv nm.~on.nn wa.o-.o¢~ on.~s~.-~ nouc.~.n uwpoo .oucow< .4
Awn.q~o.mv m Aon.n~m.nqfiv m mn.mn<.oo w nm..~¢.¢o~ m oo.o~¢.~ m mq.n~n.oo w aboufiumo no «use». ou .ou=.>o< .~

”A> naouu cw on. sows) «as... conga nun. nocuov
mucoluu.un as» no nun... vouuaae.-non uu.~m--H nacho
mom“ Hoafi coma 0mm" mnmg ~n-~m--
unusuoaqu
o>wuuflaano

M u~=nosum . :uodmwunwum ucwucaouu< pounwuu< N-uuucoo: nu“: showcoo mucuaou.um n.uoc.c«~ mmm.mmufl mm

 

 

«acumuuafiv< mm mascogum scan-son

 

> Nmummmw oun.uoacH «mug

 

 

277
SUMMARY

The only times when the adjustments are not material appear to be
when the volume and type of insurance written is constant and when the
market value of investments is stable. Even though the earnings measure-
ment is not perfect it gives a better indication of operating adjusted
results than the Convention Blank. Research and experimentation by the
companies directed toward practical solutions of technical problems is
therefore recommended.

As the analyses in this chapter progressed, it became increasingly
clear that the need for stockholder oriented, going concern statements
which conform with generally accepted accounting principles varies with
the rate of growth of the firm, the reserve valuation methods employed,
the kinds of insurance sold, and the investment policies adopted. Size is
relatively unimportant, but the particular adjustments which are most
significant may vary with the age and size of the firm.

The companies are so different that comparison between them is mis-
leading unless the basic underwriting and reserve practices are first pin-
pointed and contrasted. Table 5 is designed to provide a concise over-view
of the materiality of the adjustments, but must be interpreted in light of
the comments in the discussion of each firm. The data in Appendix I should
also be reviewed.

A few additional words of caution are also in order. The largest
items entered direct to surplus by many of the firms are the gains and
losses from change in the market value of securities. The net negative
adjustment caused by elimination of these unrealized gains in some of the

companies should not be allowed to obscure the effect of other adjustments.

278

 

 

 

 

 

 

 

 

Table 5: Comparison of Selected Totals for the Firms
Subjected to the Abbreviated Analysis
_ Totals For All of The Years Analyzed
Net Net Per Net
Gain (Loss) Convention Income
No. From Blank Under
of Operations Before Items Generally
Years Total Per Classed As Accepted
Ana- 1962 Convention Dispositions Total Accounting
Firm lyzed Premiums Blank 0f Income Adjdstments Principles
Nghggfikg,Companies
G 6 $ 86,000 $ 11,000 $ 7,000 $ 31,000 $ 38,000
H 2 181,000 (164,000) (217,000) 116,000 (101,000)
I 2 127,000 (238,000) (302,000) 93,000 (209,000)
J 2 662,000 (116,000) (139,000) 328,000 189,000
K 3 710,000 (138,000) (308,000) 539,000 231,000
L(l)a 5 1,272,000 1,284,000 129,000 1,413,000
L(2) 3 (67,000) 885,000 (650,000) 235,000
L(3) 5 4,752,000 1,139,000 1,854,000 (141,000) 1,713,000
Foreign Companies

M 5 65,565,000 21,213,000 20,897,000 1,741,000 22,638,000
N 5 51,000,000 15,726,000 18,274,000 1,218,000 19,492,000
0 5 71,797,000 19,845,000 30,233,000 (10,400,000) 19,833,000
P 5 33,604,000 21,110,000 20,992,000 94,000 21,086,000
Q 5 109,623,000 61,608,000 62,556,000 1,200,000 63,756,000
R 5 136,729,000 64,686,000 119,340,000 (4,449,000) 114,891,000
S 5 178,314,000 90,319,000 96,817,000 (4,697,000) 92,120,000
T 5 246,908,000 135,893,000 155,752,000 (22,131,000) 133,621,000
U 5 398,228,000 74,309,000 91,091,000 (10,838,000) 80,253,000
V 5 852,640,000 146,121,000 241148§,OOO (79L211LOOQ) 162,277,000

$860,504,000 $(127,028,000)$733,476,000
Sources: The four right columns—-Exhibit A for each company.

Total 1962 Premiums--Blythe &.Co., The Insurance Stock Survey for

all of the foreign companies except Company N; Other companies from

the Convention Blank.

aL(l) is the old "Northern" company before merger, 1953 to 1957.
L(2) is the new "Southern" company before merger, 1955 to 1957.
L(3) is the merged company, 1958 to 1962.

Similarly, the closeness of the net gain from operations and the revised

net income for some of the firms should not be allowed to obscure the fact

that realized capital gains are entered direct to surplus in the Convention

Blank, but may be an integral part of the return on investment in stocks.

279

The 1962 premiums are included in Table 5 as an indication of the
size of the company. Care should be taken to note that these are premiums
for just one year, whereas the four columns to the right contain totals for
all years.

A final admonition repeats two warnings which have been repeatedly
sounded in preceding discussion. First, Federal income tax expense is not
adjusted for the change in income made by the adjustments, nor is any
attempt made to compute the amount of income tax deferred by the half of
underwriting profits held in the tax return Tier III "policyholder surplus."
Second, the adjustments and financial statements are not sufficiently
refined nor technically accurate enough for adoption in practice in their
present form. They have served as effective research tools. If, in addition,
they provide a starting point for discussion and additional research, they

will have served well.

CHAPTER y;

CONCLUSIONS

The objectives outlined in the first chapter have been reached. The
contrasts in the underlying frameworks which are outlined in Chapter II
reveal many reasons for differences between the financial statements of
life insurance companies and the financial statements of commercial and
industrial firms. Reasonable success in reaching the other objectives is
indicated by the fact that the four questions posed at the beginning of
Chapter III can be answered in the affirmative with only minor qualifica-
tions: (1) All of the important adjustments except those involving direct
acquisition costs of life insurance policies and those which are excluded
from consideration by the limitations imposed upon this study can be com-
puted from the information in the detailed schedules of the Convention
Blank. (2) A few assumptions are required in order to make the adjustments
in this study, but the companies should have little difficulty compiling
the information in practice. (3) The adjustments have a material effect
on the financial statements of some companies and only a mild effect on
others. This is significant because the greatest impact of the adjustments
is in those firms where stockholders need to make the most careful evalua-
tions. (4) Important information not now available to stockholders is
included in the revised and extended statements designed in this study.

The preceding conclusions are amplified and supported in this chapter.

Items "1" and "2" are considered together under the caption of "Feasibility

280

281

of Making the Adjustments in Practice." Items "3" and "4" are discussed
separately. First, however, it is helpful to review some of the key

contrasts in basic frameworks.

BASIC FRAMEWORKS
Both the financial statements of commercial and industrial firms
which follow generally accepted accounting principles and life insurance
company financial statements have evolved gradually to meet the needs of
the users of the statements. Each is based on a different set of assump-
tions and is constructed on a different basic framework.

The statements pf commercial and
industrial firms

 

 

Commercial financial statements are constructed on a framework of
double entry bookkeeping records summarized into financial statements
emphasizing accountability, or stewardship, by management. Even though
this system deve10ped in response to a need for information which manage-
ment could use to evaluate its own past actions, the principles which are
currently referred to in the standard certified public accountant's
certificate are directed toward reports to outsiders. These principles
encompass a broad spectrum of complex but as yet not specifically defined
concepts which should apply to all businesses. They include assumptions
and minimum requirements which the financial world has accepted as those
which the reader can assume have been followed unless he is notified
otherwise. Whenever the business situation or the method of statement
presentation does not fit one of the underlying assumptions, both the
independent certified public accountant and management have an obligation
to warn readers that the statements are not based on the standard assump-
tions or framework. This warning is ordinarily given in the certificate

and also through the construction of the statements or in footnotes.

282

Even though concentration in this study is upon the basic assumptions
and frameworks, it is important to recognize that accounting data are use-
ful far beyond the reaches of those who are interested in a report of
accountability by management. Much of the usefulness of accounting is
derived from the accuracy, objectivity, control and reliability which are
inherent in the double entry--accountabi1ity framework. Data with these
characteristics have many uses. For example, internal management analyses,
such as cost accounting, are tied to the double entry records in order to
take advantage of the inherent characteristics of those records.

The earnings statement is an important part of the report of accounta-
bility by management. Earnings are both one of the sources of funds for
which management must account and a measure of how well it has used the
resources of the firm to build earning power. One of the most important
attributes of double entry bookkeeping is the complete integration of the

earnings statement and balance sheet accounts.

The statements pf life insurance

companies

 

 

Life insurance company financial statements, by contrast, are con-
structed around a balance sheet which is basically an elaborate formula
for the computation of legal surplus. The earnings statement has only
recently been integrated with this balance sheet. The basic methodology
is one of valuation of liabilities and assets rather than measurement of
revenue and allocation of costs and expenses against that revenue, as in
commercial accounting. The maximum valuation of assets is rigidly con-
trolled by the state insurance departments, but the companies are permitted
a range of discretion in choice of method of valuation of reserves, the

largest liability.

fish—~—

283

The legal surplus which is computed in the insurance company balance
sheet is used by the state insurance departments as a first line indicator
of the solvency of the company. Ultra-conservatism is built into the
statement, apparently on the theory that if a company can show an excess
of assets over liabilities and capital stock under the restrictions imposed,
state officials may justifiably assume that the company has sufficient
resources to carry out the provisions of every policy in force.

The going concern assumption is not part of life insurance statements.
However, it is not accurate to say that a liquidation postulate is followed.
The solvency which is indicated by the insurance company balance sheet is
forward looking. If all actuarial assumptions were exactly fulfilled, a
"solvent" life insurance company could stop writing insurance and still be
able to fulfil the terms of every policy.

In many reSpects the Convention Blank is similar to the audit work-
papers which are prepared by certified public accountants. The blank is
designed for study by the experts in the state insurance departments. They
may use it in a manner not too different from the use made of the audit
workpapers by a manager or partner in an accounting office as he reviews
a report he is asked to approve. The information in this blank is, of
course, also extremely valuable to the internal management of the companies,
just as the financial reports of commercial and industrial firms are useful

to the management of those firms.

FEASIBILITY OF MAKING THE ADJUSTMENTS IN PRACTICE
The adjustments are designed to provide statements suitable for
inclusion in reports to stockholders and other public users. No changes

in the Convention Blank are considered. With the exception of factors

284

involving direct acquisition costs of life insurance policies, enough
detailed information is included in the Convention Blank to make all of

the adjustments. The only important assumptions which have to be made are
for such factors as the expected useful life of furniture and equipment

and the portion of agents' debit balances which will probably never be
collected. Life insurance companies should have no more difficulty with
these factors than firms in other industries. In short, all that is
involved in most of the adjustments is moving information from the detailed
schedules in the Convention Blank to the primary statements.

The adjustment for direct acquisition costs of life insurance is
another matter. This adjustment attempts to achieve realistic matching of
the cost of acquiring policies with the revenue from insurance premiums.
The adjustment is made on a purely arbitrary basis in this study. More-
over, it is computed in the same way for all firms regardless of the
reserve valuation method used.

It may be worth reviewing the reasons for adopting the particular
adjustment procedure for direct acquisition costs of life insurance
policies at this point as an indication of the problems involved. Even
though there are other direct acquisition costs, first-year commissions
are the only costs capitalized in this study for life insurance policies.
For those firms which use modified preliminary term reserve valuation
methods, the difference between the reserve established under these methods
and the reserve which would be required under the full net level premium
plan is likely sufficient to allocate all acquisition costs other than
commissions over the premium paying period of the policy. Renewal

commissions are normally paid over nine or ten years, often with a service

285

fee thereafter, so are already allocated on a conservative but realistic
basis. Amortization of first-year commissions over the five-year select
mortality period may, therefore, give adequate consideration to the high
second and third year lapse rate and provide an over-all effect which is
fairly reasonable as compared to scientific computation.

It must be emphasized that the mechanics of this adjustment are an
arbitrary research technique designed to find out if further research at
the company level should be recommended. In practice, it is possible that
the pertinent information would have to be handled on an individual policy,
or group of policies, basis. Only those costs not recovered through use
of preliminary term reserve valuation methods should be capitalized.
Furthermore, unamortized costs would have to be charged to expense at the
time of lapse or death. Whether or not all of the pertinent factors
involved could be handled on a practical basis is something which can be
answered only through experimentation by the companies themselves. It
is reasonable to believe, however, that what was impossible a few years
ago may now be easily and inexpensively handled by automatic data
processing equipment.

The method outlined above is not the only possibility. In an article
which was published as this thesis was being readied for typing, Reynolds
Griffith investigates several possible methods of capitalizing acquisition
costs and allocating them to expense. He concludes that "application of
generally accepted principles to life insurance companies presents no
insurmountable obstacles."1 It is also worthy of note that when the adjust-

ments were discussed with actuaries, the way expenses are handled in the

 

1"A Note on Life Insurance Accounting," The Journal p£_Risk and
Insurance, V. 31, No. 2 (June, 1964) 215.

286

gross premium method of reserve valuation which is used in England was

often injected into the conversation. This method would involve changes

in the concept of regulation so is beyond the scope of this study. It is
mentioned here to indicate that there are other ways of handling acquisition
costs.

The importance of reserve valuation methods was mentioned above, but
is so little understood outside the insurance industry that it needs special
emphasis. Insurance companies have considerable control over the portion
of revenue transferred to reserves through choosing among several acceptable
reserve valuation methods and by selecting either a high or a low interest
allowance. Many young companies choose one of the preliminary term reserve
valuation plans and a fairly high interest assumption. Later, as earnings
commence to climb, the reserves are sometimes "strengthened" by changing
to the net level reserve valuation plan or by lowering the interest assump-
tion. 'Most of the large well-established companies use net level valuation
methods for the majority of their policies. If revised and extended
financial statements which conform with generally accepted accounting
principles are to provide reasonable comparability between firms, the
adjustment for direct acquisition costs must take proper cognizance of the

reserve valuation methods used by each firm.

MATERIALITY AND SIGNIFICANCE OF THE ADJUSTMENTS
The reconciliation statements1 reflect the materiality and signifi-
cance of the adjustments for each of the companies analyzed. So many

factors are interrelated that it is dangerous to summarize very far beyond

 

1Exhibit II for the companies analyzed in detail and Exhibit A for
the companies subjected to the abbreviated analysis.

287

1 from the

those statements. However, the three earnings computations
reconciliations were compared for the companies subjected to the abbreviated

analysis in Table 5 at the conclusion of Chapter V in an attempt to summa-

rize key over-all relationships.

‘ng income reported £9 stockholders

The income statements included in annual reports to stockholders
stop with the Convention Blank operating gain or loss.2 Another type of
summary is, therefore, presented in Table 6. Percentages are used to
emphasize the materiality of the differences between the earnings emphasized
in reports to stockholders and net income computed in accordance with
generally accepted accounting principles. Care must be taken, however,
not to overemphasize individual percentage amounts without first checking
the individual company statements in the analytical chapters to see if a
particular percentage change is caused by the adjustments or if it is the
mathematical result of comparison with a Convention Blank Operating gain
which is relatively close to zero. The pertinent figures are included in
Columns 1, 2 and 3 in Table 6 for the aggregate income of the total period

analyzed, but space does not permit doing so for the annual computations.

 

1(1) Net gain or loss from operations per the Convention Blank,
(2) Net per Convention Blank before items classed as dispositions of
income, and (3) Net income computed in conformance with generally accepted
accounting principles.

2Some, but not all, companies also include a summary of changes in
surplus. Of the twenty 1962 reports analyzed by the Sub-committee on Life
Insurance Company Annual Reports for Shareholders of the Financial Analysts
Federation, "only nine companies published a complete surplus reconciliation
statement." Special Report Ep.the Membership, December, 1963.

 

Important items, which are included in the income statement by
commercial firms even when the current operating concept is followed, are
entered direct to Surplus by life insurance companies.

288

.mxmuunuz cmnu 00:00 00.00 . a0 vuuuuuunu wmofiu 0. vucawuv on. 000cna800 aw0ouomm

.00maama. vou.0>ounn. 0:0 Ou vouuunnan nowcaaaoo .30 mo < 0090an ms. 00.000 60 v0.00.c. 0.0:.aaou mnu mo HH 00nwnxm scum wouanaoo uuupzom

Tabla §

 

 

 

 

 

 

0. 0.00 00.00 00.00 00.000 0.00 000.000.00 000.000.000 000.000.000 >
0.00 0.00 0.0 0. 0.0 0.0 000.000.0 000.000.00 000.000.00 0
0.0 00.0 00.00 0.0 00.000 00.00 0000.000.00 000.000.000 000.000.000 0
0.00 0.0 00.00 0.0 00.000 0.0 000.000.0 000.000.00 000.000.00 0
0.00 0.00 0.000 0.00 0.00 0.00 000.000.00 000.000.000 000.000.00 0
0.0 0.0 0.0 0.00 00.00 0.0 000.000.0 000.000.00 000.000.00 0
00.00 0.0 0. 00.00 0. 00.0 0000.000 000.000.00 000.000.00 0
0.0 00.00 0.0 0.0 00.000 00.0 0000.000 000.000.00 000.000.00 0
0.00 0.00 0.0 0.00 0.00 0.00 000.000.0 000.000.00 000.000.00 z
0.0 0.0 0.0 0.0 0.0 0.0 000.000.0 000.000.00 000.000.00 z
.0000c.0500 :w0maom
0.00 0. 0.0 0.000 0.00 0.00 000.000 000.000.0 000.000.0 0000
0.000 0.000.0 0.000 0.000 000.000 000.000 0000.000 0000
00.00 0.0 0.00 0.00 0.00 0.00 000.000 000.000.0 000.000.0 0000
0.000 0.000 0.000, 0.000 000.000 000.000 0000.0000 0
0.000 0. 0.000 000.000 000.000 0000.0000 0
0.00 0. 0.00 000.00 0000.0000 0000.0000 0
0.00 0.00 0.00 000.00 0000.0000 0000.0000 0
00.000 0.000 0.00 0.00 0.000 0.00 0.000 000.00 000.00 000.00 0
00.06.9860 u0uuulom .xmmupoz
“000004z4 00000>0000< 00 000000000 000z<0xoo
0.0 0.00 0.0 0.00 0. 0.00 0.00 0.0 0.00 0.0 0.0 000.000.0 000.000.00 000.000.00 0
0.00 0.000 0.000.00 0.000.0 0.000 0.000.0 0.00 0.000 0.00 0.00 0.000.0 000.000.00 000.000.0 0000.0000 0
0.00 0.00 00.0000 00.0000 00.000 0.00 0.00 00.0000 00.0000 00.0000 0.00 000.000 0000.0000 0000.0000 0
00.000 00.000 00.00 0.0 0 000 0.00 0.000 0.00 0.000.0 0.000 0.00 000.000 000.000.0 000.000.0 o
0.000.0 0.000 0.000 0.000.0 00.000 0.000 0.00 0.000 0.000 00.000 0.000 000.000.0 000.000.0 000.000 0
000.00 00.0 000.0 00. 00.0 000.0 000.00 00.0 00.00 00.0 000.00 0 000.000.0 0 000.000.0 0 0
"0.000-anon 000.0550 00000002 0000 000000 :0 00000004 000240200
0000 0000 lw0. a .0404: 0.04.0.0. a “Q. «N04 .33 0 .08 0000000000 0.0.043“: 0500 IN.
Ou . wc0uasouu< ao0uao>soo a
n .000 nounuuu< “on a
mo 000.00nou 0co0u.uoao a
0600 Moon: scum a
you 000000 cabana 000000 a0.o o
0 :350oo 04 uoacqz ofi.m 0&0 a0 vouamioo 002 002 u
secucH :0 Ammuuuuuav unsouuaH mo mumuucouuum 0.9na< c.000mc4 00.0w 00¢ no“ .Auwwa
000. 000. .000 000.

 

xcmHm c00ucopaoo mnu ummluco0u.uumo 6000 C000 002 0:0 uu>o 000m0ua00m MC0ucoouu< vuumuuu<
000.0wauu £003 oucqauowcoo :0 nousnaou «aboaH uoz 60 Amosouuonv o..uuucH 050 No 60000.0360 no maan

289

If the limitations of percentage comparisons of net figures, some of
which are losses, are kept in mind, Table 6 effectively shows that the
adjustments cause material changes in the net income reported to stock-
holders in some instances and almost no change in other instances.
Similarly, annual fluctuations vary from company to company.

The explanation for this wide variation in the materiality and signi-
ficance of the changes in earnings as a result of the adjustments involves
such factors as the age of the company, the rate of growth of the firm, the
kinds of insurance sold, the reserve valuation methods employed, and the
investment policies adopted. These factors are reviewed in the introductory
remarks to the discussion of each company analysis in Chapters IV and V.

The following example indicates the impact of one of these factors.
Company E expanded its annual premiums written from approximately $8 million
in 1952 to nearly $24 million in 1962. Company F's expansion was much less
rapid; annual premiums rose from $43 million in 1952 to only $61 million
in 1962. There are other factors involved, of course, but this one con-
sideration is a substantial part of the reason for the rather uniform and
mild effect of the adjustments on the earnings of Company F compared to
the dramatic change for Company E which is reflected in Table 6. A change
from an aggregate loss for a ten-year period to an average income of nearly
$1 million a year is both material and significant in a company the size of

Company E.

Importance pf particular adjustments
Even though the "Net Gain or Loss from Operations per the Convention
Blank" is the income item emphasized in reports to stockholders, the "Net

per Convention Blank Before Items Classed as Dispositions of Income" is the

 

290

earnings computation which is concentrated on in this study when the
impact of the adjustments on the entire reporting system is analyzed.

It is the Convention Blank earnings referred to in the remainder of this
discussion. This earnings figure is used because it is the item against
which the adjustments are applied and because it includes capital gains
in the concept of income. Capital gains are an integral part of the
operations of many life insurance companies.

The importance of particular adjustments varies widely from company
to company, but the two which have the most significant effect on earnings,
as identified in the preceding paragraph, of most of the companies analyzed
are those returning corporation stocks from market value to cost, and the
capitalization and amortization of first-year life insurance commissions.
For many of the small and medium-sized firms studied, these two adjust-
ments have nearly offset each other during recent years. This will be
true in the future only if the change in market price of a company's stock
parallels the change in volume of insurance written. Should a drop in
the stock market occur in a year in which life insurance volume increases,
there could be a wide difference between the Convention Blank earnings and
earnings computed in conformance with generally accepted accounting prin-
ciples in those firms.

The relative effect of the two adjustments discussed in the preceding
paragraph on a particular company depends on its investment practices and
type of insurance written. If a firm has no stocks in its investment port-
folio, but emphasizes individual life insurance policies which pay large
first-year commissions to agents, the adjustments will substantially

increase earnings whenever volume is expanding. 0n the other hand, a firm

291
which includes the maximum portion of common stocks in its portfolio but
writes mostly accident and health or group insurance will likely find that

the adjustments reduce earnings in years in which the stock market is rising.

Effect pp balance sheet

Earnings are not the only aspect of the financial statements affected
by the adjustments. Even though the adjustments almost cancel each other
so far as the computation of annual earnings is concerned in some of the
companies, the cumulative adjustment from prior years has a material effect
on retained earnings and on the relationship between policyholder reserves
and the revenue-producing assets shown in the extended balance sheet of
some of the companies studied. For example, the aggregate adjustment to
earnings of Company Q is only $1.2 million over the five-year period
analyzed, but the cumulative adjustment to retained earnings at the
beginning of the test period is $22 million against an unassigned legal

surplus of $38 million.

Recommendation

Probably the most important recommendation which can be derived from
the test of the materiality and significance of the adjustments is that
care must be taken not to let lack of major impact of the adjustments on
annual earnings of a few well-established, stable companies divert attention
from the need for improved statements in other companies. The need is not
dependent upon the size of the company. The greatest need for full reports
of accountability is in those firms where changes are taking place which
need evaluation. These changes naturally occur in new firms, but also
occur in all firms where volume, product-mix, investment policies or reserve
valuation methods are not fully stabilized. These are the very firms for

‘which the adjustments tend to be the most significant.

292

THE REVISED AND EXTENDED FINANCIAL STATEMENTS

The financial statements to which the Convention Blank statements
are extended are research tools only and are admittedly technically imper-
fect and perhaps too complicated for adoption in practice in their present
form. It is believed, however, that-if technical problems can be solved
at the company level, statements simplified from those used in this study
could be accompanied by a full, or clean, certificate by an independent
certified public accountant. A few of the essential features of these
statements which make them superior to the regulatory statements for stock-

holder purposes are mentioned in the next few paragraphs.

Balance sheet

The extended balance sheet contains all of the assets rather than
just the admitted assets, and reports both the National Association of
Insurance Commissioners prescribed valuations and the amount invested in
each asset. All of the important figures from the Convention Blank are
retained, including the exact legal surplus. In addition, the statements
indicate the source and amount of all funds made available to management
and the way those funds have been invested in assets. It is, therefore,
a full report of financial accountability. Although complicated, the
balance sheets used in this study provide something no other industry has--
a statement which reflects both the accountability which is inherent in
generally accepted accounting principles, and a computation of legal
surplus which comprises the regulatory balance sheet. Descriptive captions
are used which indicate the nature of the accounts.

It is often said that the classification of assets into current and

fixed categories is not meaningful in insurance. The balance sheets used

293

in this report indicate that this may not be a valid assertion. The policy-
holder reserves are listed at the top of the liabilities section and the
revenue-producing assets at the top of the assets section. These are

extra items which are not present in the balance sheets of commercial and
industrial firms. Once this is recognized, it is possible to construct a
traditional balance sheet with the remaining assets and liabilities. The
only major change is that assets must be divided into "admitted" and
"non-admitted" classifications. This division is necessary in order to
compute legal surplus, but is also an effective way of warning the reader
that insurance balance sheets have special characteristics derived from

the nature of insurance operations which must be considered before the
statements can be properly interpreted. The format used reveals at a
glance whether any part of net working capital, home office buildings, and
other operating assets are purchased out of policyholder reserves or if
they are provided entirely by profits and funds contributed by stockholders.
This type of information might also be of interest to policyholders in a
mutual company.

Two balance sheet accounts are worth reviewing briefly as illustra-
tions of contrasts between insurance company statements and statements
which conform with generally accepted accounting principles. One is the
Mbndatory Securities Valuation Reserve. It was established to temper
fluctuations in the legal surplus account. Surplus is reduced and the
reserve is increased for all capital gains, net of income tax thereon, as
‘well as by stipulated percentages of different classes of securities owned.
.All realized and unrealized capital gains are entered directly to the
Summary of Surplus schedule in the Convention Blank, but, after reduction

for income taxes paid, move immediately to the Mandatory Securities

 

294

Valuation Reserve until that reserve reaches the statutory maximum. In
view of the nature of these transactions, the Mandatory Securities Valuation
Reserve is treated as an appropriation of retained earnings in the extended
balance sheets. It qualifies as a liability in the Convention Blank balance
sheet because the law says it is a liability. This is because it is a
deduction from assets to arrive at legal surplus.

The second item is not even an account in the insurance accounting
system. Under certain conditions of threatened impairment of capital, the
state insurance department can authorize the issuance of surplus notes and
similar securities. By statute, these securities are not liabilities of
the insurance company so are omitted from the Convention Blank financial
statements altogether.1 The notes are subordinated and are closely con-
trolled by the state insurance department, so the regulatory authorities
are not concerned that they do not appear in the balance sheet. They
already know about them. In statements based on generally accepted account-
ing principles, such instruments must be shown in the capital section of
the balance sheet as one of the sources of funds for which management must

account.

Earningdjstatement

A combined earnings and retained earnings statement in comparative
form is used in the statements in this study. This is a more meaningful
presentation than that afforded by either the current operating or the

clean surplus concept with a separate retained earnings summary. The current

 

1The existence of these notes is revealed in one of the questions in
the Interrogatories portion of the blank. Some state insurance departments
also go beyond the requirements of the blank and insist on footnote dis-
closure in the balance sheet.

295
operating concept used in the Convention Blank is not apprOpriate for life
insurance reports to stockholders because an annual reporting period is
far too short a portion of the operating cycle of most life insurance
companies to provide a satisfactory measure of "normal" operations. The
best presentation of life insurance company earnings is a comparative
aggregation over a period of years. Each year can then be viewed as a
measurement of the flow of earnings into the aggregate during the period
rather than as a unit standing by itself.

Another factor which makes the current operating concept inappropriate
for life insurance companies is the treatment of capital gains. When
investment activities are as important and integral a part of the operations
of a firm as they are in life insurance companies, it is unrealistic to
show interest and dividends as operating income and the capital gains as
a non-operating credit to retained earnings or surplus as is done in the
Convention Blank. Similarly, entering capital gains in the Summary of
Surplus but deducting all of the income taxes as an operating expense is
not an acceptable procedure under accounting principles. The statements
used in this report avoid these difficulties and provide a significantly
more complete and meaningful report from the stockholders' point of view

than the statements on Page 4 of the Convention Blank.

Income pgygs

Since income tax returns are not available, no effect is given to
either the taxes which may eventually be payable on the income deferred
from.taxation in the Phase III "policyholder surplus" or to the eventual
tax effect of the changes in income made by the adjustments. Before the

statements can truly be said to conform with generally accepted accounting

296
principles, these taxes must be adequately disclosed. Whether formal
allocation in the accounts is practical, or if footnote disclosure is the
best that can be achieved, cannot be affirmatively stated without special

research involving access to the tax returns and worksheets of the companies.

Compliance with statutes

 

Simplified and perfected financial statements containing the principal
features of those developed in this study may or may not be permissible
under statutes which require all published statements to "correSpond with
or include the corresponding items from its verified statement made to
the Department of Insurance." If not permitted, a change is needed in the

statutes .

SUMMARY

Stockholders do not receive as complete information from their life
insurance companies as they do from other companies when the only financial
statements included in the annual reports are the Special purpose state-
ments from Pages 2, 3 and 4 of the Convention Blank. Even though this
Convention Blank is a uniform report, the statements themselves are not
uniform because the companies are permitted wide ranges of discretion in
computing the figures for that report. The companies for which the extended
and revised statements are most needed are the very ones for which present
statements are the most inadequate. Lack of major impact of the adjustments
on the statements of stable, well-established companies must not be allowed
to divert attention from the need for better statements from other companies.

With the exception of acquisition costs of life insurance policies,
there is sufficient information either already in the detailed schedules

of the Convention Blank or readily available to the companies to permit

297

extension of the Convention Blank statements to conform with generally
accepted accounting principles. Proper handling of direct acquisition
costs might require minor modification of accounting methods, but the
impact of these costs is so material that experimentation and research by
the companies is clearly warranted and strongly recommended.

Until statements which conform with generally accepted accounting
principles are included in annual reports to stockholders, care must be
taken to remind stockholders and other public users of the financial state-
ments of the differences between life insurance company financial statements
and the statements in the other reports received by stockholders. This
requires qualification or disclaimer of opinion by independent public
accountants and imposes a moral duty on the officials of the companies to

make full disclosure of these differences.

BIBLIOGRAPHY 0F
WORKS CITED AND MAJOR SOURCES

CONSULTED .

Books, Monogrdphs and Pamphlets

American Accounting Association. Accounting and Reporting Standards for
Corporate Financial Statements and Preceding Statements and Supple-
ments. Columbus, Ohio: American Accounting Association, 1957.

 

American Institute of Accountants. Audits pf_Corporate Accounts. New York:
American Institute of Accountants, 1934.

American Institute of Certified Public Accountants. Accounting Research
and Terminology Bulletins, Final edition. New York: American
Institute of Certified Public Accountants, 1961.

American Institute of Certified Public Accountants. Auditing Standards and
Procedures, Statements on Auditing Procedure No. 33. New York:
American Institute of Certified Public Accountants, Inc., 1963.

 

Anderson, Corliss D. Corporate Reporting for the Professional Investor.
Auburndale, Massachusetts: The Financial Analysts Federation, 1962.

Arthur Andersen & Co. Accounting and Rgportipg_Problems 2; the Accounting
Profession, Second edition. Arthur Andersen & Co., 1962.

 

Association of Life Insurance Counsel. Life, Health and Accident Insurance
Law, Index pp_gdpers and Articles 1913-1962. New York: The Associa-
tion of Life Insurance Counsel, 1963.

 

Backer, Morton (editor). Handbook pf_Modern Accounting Theory. Englewood
Cliffs, New Jersey: Prentice-Hall, Inc., 1955.

Beardsley, Charles M. Life Company Annual Statement Handbook. Winston-
Salem, North Carolina: Security Life and Trust Company, 1962.

Berle, Adolf A. Studies In The Law of Corporation Finance. Chicago:

Callaghan and Company, 1928.

Berle, Adolf A. and Means, Gardiner C. The Modern Corporation and Private
Property. New York: The Macmillan Company, 1934.

298

299

Best's Life Insurance Reports. New York: Alfred M. Best Company, Inc.,
revised annually.

Blair, B. Franklin. Interpreting Life Insurance Annual Reports. Bryn Mawr,
Pennsylvania: The American College of Life Underwriters, 1960.

Blyth and Co. The Insurance Stock Survey, 1963 Issue.

Brimmer, Andrew F. Life Insurance Companies in_the Capital Market. East
Lansing, Michigan: Bureau of Business and Economic Research,
Michigan State University, 1962.

Brown, Richard. 5 History n£_Accounting and Accountants. Edinburgh:
T. C. & E. C. Jack, 1905.

Brown, R. Gene and Johnston, Kenneth S. Paciolo nn Accounting. New York:
McGraw—Hill Book Company, Inc., 1963.

Center, Charles C. and Heins, Richard M. Insurance and Government. New
York: McGraw-Hill Book Company, Inc., 1962.

Dawson, Miles Menander. Principles pf Insurance Legislation. New York:
The Humboldt Library, 1895.

Denenberg, Herbert S., Eilers, Robert D., Hoffman, C. Wright, Kline,
Chester A0, Melone, Joseph J. and Snider, H. Wayne. Risk and
Insurance. Englewood Cliffs, New Jersey: Prentice-Hall, Inc.,
1964.

Edwards, James Don. History nf_Public Accounting in_the United States.
East Lansing, Michigan: Bureau of Business and Economic Research,
Michigan State University, 1960.

Edwards, James Don and Salmonson, Roland F. Contributions n£_Four Account-
ing Pioneers. East Lansing, Michigan: Bureau of Business and
Economic Research, Michigan State University, 1961.

Finney, H. A. and Miller, Herbert E. Principles n£_Accounting, Advanced,
Fifth edition. Englewood Cliffs, New Jersey: Prentice-Hall, Inc.,
1960.

Finney, H. A. and Miller, Herbert E. Principles n£_Accounting, Intermediate,
Fifth edition. Englewood Cliffs, New Jersey: Prentice-Hall, Inc.,
1958.

First Boston Corporation, The. Data On Selected Life Insurance CQEQBBZ,

Stocks, Eleventh annual edition. 1963.

Formoy, Ronald Ralph. The Historical Foundations p£_Modern Companijaw.
London: Sweet and Maxwell, Limited, 1923.

300

Fortune Directory, The 500 Laggest Q, S, Industrial and the 59 Largest
Banks, Merchandising, TranSportation, Life-Insurance and Utility
Companies, and the 200 Largest Foreign Corporations, revised annually.
New York: Time, Inc.

Fraine, Harold G. Valuation pf Securities Holdings pf Life Insurance
Companies. Homewood, Illinois: Richard D. Irwin, Inc., 1962.

Graham, Benjamin, Dodd, David L., and Cottle, Sidney.. Security Analysis,
third edition. New York: McGraw-Hill Book Company, Inc., 1962.

Green, Wilmer. History and Survey_p£_Accountancy. Brooklyn, New York:
Standard Text Press, 1930.

Hills, George S. The Law p£_Accounting and Financial Statements. Boston:
Little, Brown and Company, 1957.

Holmes, Arthur W., Maynard, Gilbert P., Edwards, James Don and Meier,
Robert A. Intermediate Accountidg. Homewood, Illinois: Richard D.
Irwin, Inc., 1958.

Joint Committee on Blanks of the Life Insurance Association of America
and the American Life Convention. Discussion n£_Revised Form pf
Annual Statemenp_for Life Insurance Companies. New York: Life
Insurance Association of America, 1947.

Karrmann, E. M. Life Insurance Recordkeeping_and Accounting. New York:
Life Office Management Association, 1960.

Kedzie, Daniel P. Consumer Credit Insurance. Homewood, Illinois:
Richard D. Irwin, Inc., 1957.

Kehl, Donald. Corporate Dividends. New York: The Ronald Press Company,
1941.

Kelsey, R. Wilfred and Daniels, Arthur C. Handbook pf Life Insurance,
Second edition. New York: Institute of Life Insurance, 1949.

Larson, Robert G. and Gaumnitz, Erwin A. Life Insurance Mathematics.
New York: John Wiley & Sons, Inc., 1951.

Lengyel, S. J. Insurance Companies' Accounts. Melbourne and London:
F. W. Cheshire Pty. Ltd., 1947.

LeVita, M. H. gnDArithmetic pf Life Insurance. New York: Life Office
Management Association, 1936.

Life Insurance Association of America. Life Insurance Conpanies 3g
Financial Institutions. Englewood Cliffs, New Jersey: Prentice-

Hall, Inc., 1962.

301

Life Insurance Fact Book. New York: Institute of Life Insurance, Revised
annually.

Littleton, A. C. Accounting Evolution 52 1900. New York: American Insti-
tute Publishing Co., Inc., 1933.

Littleton, A. C. Essays nn Accountancy. Urbana: University of Illinois
Press, 1961.

Littleton, A. C. Structure 9; Accounting Theory. Urbana, Illinois:
American Accounting Association, 1953.

Littleton, A. C. and Yamey, B. S. Studies In the History pIIAccounting.
Homewood, Illinois: Richard D. Irwin, Inc., 1956.

Littleton, A. C. and Zimmerman, V. K. Accounting Theory: Continuity and
Change. Englewood Cliffs, New Jersey: Prentice-Hall, Inc., 1962.

Maclean, Joseph B. Life Insurance, Ninth edition. New York: ‘McGraw-Hill
Book Company, Inc., 1962.

Maclean, Joseph B. and Marshall, Edward W. Distribution 2; Surplus. New
York: The Actuarial Society of America, 1937.

McGill, Dan M. Life Insurance. Homewood, Illinois: Richard D. Irwin,
Inc., 1959.

 

McLaren, N. Loyall. Annual Rnports £n_Stockholders.. New York: The Ronald
Press Company, 1947.

May, George 0. Financial Accounting. New York: The Macmillan Company,
1943.

 

May, George 0. ‘Memoirs and Accounting Thought, edited by Paul Grady.
New York: The Ronald Press Company, 1962.

May, George 0. Twentyefive Years nI Accounting Responsibildty. New York:
American Institute Publishing Company, Inc., 1936. Vols. 1 and 2
bound together.

Mehr, Robert I. and Osler, Robert W. Modern Life Insurance, Third edition.
New York: The Macmillan Company, 1961.

Meigs, Walter B., Johnson, Charles E. and Keller, Thomas F. Intermediate
Accounting. New York: McGraw-Hill Book Company, Inc., 1963.

 

Michelbacher, Multiple-line Insurance. New York: McGraw-Hill Book Company,
Inc., 1957.

National Association of Insurance Commissioners. Valuation 3: Securities.
Chicago: The Association, Revised annually.

302

Patterson, Edwin Wilhite. The Insurance Commissioner In the United States.
Cambridge: Harvard University Press, 1927.

Paton, William A. Corporation Accounts and Statements. New York: The
Macmillan Company, 1955.

 

Paton, W. A. and Littleton, A. C. 5n Introduction pp Corpnrate Accounting
Standards. Columbus, Ohio: American Accounting Association, 1940.

Paton, William A. and Paton, William A. Jr. Asset Accounting, New York:
The Macmillan Company, 1952.

Sanden, Thomas Henry, Hatfield, Henry Rand and Moore, Underhill. A State-
ment pI_Accounting,Prinndples. New York: American Institute of
Accountants, 1938, (reprinted by American Accounting Association,
1959).

 

Securities and Exchange Commission. Spncial Study nn'Securitieerarkets.
Washington: United States Government Printing Office, 1963.

 

Stacey, Nicholas A. H. English Accountancy, n_Study In Social and Economic
Histopy, 1800-1954. London: Gee and Company, Ltd., 1954.

Staub, Walter A. Auditing Developments During the Present Century. Cam-
bridge, Massachusetts: Harvard University Press, 1942.

Storey, Reed K. The Search for Accounting Principles: Today's Problems
In,Perspective. New York: American Institute of Certified Public
Accountants, Inc., 1964.

 

Straub, Adelbert G. Examination pI Insurance Companies. New York: New
York Insurance Department. 7 volumes, 1953 to 1955.

Surrey, Sterling. The Development pI_the Convention Form.gI'Life Insurance
Statement. Philadelphia: Unpublished dissertation at University of
Pennsylvania, 1950.

Temporary National Economic Committee. Statement 2n Life Insurance, Mono-
graph No. 28-A. Washington: United States Government Printing
Office, 1941.

Temporary National Economic Committee. Study 3; Legal Reserve Life Insurance
Companies, Monograph No. 28. Washington: United States Government
Printing Office, 1940.

Texas Society of Certified Public Accountants. Examination pI_Texas
Chartered Insurance Company Financial Statements py Independent
Certified Public Accountants. Dallas: The Texas Society of Certified
Public Accountants, 1956.

303

Texas Society of Certified Public Accountants, Insurance Examination
Committee. n_Brief Introduction,pp.the Financial Statements and
Taxation 2I_Life Insurance Companies. May, 1963 (mimeographed).

Welsch, Glenn A., Zlatkovich, Charles T. and White, John Arch. Inter-
mediate Accounting. Homewood, Illinois: Richard D. Irwin, Inc.,

Wightman, E. C. Budgetary Control In.Life Insurance Management. New York:
Life Office Management Association, 1954.

Wightman, E. C. Life Insurance Accounts, Second edition. New York: Life
Office Management Association, 1941.

Wightman, E. C. Life Insurance Statements and Accounts. New York: Life
Office Management Association, 1952.

Wixon, Rufus and Kell, Walter G. (editors). Accountant's Handbook. New
York: The Ronald Press Company, 1956.

Articles, Reports and
Chapters In_Books pp Manuals

Allyn, W. Ellery. "Presidential Address," Proceedings pI_National Associa-
tion 2: Insurance Commissions, Eighty-second session, 1951, 18-24.

American Life Convention, Life Insurance Ass'n. of America and Life Insurers
Conference. "Statement to Subcommittee on Securities of Senate Banking
and Currency Committee," Also Reported In InEDNational Underwriter,
June 29, 1963.

American Life Convention. "State Supervision of Insurance and the National
Association of Insurance Commissioners." Statement filed for the
Record pf the Tempprapy National Economic Committee-7Proceedings 2;
£22 National Association pI_Insurance Commissioners, Seventy-first
session, 1940, 143-168.

"Amortization of Bonds, Resolution Regarding," Proceedings nI_the National
Convention pI,Insurance Commissioners, Forty-ninth session, 1918, 18.

 

Anderson, B.‘M. "American Life Convention - Life Association of America
Subcommittee on Deficiency Reserves, Statement Before Life Insurance
Committee of the National Association of Insurance Commissioners,"
Proceedingsij_National Association pI_Insurance Commissioners, 1957,
V. I, 132-133.

 

Angle, John C. "Reserves," Chapter 12 of Faulkner, EdWin J. Health
Insurance. New York: McGraw-Hill Book Company, Inc., 1960.

Anthony, Robert N. "Showdown on Accounting Principles," Harvard Business
Review, V. 41, No. 3 (May-June, 1963), 99-106.

304

Appleton, Henry D. "Wherein Have Insurance Conditions Improved During the
Past Twenty Years In The Field of Life Insurance," Proceedings nI_£ng
National Convention nI Insurance Commissioners, Forty-sixth session,
1915, 93-101.

 

Barr, Andrew. "Financial Reporting for Financial Agencies," Journal 22
Accountancy, V. 105 (Feb., 1958), 26-32.

Beha, James A. "Acquisition Cost Control," Proceedings pf the National
Convention nI Insurance Commissioners, Fifty-seventh session, 1926,
239-253 .

 

Berry, S. N. "Presidential Report," Proceedings nI_the National Association
pI Insurance Commissioners, Regular Meeting, 1961, V. I, 31-35.

Button, Joseph. "Should the Item of Accrued Taxes In Reports Be Treated
as a Liability,” Proceedings nI National Association 2: Insurance
Commissioners, Thirty-ninth session, V. I, 1908, 164-166.

 

 

Carr, Cecil Thomas. "Early Forms of Corporateness," in Select Essnys In_
AngIo American ngal Histopy, Volume 3. Cambridge: Little, Brown
and Company, 1909, 161-182.

Chambers, R. J. "Function of the Balance Sheet," Chartered Accountant In
Australia, V. 27 (April, 1957).

Cleary, M. J. Letter to Mr. Grady H. Hepp, Actuary, Insurance Department,
Albany, New York. Proceedings 2: the National Convention pI Insurance
Commissioners, Fifty-fifth session, 1924, 170-171.

"constitutional Law - Insurance Regulation - Extraterritorial Jurisdiction
of States," Case Notes, 22 Paul Law Review, V. 12, No. 1 (Autumn -
Winter 1962) 138-145.

Craig, James E. Remarks following paper by Mr. Hammond. Proceedings pg the
National Convention pI_Insurance Commissioners, Fifty-fifth session,
1924, 168-169.

Dawson, Miles M. "The Development of Insurance Mathematics," Chapter VII
of Yale Readings In_Insurance - Life and Accident, edited by Lester W.
Zartman and William H. Price. New Haven: Yale University Press,
1914, 95-119.

DeCapriles, Miguel A. "Modern Financial Accounting," New York University
Law Review, Part I, V. 37, No. 6 (December, 1962) 1001-1088; Part II,
V. 38, No. 1 (January, 1963) 1-66.

 

IDeficiency Reserves Etc., Report of Subcommittee on. Proceedings nI_the
National Association pI Insurance Commissioners, 1957, Regular Meeting,

V. I, 139-143.

IDeficiency Reserves and Mortality Tables Review, Report of Subcommittee on.
Proceedings pI_the National Association pI Insurance Commissioners,
Regular Meeting, 1959, V. I, 187-196.

305

de Roover, Florence Edler. "Partnership Accounts in Twelfth Century Genoa,"
in Studies In_History pI Accounting, edited by A. C. Littleton
and B. S. Yamey. Homewood, Illinois: Richard D. Irwin, Inc., 1956,

pp. 86-90.

de Roover, Raymond. "The Development of Accounting Prior to Luca Pacioli
According to the Account-Books of Medieval Merchants," in Studies In.
the History nI Accounting, edited by A. C. Littleton and B. S. Yamey.
Homewood, Illinois: Richard D. Irwin, Inc., 1961, 114-170.

Digest of Informal Discussion. Transactions pI_the Societyij_Actuaries,
Meeting No. 8 (1952) 131-144.

Donaldson, Gordon. "Financial Goals: Management vs. Stockholders,"
Harvard Business Review, V. 41, No. 3 (May-June, 1963) 116-129.

Dumont, John R. "Acquisition Costs of Life Insurance," Proceedings nI_the
National Convention 2; Insurance Commissioners, Fifty-ninth session,

1928, 170-178. ‘

"Economics of Life Insurance, The," Forbes, V. 93, No. 8 (April 15, 1964)
24-31.

Edwards, James Don. "Early Bookkeeping and Its Deve10pment Into Accounting,"
Business History Review, V. 34 (Winter, 1960) 446-458.

Edwards, James Don. "Public Accounting in the United States from 1928 to
1951," Business History Review, V. 30, No. 2 (September, 1956) 444-471.

Examination Methods, Practices and Laws, Subcommittee on. "Proposed Standard
Law Relating to Procedures in Examining the Affairs of Insurance
Companies," Proceedings pg the National Association nI_Insurance
Commissioners, Semi-annual Meeting, 1956, 113.

 

 

Fletcher, Mr. "Comment," The Proceedings nI_the National Convention pf
Insurance Commissioners, 1906, 83.

Gain and Loss Exhibit, Report of Subcommittee on. Proceedings pf the

Natianal Aascciaticn at Insurance W. Eightieth session.
1949, 401.

Gold, Melvin L. "Valuing a Life Insurance Company," Transactions 9: the
Society nI_Actuaries, V. 14, No. 3 (September, 1962) 139-157 and
Discussion 158-170.

"Great Boom in Life Insurance Stocks, The," Forbes, V. 93, No. 8 (April 15,
1964) 21-32.

Griffith, Reynolds. "A Note on Life Insurance Accounting," The Journal pf
Risk and Insurance, V. 31, No. 2 (June, 1964) 207-215.

306

Hammond, H. Pierson. "The History of the Development of the Gain and Loss
Exhibit of Life Companies," Proceedings nI_the National Convention
pi Insurance Commissioners, Fifty-fifth session, 1924, 235-263.

 

 

Hartigan, John A. "Should the Item of Accrued Taxes In Reports Be Treated
As a Liability?" Proceedings pf the National Convention nI Insurance
Commissioners, Thirty-ninth session, 1908, 161-164.

 

Hearn, Edward G. "Life Insurance - Taxation Aspects of Phase III," The
Proceedings pI_the Conference nI Actuaries In_Public Practice, V. 10
(1960-1961) 72-98.

Holmes, Horace. "The Standards of Policy Reserves in America and their
Effect on the Life Assurance Business," Transactions nI_Actuaria1
Society nI America, V. 39, No. 99 (May, 1938) 281-296.

Hotchkiss, William H. "Saving in Life Insurance by the Limitations of
Expenses Prescribed by the New York Law," Proceedings nI_the National
Convention 2: Insurance Commissioners, Forty-first session, 1910,
111-126.

Industry Advisory Committee, Report to N.A.I.C. Subcommittee to Analyze and
Review Examinations of Insurance Companies - To Perfect Practices and
Procedures of Association Examinations. Proceedings nI the National
Association pI_Insurance Commissioners, Eighty-ninth Annual Meeting,
1958, 342-343.

 

 

"Informal Discussion; Digest Of," Transactions nI_Society nI Actuaries,
V. 4, No. 3 (1952) 131-144.

Krowitz, I. M. "Gain and Loss Exhibit," in Examination pI Insurance
Companies, edited by Adelbert G. Straub. New York: New York Insurance
Department, 1954, IV, 319-361.

 

Lee, Laurence F. Taxation 9; Life Insurance Income - Hearingg Before
Committee 2n Finance, United States Senate, on H.R. 10021, 85th
Congress, Second session, March 5 and 6, 1958, 118.

 

Leggett, C. Lawrence. Presidential Address, Proceedings 2: the National
Association nI Insurance Commissioners, Eighty-seventh Annual Meeting,
1956, V. I, 32-34.

 

 

Leslie, Charles K., Jr. "In Search of a Pattern for Company Management
in Early Years," Proceedings pI_the Conference pI_Actuaries In_Public
Practice, V. 11 (1961-1962) 92-114.

Littleton, A. C. "Principles Under Challenge," New York Certified Public
Accountant, V. 24 (January, 1954) Reproduced in Essays nn Accountancy,
Urbana: University of Illinois Press, 1961, 405-410.

307

Littleton, A. C. "Variety in the Concept of Income,” New York Certified

Public Accountant, V. 23, No. 7 (July, 1953) Reproduced in Essays 2n

Accountandy. Urbana: University of Illinois Press, 1961, 287-293.

 

Lytle, Richard C. "Audit Reports on Insurance Companies," Journal nI
Accountancy, V. 117, No. 1 (January, 1964) 74-75.

McCall, John A. "The Scope and Grounds of State Supervision of Life
Insurance in the United States," Proceedings pg the National Con-
vention pg Insurance Commissioners, 1902, 74-90.

 

Mallon, Edward J. ”Financial Statements for Life Insurance Companies,"
The New York Certified Public Accountant, V. 23 (February, 1953)
109-118.

May, George 0. "Principles of Accounting," The Journal nI Accountancy,

 

 

V. 64, No. 6 (December, 1937)

Mayerson, Allen L. "Dividends: Life Companies," Ch. 12 of V. 3 of Exami-
nation Lf Life Insurance Conpanies, edited by Adelbert G. Straub.
New York: New York Insurance Department, 1954, 603- 634.

Merrill, Robert J. ”The Best Way of Obtaining Correct Annual Statements,"
Proceedings nI the National Convention pi Insurance Commissioners,
Forty-seventh session, 1916, 219-221.

 

 

Miller, Herbert E. "After There is Agreement on Broad Accounting Princi-
ples - What Then?" The Texas CPA, V. 34 (September, 1961) 3-6.

 

Morris, Edward N. F'. 'Credit Group Life Insurance," Proceedings Lf the

 

—_——

Murphy, R. D. Comments. Transactions, Society nI_Actuaries, V. IV,
Meeting 8 (1952) 143.

Mutual Life Insurance Company. "Net Valuation," Chapter XV of Yale Read-
ings In_Insurance, edited by Lester W. Zartman and William H. Price.
New Haven: Yale University Press, 1914, 208-222.

National Association of Insurance Commissioners, Chicago, September 30,
1957, Minutes pI Meeting pI Deputies, Actuaries and Chief Examiners,
Zone IV.

Need for a New Mortality Table and Related Topics, Special Committee to
Study. Snpplement pp Proceedingn pi the National Association nI
Insurance Commissioners, Seventy-first session, 1940.

 

Pedoe, Arthur. "Further Notes on the Trend of Life Insurance Company
Expenses," Transactions Lf the Societijf Actuaries, V. 13, No. 3
(September, 1961) 1- 19 and Discussion 20- 30.

mun-rfmfis

308

Pedoe, Arthur. "The Trend of Life Insurance Company Expenses," Transactions
pi the Society pI Actuaries, V. 4, No. 1 (January, 1953) 485-503 and
Discussion 504-510.

 

Peloubet, Maurice E. "The Historicaerackground of Accounting," in Hand-
book pI Modern Accounting Theory, edited by Morton Backer. New York:
Prentice-Hall, Inc., 1955.

 

Phillips, H. L. "The Consolidation of Life and Casualty Companies,"
Proceedings 3: the National Convention nI Insurance Commissioners,
Forty-sixth session, 1915, 236-239.

 

 

Pike, Bertram N. "Gain and Loss Analysis and Related Concepts for Group
Insurance," Transactions pI_Society pI Actuaries, V. 13 (March, 1962)
412-424 and Discussion 425-426.

 

Preservation of State Regulation, Committee on. "State Regulation of
Insurance," (Statement submitted to the United States Senate, Committee
on the Judiciary, Subcommittee on Antitrust and Monopoly), Proceedings
nI National Association pI Insurance Commissioners, 1960, Regular
Meeting, V. 1, 53-131.

 

Prudential Insurance Company - "The Cost of Credit Life, Health and Acci-
dent Insurance," - memorandum to committee on Installment Sales and
Loans of the National Association of Insurance Commissioners.
Proceedings, Eighty-eighth Annual Meeting, 1957, V. I, 150-154.

Rappaport, Louis H. "Forces Influencing Accounting; The Stock Exchanges,"
Lybrand Journal, V. 44, No. l (1963).

Resolution regarding Accounting Principles Board. The Journal nI_Accountancy,
V. 117, No. 6 (June, 1964) 9.

Rittenhouse, E. E. "Address," Proceedings pI National Convention nI Insurance
Commissioners, Thirty-ninth session, 1908, 200-211.

Robbins, Rainard B. "Reserve Standards for Life Insurance," Transactions
nI Actuarial Society pI_America, V. 24 (1923) 312-324.

Sarason, Harry M, "Life Insurance Auditing," Proceedings pg the Conference

Sarason, Harry M. "Report of the Committee on Legal Reserve Life Statements,"
The Proceedings pI_the Conference pI Actuaries In Public Practice,
V. 6 (1956-57) 393-398.

Sears, Marian V. "The American Businessman at the Turn of the Century,"
Business History Review, V. 30, No. 2 (September, 1956) 382-443.

Shepherd, C. O. "The 'Convention' Statement of Life Insurance Companies,"

(1937) 105-192.

309

Silletto, Charles D. Comments in Discussion on Topics of Current Interest,
Transactions nI the Socieny nI Actuaries, 1961, No. 3 (September,
1961) D150-D151.

 

 

 

Smith, C. A. "Speculations on Roman Influence on the Theory of Double
Entry Book- -keeping," Accounting Research, V. 5, No. 4 (October, 1954)
335- 342.

Smith, Gustavus W. "Reserve," Chapter XIV of Yale Readings In Insurance,

edited by Lester W. Zartman and William H. Price. New Haven: Yale
University Press, 1914, 135-155.

Storey, Reed K. "Accounting Principles: A.A0A. and AICPA," Journal nI
Accountancy, V. 117, No. 6 (June, 1964), 47-55.

 

Taylor, Robert B. "Presidenfls Report, " Proceedings Lf the National Associa-
tion Lf Insurance Commissioners, Eighty- eighth Annual Meeting, 1957,

V. II, 263- 265.

Union Central Life Special Committee Report - Proceeddngs Lf the National
Convention Lf Insurance Commissioners, Forty- -second session, 1911,

Vol. I, 172- 175.

 

Van Fleet, George. "Some Problems of the Young Company," The Proceeding_

 

Vatter, William J. "Postulates and Principles," Journal nI_Accounting
Research, V. 1, No. 2 (Autumn, 1962) 179-197.

Vorys, Mr. "Comment," The Proceedings nI_the National Convention pi
Insurance Commissioners, 1906, p. 69.

Walker, J. Barrett. "A Practical Method of Forecasting a Life Insurance
Company's Gross Operating Earnings for the Current Year," Trans-
actions pI the Society pI Actuaries, V. VII (August, 1955) 31-52.

Weiner, Joseph L. and Bonbright, James C. "Theory of Anglo-American
Dividend Law," Columbia Law Review, V. 30 (1930) 330-358; 954-985.

Wells, George W., Jr. "Discussion of paper by Mr. Dumont," Proceedings
pi the National Convention pf Insurance Commissioners, Fifty-ninth

session, 1928, 109-112.

Weintz, William.W. and Richard, Edmund B. "Requirements of the Securities
and Exchange Commission," Chapter 38 of Contemporapy Accounting,
edited by Thomas W. Leland. New York: The American Institute of

Accountants, 1945.

'Wheeler, Roy A. "Should The Gain and Loss Exhibit be Revised," Proceedings
QI_the National Conference pI Insurance Commissioners, 1919, pp. 268-

271.

Zartman, Lester W. "Mistakes in State Regulation of the Insurance Business,"

Yale Review, V. 17 (May, 1908) 24-43.

310

Statutes and Court Cases

 

Bankers Life Insurance Cg, vs. Howland, 73 Vt. l, 48 Atl. 435.

Randall vs. Bailey, 23 N.Y.S. 2d. 173; Aff'd. 228 N.Y. 280, 43 N.E. 2d.
43.

Revised Statutes 9I_Nebraska, Chapter 44 - "Insurance."

 

311

.mvcon0>0v xuou. cc. .0000. 0900. wow nouosnv<0

 

 

 

 

 

.uuuauh 0cmaunopcu mm“ uuauuu 0..“ .oua.un.nH .uxa.n

.munwmmm ms. ummmuwm ooc.us.cH .000 0.0.0n ..ucH .mcnnaoo 0.0n .x nonma< louu no. ..x:.0m c00uco>cou .50 c0 c00uuauowc0 3000 0.09060. 0.3 .u.v

o. .ofion huuwannn no: .0 xuou. .00 .09.uon .0.>0=. 0.0nu «o 0.200. an vouo>oo 00: .0 2 02.0560 .0000 .60000v. 0.56s. nuao>u0u .uxuoum “mummmw
outnuaacu smug vuuuoHom mm .u.a .co0u.uonhou cou.on 0.00m 03H vs. .ua..H «900 .0.>hdm secum ouc.0aumw “HM ..ou a onu00n .z 06.nioo 00.0.. 00. you "nouuaom

 

 

 

 

 

 

 

 

 

00 00 00 000 00 000 000 000 000 .0000 0000 00000 on
nw0n man w..ouuC0 mm.uaoouom
can one can N00 00m 000 con 000 «mm .0000 000.. o.

nw0n mnm0 00.00.60 owaunouuom
"xuoum uo .90.> uoxu.z

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

00 00 00 00 00 00 00 00 00 0:00»
0 0.0 0000000000
00 00 00 00 00 0000 00 00 0:000
00 00 00 000 00 000 00 00 00 anus
00 00 00 00 00 00 00 00 00 0000 00oz:
000-0000 nuaoum ow.ucauuom
0.00 0.00 0000000000
0.00 0.00 0.00 0.0 0.00 0. 0.00 0. 0.00 0:000
0.0 000 0.00 0.0 0.00 0.00 0.00 0.00 0.00 0.00 .000
00.00 00.00 00.00 00.00 00.00 00.00 00.00 00.00 00.00 00.00 00.500000 0;. 0000 0000:
0:000:00uu.0n
10%... «04.0.0000» 10.000.000.040 4.04....0I00Jm0 3010... 4.0.4030 43.0.... «0.0-1.0.0.0100 30 40.00.00.040 830 3 0:8.
"Nom0 .0m wonauooa ouuom :0 0.6.0:.nH
0.00 0.00 0.0.0.3000
0.00 0.00 0.00 0. 0.00 0.00 0.0 0.0 05°00
0.00 0.00 0.00 0.0 0.00 0.00 0.00 0.00 0.00 0.00 .000
00.00 00.00 00.00 00.00 00.00 00.00 00.00 00.00 00.00 00.00 0:05:0000 0:0 0000 0000:
.000000000000
.|.00al0.0.0..00 330 0100.30.40 13010.0 4.04.1084» 10.0ulmm0lq0u0 .00.. 000 0 .00.. 000 0 .00. 000 0 .00: 000 0 35:50:00.
"Nom0 a0 am0u003 suc.09.uH «mad
0. 0.0 0.0 0.0 0.0 0.0 0.0 0.0 00000 0.000
0.00 0.00 0.00 0.00 0.00 0.00 0.00 000.00 00. 00000004
o.~0 9.00 a. N. m. .u0u0anu. nzouu
0.00 0.00 0.0 0. 0.0 0. 0.00 0.0 0.0 0000 00°00
0.00 0.00 0.0.0.0000
m. 0.0 m. 0. 0. 0.0 o. 0. 0. .u0uuscc. 00.c0vuo
0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 .000 000:0000
".as0uuua 0000 00 000000000000
0.000 0.000 0.00 0.00 0.00 0 000 0.00 0.000 0.000 0.000 0000
.oc0. 00.00060 an.ua0uuom
00.00 00.00 00.00 00.00 00.00 00.00 00.0 00.00 00.00 00.00 0000
.. .090. ....uuc0 ou.unuuuum
.00: 000 0 .00: 000 0 .00: 000 0 .00a 000 0 .00a 000 0 .00. 000 0 .00: 00 0 .00I 00 0 .00. 00 0 .00. 00 0 .as0auua 0000 0.000
.I .I .I I I .I I .I .I 0.lauluu~
s a 0 0 0 .m 0 0 z s
4H1 c a m o

 

 

 

.
v.000md< 0.0caasou tumouoh mph 60 0000.00.0m 00:00 as. n0uauahouca 00 000.9

endix I

A

312

oo.ooo.oon oo.ooo.oom Amov 5.0“ 0:08000000
wo 600uuoa mu0>uun unua nuuuuuva

.000 0.: 8.30.0 00.000 33 2.03.0 00.00 08000000000 000.000 000000000
£00.00 0:. ucuv0uu. vmuumuon

.num .m.3 no.om¢.mm0 ¢~.mmn.o0 A000 nn.ooo.nm0 05000008600 oucuusmc0
nu0ao: 0:. 0500000. vouuouua

.000 .0.3 ~0.000.000.0 -.000.000 0000 o0.0o0.0om.0 00000003300 000000000
«~00 uuoxuumu0w vmuuwuun

00-00 863.00 00.80.00 300 0000.000 0000006000:
-Ic00uuo0000 w. 000300 :0 .890BUum
0.00-00 8.00.0.0 00000.0 000 00000000 0000000 000000
~.~0-n0 oo.n~o.00 oc.q~n.m 000 mq.mqn.0~ 00nu>0ouuu 0000a
0.~0Im0 om.¢0m.flm0 05.000.00 Acv nn.nno.nm0 noucu0wn u0nuc .mucmw<
«n.0mn.om0 qw.0mm.mm0 .moC0man unsouum uuauunum

mm.n~o.<wn mm.nuo.0¢n ADV usuaa0nvu vac ou=u0cuau
nac00ua0uouauv «>0ua0aanu
0n.mm0.ono.0 0m.mm0.omo.0 any ucuaa0na0 0c. 00:00cusm

n.~0-n0 m~.mnq.oom oo.cnw.0cu Anny on.n~o.qwn any o~.m0~.0qo unman0avo

ma0unooOua «awn U0600uuo0u
-a:00u.0uouaov o>0un03830

oo.ooo.oow 0m.m@0.ono.0 Auv n~.nnn.c0c Amnv om.~mm.m0o.0 N0.0Nm.00¢ ucoan09cu
wc0..ououa .uuv u0c00uuo0u

nn.n¢~.nnm.~ nm.mq~.mmm.m washoua can 03v uEOUC0

unoau.o>c0 nunuo vs. uuououca

om.nna_nnm N » oo.m¢a.nno.00 00.nqw.mmo.00 uuuuoH0ouc:

on. vuuuomuv .600uauun0ncou
mu0auaa va- naa0auun uucaus.c0 .000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

nn.n¢~_nnm_~ no.40o.~o0 mo.¢0o.~o0 a00uuoa 00000360
no.4ao.¢o0 0:600uu0000u mo o.uaou a0 .as0auum
oo.omo.u oo.omc.~ .uounuC0uu scum 00na>0uoou .ucaoa<
nn.mmo.0 mn.¢mo.0 auscuuq mu0asc. .uowucnx
o¢.mmm.N~o.~ o¢.wmo.~no.~ .ucaouu. xcqn u:. 5.00
00.oo~.0 00.0mm.0 00000000
van mouoc aawavun voouaauqau
mm.mNn.ooo.o~ 0m.mNn.ooo.o~ .6100 0000om
Fn.¢no.ooo.~ mw.0n0.¢o0 Anv 00.non.noe.~ A<V uu.u.o 0am» ucoauumuc0
so =00un0uuuauv «>0uu0nanu
m~.o~¢.~nn.o n~.0n0.mo0 any 00.m0m.~mq.~ A<v no.0m~.000.< 00.0.. 0.00 ucoeumu>cH
0n.omo.. 00.omo.m 0000 we c000000
mn.nno.oo~.n0 L -a0uu. c0 nuu03ru. mo0uhoaoum
«n.n~m.mmm.¢ 0m.ooo.m0< “<0 no.0no.omm.m A<v mcuaaou onu an n00nnuoo auuuaoua
no c00ua0uounov o>00a02850
, 00.000.03.00 00.08.0000 0000 00.02.0000 9: 8.000.000; 0.000600
0:. >0 vo0a=uuo .o0uuuaoum
om.ona.¢o0.oo0 om.omq.¢o0.000 ouau.o 0.0» :0 .9.00 owmwuuox
£00-00 . 00.03.000.00 00000.02; 0 0000 00.000.000.00» 00.000.000.00 000000
no.¢ou.0nc.n-»~0n.n0n can 0 . . 0n.n0nuo~n Amy .vcom cn0vqcao «o as 00003
Acv0-n w~.moo man man» 00.00a - w Aouv oo.OOm.nm w mN.moo.nmn.n-m .vcom
0.00..<
000.0-.00 0 & Mm 5 E 0'0 mm 0000000003 30004
.ouaououuu noonm 00010.: . u a o I u . s fixw < IlldmmmuMmaflufll. xad0n
.00unll5m vovGOuuu u a o u u a u 0900.0:Isu 900.co>cou
0000 .0l. 000900000 00000 030
mm .00.. .Bififi 030003.00... 100000004...0...0_ $0004 1000000000.. 000: Idllufl 000 0.0. 300:0 3 8.0.0.3005 g a 0.0.000 g g
0 a 3 000.0

A andix II

313

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

m~.m¢n wn.w¢n mean-ado ucaouuu uuquqaum
oo.ooo.ooq oo.ooo.oo¢ nasaa uaoaouauou
novoHnau Ho acaaa>ou new u>Looum
- oH.~no.amn » on on.moo.Ho » ~n.ooo.ooa .ouau «nausea» cmfiouou
cu nan muouaa ca uauauuanva uoz
m~.onm.on¢ «n.0nm.mnq vouuoodaa uoa «saga can nouaquuwaox
0N.nm~.- ou.nm~.nm ua=Ouu¢
.ouaumq you vac: nuanced uunuo
oe.mmn.nom m¢.wm~.nom nouauaun uaoouu .uuuow<
no.oo~.mn no.ao~.nn ouuuauu no pay». no mcdnabu
an ago: he vaunnufia nuaaoa<
ma.o-.oon m~.o-.oom «Sousa unusuao>aa vacuqucp
on.°¢~.on~.m wn.o<~.on~.~ voguoun
no 03¢ nuow .uoonou«H .awde
m~.¢mo.oo¢ mn.¢mo.woa nonpuua no: can ooocunxo Hauococ
oo.dw¢.w oo.Hm¢.m nuaaun van unavauu<
«n.5od.oo~ an.~0a.om~ zuuaauq can mafia
"vuauuuq no 2.6 35w. 3 2333380
m um.oan.wn um.oan.mn uvcsu acauouu-«cwauq pauoaao
m c~.~n~.oo~ «n.5mu.ooH nanomov no acousou
m nn.mm~.one.~ nn.mm~.omc.~ avanwou asap-u
oocouuuaxu haw newua>oum
m an.m¢~.nn an.n¢a.nm umcw>qu vuu-Haabuu<
mm.sae.ooo.u mm.naq.ooo.a macaw
uuaomov Hudson“ uow huufianuug
ow.oqo.aow oo.m¢o.~0m ouau>vn cu uufiuouou unowu
J-uoouucOo haunnad can naaaauum
mn.nmq.- wn.nm¢.- ouQOauuonan pox uoz
mm.mhm.~ no.n~n.~ no-H-n on
access; new nono«uuoaa<
"uaom
uawsoflaou a“ «Hanan; .uuuofi>flv
.ouovflonmuwuon ham acama>oum
nn.m~ nm.ma wanna:
nu. use auaooa>au .auooaonuufiaom
A oo.o¢o.H~ oo.o¢o.H~ mafia-Aaaauua
vamoaafiv ..uoo~onau«~om
oo.~¢n.moq.d guano: nu. uuoufloua
m~.o~m.mmm.m aoqlaugu uunuuaou van auaaom
on.n~n.~on.~ swag
-onlaaau uunuuaou van huaaom
oo.mom.mnm.c oo.aon.nnn.c n¢wuaomawucou mung
usonuwa ouuquu:0u muauuuluHaaam
no.moo.moo.o no.noo.moo.o uoauaaom guano: can uaov
nuouq yaw u>uuuou ounmoumwd
oo.moH.noo.Hmmm oo.mo~.moo.annm nun-nunou van nouoaaoa
uuua new o>uouou «unwouww4
II II II ll "neuuaganufig
nasal—50 a no .5 .5 .5 no 5 33.3313 ”.0qu4
avocuuomom uuunm sound-n . u a o I u a a H v < _ muse-auxdud1ll xaufln
nouuqlanm vooaounu u a u u u a u u>auqanlso no«unu>uou
nu Noofl .mm "onauooo «ovum “new
H navammmfl :aoamauawum umuuaaouu4 vouuuuu< Nflaquoauu: nu“: Buoucou.mm mucuIUuuum Jadan lwuuau>u¢w uaouxm mm noun uoosm sue:

 

 

M Naamaoo ouauuaanu mafia

endix

A

314

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

I I
wo.mmfl.nq¢.o~q» ¢a.mn~.m¢¢.m~qw an.:o~.nam.q~m an.¢o~.n¢~.cam oo.oa¢.mwo.mom oo.O¢¢.noo.nom an.~na.no¢.cm¢¢ dm.~ma.no<.q~qw
o~.ono.hfifi.fin » efi.ono4hfiq«fin. no.h~o.~od.m Amy an.qu«mwN«mm ~wq unawuuuo voaauuum
oo.ooo.oon 00.000.00n o Auv Joana unawauu no lawauum
an.o~e.cnn.n« Amy
on.m~o.q¢m.~ » .Han no.h~o.~ofl.a » Aug mm.hnq.no~.n » mm.omm.~mo.¢m «sauna. ounua..qap
oo.ooo.ooo.~ oo.ooo.ooo.~ a: vaaa anuuanu
"uuuluuoaau uouaonxuOum
m mo.qoo.¢m mo.¢om.qm «nonunsn auscuun «unannom
oo.oon.-H oo.OOn.~Na «anaaua mouoz
00.now.mm~ 00.noN.mmN ooaqnuunn unalnwauo newnuououa
dado ownouuuoao venue:
a mm.<¢o.omm on.¢¢o.onm vuuhounnduu m0au0uauuufi
u~.ww¢.~o~ n~.omc.~o~ uucquaacu
ouwa anon» nouhoAnau ouammo
albn-u-ea:m vou=a«uuauoap
an.mma.a¢o mn.mm~.e¢o u>honou huaomauuaou macho
no.~oo.HHm.a~ mo.~oo.aum.aa u>houou new»
aqaaa> nowuuunuoa %u0unchz
a om.on«.o o¢.omc.o ocean vuluuaun: haw o>uoouu
x oo.-N.n m oo.-~.n m uoauuuwuuuaoa «mud
unonuwa nun-yucca aunuuua
suaannu no uoouuunu amouxm
II .II II II "Avoacauaoov uuwuwfiwnaad
casualoo a go no no ya no no uuuuqaumqag nuunod
nouauuowou uounm ouadadn u u a a I u a :‘fi 0 4 annuluuafiu< xanan
quay-slam vacuouuu u a o u u a o o>aunaaiao acauao>aou
I I4 32 .m “38wa ‘33 his» I.
H xuvco < :uoamuuaaum unuucsouud unamouud Nflaquuaou: nu“: aneuaoo cu cucuIUudum audan unwuuu>nou vacuum a» vamp uuonm xuoa

h qummmw uuaaunnan «mag

 

 

endix II

A

"#1
«a own man Om»

 

om.omw.o
an.~«o.~flm.o~m

315

 

uuzoaaou w
nouaouauom
muuu1flasm

mt uwvaomm<

«q.omfl.“m~.n
Nq.¢ofi.fimq.n

k

am.nqo.mfln.om

~N.M~N.~nfl.~mm A

on.enn.qm

0N.nnn.mm~.ma

no.0me.«wo.H

c~.oo~.amm.n

 

05.noo.no~.mmw
mm mm
ucoBUuuum nucwnuum
uo.«>u~

:uoamquaum ucaucaouu< voumuuud Naanuuauu: nu“: Showcou

 

mm.¢m~ Amqv oo.ooo.oq nfiOv
NN.m~o mom Aoqv qu.mmm.ofi » Afiqv
.

r

(

“N.mo~.m AMV

hm.nqo.afln.~w Any

 

 

 

no pm
<

 

 

nucoauno.u<
u>uuqana=u

 

 

Nam” «Mm “unauuoa conga pun»

 

 

 

o~.om~.mm

m¢.mo¢.mn
Hm.aom.Qm
on.mqh.oH

m¢.mo¢.qom.

oh.oo~.won

mn.nn~.on

c~.wo~.-m.
oh.noo.nmn.

 

unaucu

nn.qn¢.mwa.n

oncoaXu oucnuamc« Hmuocuo

mn.ooo.w vouuowqcauu nowu0ufluuou mo “moo
om.Mm~.ooo.w unawuauovaucoU muflaccm
nan qBSaBUuA co muofimmuuaoo

ma.omo.ooH .owaHoa nuqmog nua
ucoofluua yam o>u0ouu cw wammuucH

um.oun.wm muss“ can“

mm.nm¢.oo¢.om

mm.nam.mmm

nq.omn.mum

mn.mno.o¢

mn.ocn.mon.q

wm.omn.mm

«o.ooq.mno.n

Hm.nno.noH

~n.on~.o~m.a
~m.~no.o~a.n
nm.nw¢.n<o.¢aw

mg

n
am»

0‘6

 

 

mm nucuHUunum xcuan coHuco>aou vacuum mm

 

m nmummou oucauauan ouua

mmuan
acauuu>aoo

 

 

vamp uuosm xuoz

 

-auumfiCfiacq uwaOAoo c” omauuucn
cofiuaqnaauua
vcovfipwv van «caucuwcwucou wwwfi
usonuw3 muuuuucou ”mucwauauasm
you o>uuuou «unwoumwn aw wmcmnu
uoaucumcwucOU
umfid nu“: .uuuuuaou van mufiufiaon
new o>uuuou ouuwuuwma a“ mmcmnu
couumaaaauuu
vcoca>wv ham and «caucuwcwucOu
owad usonufia uuunuucou
auwucoaoaanna no mucuaham
auwucuw
-cuucou «mad nu“: auuuuucou
munuuoaoaamau co nucuayam
macaw
uuauuaoU no auwaoa co unououau
nowuaaon unukuuw
van nuanun nova: uuflwocon
uncauuu>c0u aaouo
ouwwuaun neocouusm
.uamuaun Agaafinqmfia
nuawoaon muuaccd
nuauahbvau cousum:
ouwwocon suave
"monounxm

coauauuowaaafiq admonon
oocqaoaaa oaCOAko unsound ouqunaom
numwuuo» mucaam

«sauna unuauma>ca uuz
nouunuwnau:00
ouaa unusual ouuuuuaou
hununoauflaaau you newunuovuanou
uuwucuwcaucou umaa nu“: uuuauucou
hhnuauludmnnu yaw noduauukucoo
sumac: van uaoowuu<
«ma;
"accuuuuuvunnOu muqaau- can «aauauum
”maoucH

 

 

Hogwucwum och

endix II

A

316

o~.ono.uun.finw

«N.HON ANo N llIl nH.Nmm Moo N

om.nom.wmn.qwm ch.Ho~.-o.~ » oh.oHn.oon.q»

wo mumoo newufimfiauua uuouwn vouuuuoa .mCmeuwaaou oucmunaaw guano: can uauvaoua vouuouoo .ncoqnnfillou
.uuumaaca uuono shot a an vuuuoaaou cum wasnofiuw no «unwau Asian abuuoo>ooo a .5n vouuoaoo.

a“ vow: omega saw: vcoomouuoo «hogan: xuuco any
so nuon madam ou muwmmuooc uw mxma acofiuuuaaaa uuanm

 

on.MNo.¢¢m.Nw

undouaoca owaa udomuu-uwm voHHqun

.auwuucu newuquumwuuqauou mwuuaovw ou uuouuu~ woo
.muwuuco acau¢0amwuoqauou to: noauuau mogunofivd

n¢.nn¢.nou.nm nn.oom.mmo.¢nm

 

nH.Nmm.~¢o m

 

No.mn¢ mac N I!!!

 

 

 

 

on.m~¢4¢nn.mc
hm.om¢.moo.o
oo.ooo.oon
qo.¢ow.HH
mo.moo.m~m
oo.o~q.HHm
oo.ooo.oo¢
- nu.mmm.~n~
mo.nmo.m
no.o¢~.o~
n~.onm.qnfl
Nm.oso.~md
«n.wnm.¢m
mH.~mo.mmm
mo.omo.oo~.d
nn.oo~.nm~.a » cm.~on.~o~.~»

no.¢mm mum 0N Illl an.¢sc dun N

n¢.no~.~mo.ou» no.¢¢m.ana.o~» nN.~oo.¢wn.¢»

“adv -.oofl.~a

AHNV ~n.mon.o~n

on.«n¢.ohn.~w

no.nn¢.noN.nw nn.a¢n.oNn.Nnm No.mnq.mmo.m w
o¢.owwqmamqwc
oo.ooo.oon
qo.¢0w.-
mo.moo.MNm
oo.ON¢.HHn
oo.ooo.oo¢
«0.0mN.mmH
nm.omn.¢n~
Nm.oNH.NnA

ao.amm.NqA.H

qo.o~o.onn.n m

3 .3o own oh

mN.oHN.ooo.wnm «H.omo.0mm.on

 

 

oo.nN¢.mo w

«Han-loo a .mm
nouoouomou

ON.NNH4NM
on.aoo.nno.N

oa.on¢.o

an.qem.nan.~ » fin.ooe.now.a» Ago

pa

unguflum IIGECH

nonu>uu

znoauuucqum umauosouud nouuooufl Naauurmmw.

 

do.¢wo.OdN »

 

uu

.ufl
u

‘5

nucqu-nnv4

 

 

 

nonauuva vuvou moor
Amman mmqumunmwu.uauunu.qu_uuuu.4uuau.uuqm

 

 

 

 

a o coo-nonnu ouwg

ON.NNH«nn

om.on¢.o

om.nne.mo »

mc.oon.onm.N w

IIIOSH «g

xcuan
noauoo>oou

 

.uoxdu «sauna can .uauanaavo can ousuaauau .oufiaunnaa soda»; can ucmvaoum
”onaaucw uum>HqCQ uuunn xuoa wcwuuomaau

no .nuaa uouaUuumo a“ uoo aw noun: uuoDOuuo noose cucugan «no mo noun .9

.nwnunu awnu «o woos onu

nowuuao wowuuanua hwauauuw 0» non: cud nuunaoa uon .oaouan mossaou oadu «no
you uoaodou ouauuaoa 9>qn uwuhfinca Haduu- «nu 9% one: mucosa sue: any .u

"wouoz

uuona
oucaflqn sud: uouumduuuoz

HauOu uumuda Iona HauOu
uodaqau mo acauuauunam

unanhon acaccfiwum
nuqu oaouoa Hauovom
uuuvaonxuouu ou ovauoa>wo
newsflash ucoooou nonhuman
mo «Samoan :« oauuuuwo
upuouuu acauwoam>
noauguauoo Nuouooaqa :« umcqno
mamas ao«u19H~> :« amounu mo
unbound no u>uuaou aw unnuuuoa
91am unusuuuuou oohofinam

nevuw vouuauu can
vouuwaoauaon Baum «and he came
no>uouuu noouw Hmwuoam
ucuauuanva

cocoon» «woo» wowum

conned no. nowam Hauwaqu
"moanhom

acolououm alouoH
sauan newunu>nou nun uuz
H-uOu uuquH scum Hauou
uoaanflu mo ocuuoouunam
«Manon

ouovaon
-muofioa good on .uauo«>«a

gefiugxgggaags
ouaau vulwqaucd

how u>uuoou :« undouuou
clouaoun vouooANOan
woo uouuuuov no mauvuOA we
noouuo ad noduuoauoo uo anon

on. no undo-0H ca unannu

noon can

unannoua .nuxuu .0061uanon

”Auoohauoouv noooonnu

317 Appendix III

LIFE AND ACCIDENT AND HEALTH COMPANIES—ASSOCIATION EDITION. 1962

Form I

ANNUAL STATEMENT

For the Year Ended December 31, 1962

OF THE CONDITION AND AFFAIRS OF THE

 

 

Organized under the Laws of the State of __ w,_-__-v-__-_m______.____._.________, made to the

IN.UIANCI COMMIIUIONIR OF THE ETATI OF NIIRASKA

PURSUANT TO THE LAWS THEREOF

Incorporated Commenced Business

 

Home Office

 

W Nil“) (CIty or Tova, Zone Number end 5872.).“ T“- I.“

Mail Address -

“an end Ill-ha) (City or To“. Zone Number end State) J _.__.

OFFICERS

 

President

 

Secretary Vice-Presidents <
Treasurer

 

 

 

 

 

Actuary
DIRECTORS OR TRUSTEES

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ieeee- ‘
Coven - --._..-. Mm..-)

‘ .- __’_ _ a“ HM. .. , Ml, ., .. . ....-. ...- -..,..-...e_.. ...e. ....H.... ...,Seuem ......e-.. H......... ..--.-

 

 

.__...._... flowery.

...- .,. .‘Treeluer tithe .beitt. dolye-ue eechlur hltneell
dew-5;} end aye thet they ere he-e'bove W othoere d the eeld Enema. end thht on the thirty int dey at December Net ell ol the herein deem‘bed eeeete were the ebmlute prop-en)
d the end lecturer lree end deer (route Iiene or cleime thereon eecep t ee herein eteted end that thie ennuel eutentent together etth releted exhibite ethedulce end replaneuane then-in
contented ennaed or relented to en e I. end true etetetnent cl ell the eeeete end liebt'litiee end at the oondiuon end ellein at the aid tnturer ee at the thirty 6m dey at December leet end
dlteiucoineenddedeetiooetherelmloeattheyeueoded mtauMeWMw beetdtheirielwnethn.hnoeled¢eendbeliel.reepecdvely

Semeedewneoflae-thb

 

d I”! "...---“ ..-—....-- ...... ..-. NM... .... ---. .._.. .. -.. , .. .
-...-..... ... ...--....e...._-.r. -..“...

 

u.-.———- -.—--~~ ....-.. .

“Mm. hmmdthmuend linenmeol the Ioeunr. ' V ‘ " " WTW ' ’ ’I

 

 

318 Appendix III

ANNUAL I‘I'ATININT I0! 11!! YIAI I!“ rum I
In.” lee Item ”A end It. the “one on
thle e do not Include Senate Account
lee-e. eny.
0!“ “I'll! QQIIPANY
(M ee .0 use d he.)

 

i notutee cum

I. Bonde(§chedule D) . .......................................

...........................................

2. Stocke(Schetlule D) ............... , ..................... I_

I. Mortgeploeneonreeleetete (Schedule B) . . . I . . . ..................... _________________________________________
O. Reeleetete (Schedule A)
tl PropertieeoocttpiedbytheCompeny (Ieeee . t .. ......encurnbrencee) . . . . 8 .....

4.2 Propenlee ecqulred In eetidection cl debt (Ieee & .. I. encumbrance)

 

6.8 lnveetmentreeleetetefleee..... . .encumbrencee) ...........

 

0. Premlttntnotee ............... 7 a . . ....................

'l. Colleterel loene (Schedule C) ....................................

 

I. Ceeh end bent depoelte (Eehlblt 13) ............................

10A. Cefi end Invented enete la (Item I to IO)
II. Annalee reenverehle Iron: relnettrere (Schedule 8) .................................... _ ______ 7 ________________________ j

It.

 

 

te. .............................. .._J

 

 

 

 

l.‘ on .~,....~...tt.‘ - --- ...e.. 4..‘.... ,...,..... .. _. ‘

 

 

It. .s _. - ,,,,,,,,,, I

 

IT. Llle lnetetence pretnlm end ennttlty oonelderetlone deterred end uncollected ................ ........., .,
ll. Accident end heelth prunItttne dne end unpeld elective elter September 80th of current yeer ......... W

IO. Intereet end other Ineeettnent lncernedtee end earned .........................

 

I). Not edit-fluent In euete end llebllltiu due to [or-I‘ll exchen'e rem ....................

 

 

 

 

 

 

 

 

 

 

 

I. Tout. .....................................

..'- .'.-.'" 1'. T"?-J-.’-—£—‘ '_’ —6—;__J .r" _.

NOTE: Theleeneonthlepe'etoe‘ree eIth Exhibit ll. Cold.
Stetebededvelnetlen:

 

 

 

...“ ....................

 

319 Appendll III

tor-I ANNUAL STATEMENT FOR THE YEAR I96) 3
Iecept [or Item ”A, It. I. end It. the .
“one on thle page do not Include Beperete
Account lteaefi Ten .

ll .. V r .V _ , COMPANY

rim or etc-p ...-.51 Confident

”MI! CINfll‘.

LIABILITIES. SURPLUS AND OTHER FUNDS

I. Aggregate reeervc lor Iile policice end totttrecte (Exhibit 8) . . . . . . . . . . . . . . . . . V V , , i:

2. Aggregate rceervc [or accident end health policire (Exhibit 9, Part I) V . . V V . . .. J

3. Supplementary contrutte without lilt- contingencies (Exhibit I0. ('ol. 5) V . i l l:

4. Policy end contract cleime ‘ I
4.1 Lile (Exhibit II, Part I)

4.2 Accident end Heelth (Exhibit ll, Pert 2)

F__-—
45-.-...”

5. Policyholdere' dividend accumulatione (Exhibit I0, (’ol. 6) . . . . . _ . , I!

0. Polit'yltoldere' dividcode due end unpaid

......P..._ _,_.

7. Provieion for policyholdcre' dividends payable in following t‘dlcmlur your ~ t-etimntcd amounte:
7.1 Apportioned for peytnent to . , I9 V . . , 8

7.2 Notyetapportioned V . . . V .. .—___—_

8. Amount provieionelly held lor (lt'lt'flt‘tl dividend polit‘lt-e not intlutIt-d in Item 7
I). Premiume end annuity coneitIt-ratione received in advance line I , . (Iincuunt;
including 8 an Men! and health pretttiume V

l0. Liebility lor premium depoeit lunde .....

e

II. Policy end contract liebllltiee not included eleewhcrc: I II
“J Surrender veluoeoncemllcd policiee . . . . . V ................ s ,,,,, . _, i .. H

“.2 Provieion for experience ruling relunde . . . V . . . . . , . . V ...... . 'r .V .. . V. . . V s
u 3 i l
' I

I3. Commieelone to ngente due or accrued—Life and Annuity 8 Accident and lleelth 8 . . _ I .. . ‘ . i
I4. General eepeneee due or eccrucd (Exhibit 5. Line II) ..... . . . ....... . . . V V . I
lb. Tune. liceneee end leee due or eccrucd (including I. .. ,V . U. S. ledcrel income tax) (Exhibit 6. Linc 8) . r .
IO. "Coot ol‘ collection" on premiume end ennuity coneidcretione deferred and uncollected in cxrcee of total

landing thereon .........................................
17. Uncerncd lnvcetment income (Exhibit 3. Col. 2) . . ..... . ....... . ............. i

18. Amounte withheld or reteined by cornpeny ee agent or truetec . . A . . . . V . . . . . . . . . . L ....... i
10. Amount hold lor egente' eccount (including I . V .V . egcnte' credit blial’lt‘fl) I
an. ‘ Regime-ice. end iteme not elloceted . . . . . . . . . . . _ ...... .. .. . I
21. Net edjuetment in remote end tubimn. due to loreign exchange nice I
22. Liebility [or bent-flu lor employee end egente if not included above V A V . . . V . . - . . . . . . . .V . L
23. Borrowed money On-.. end intereet thereon 8.. ... .. . V ........... . . V. .. .. . . ii .....
24. Dividendetoetochholderedecleredendunpeid ...... . . . . . . . V . . .......... V. .. s, .....l

25. Mleonllnneone llebilltlee (give iteme end emounte)
26.1 Mendetory eecuritlee veluetion reeervc .............................. - i.e. .

 

 

u . . ...... . . .fi.............V-....... ... ......... . .. ......“ ...... .
0' ........ -. ... .. .e . ............a ... . .... .......V.. ... .... ...». .. ....... .......... .. .. . _

”.8 ..-.-....... ............... ....... . t . ....... . .,,.. .......... ...V...........,. . ... .. . .. . . ............................-. .... ...._.,.... ......... ”-..“... ... ......... . V

”e. ... ...- .... .. . ... “...”...t. . . ...4....... ....... ... ... . ....... .......,..... .. ... . . ... .. ...... ...................................-.,.... "....-............... ... .. . ., v .....

 

25A. Seperete Account Bueineee (eee Seperete Account Statement) ......................
26. ToeeLLueturtes (Except Cepitel) . . . . . . . . . . . . . . . . . : ......... ...l
17. Spockleurplue lunde:
27.: e- V. ___e,.VVV._..V.._.- .. l
n Cepltel peid-up ................................. i
tine-um nuplue .................... '. ........... _ '
I). Totelolltemefltofl ........ .V... ..........................

 

 

 

81. Toret...... .. ......... ........ "l

 

320

ANNUAL STATEMENT FOR THE YEAR 1962

 

 

 

 

 

 

 

Appendix III

For-1
Escept (or Its-e 01A,“.“A end M. the
Iguree on this pegs do not Include Sepsrste
Account Its-e. ll eey

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

OI? THE, ,V V V.
tines .1 sh” nn-e d Coupons) ....COMPANY
I; - - ootueswrim —r~ «'— 7. fl
SUMMARY 0]? ornitA'rioNs “"“I
(ACCRUAL M813)
1. Premiums and annuity considerations (Exhibit I, Part I)
1.1 Liie ..............
1.2 Accident and health ..... I _
2. Consideretions Ior supplementary contracts with life contingencies I _____
3. Coneiderntions [or supplementary contrects without liic contingencies and dividend accumulations .......
C. Net investment income (Exhibit '2) . A ..... I!
s. , I
o. I
7. Tom. . I
j;
DEDUCT: l'
8. Denth benefits
9. Metured endowments . ..........
IO. Annuity benefits ..........
II. Disebility benefits
12. Surrender benefits
12A. Group conversions
13. Benefits under eccident and health policies V
It. Interest on policy or contrect funds
15. Peyments on supplementsry contrects with life contingencies
16. Peyments on supplementery contracts without liie contingencies and oi dividend accumulations I
I7. lncreese in eggregete reserve ior policies and contracts with liic contingencies '
18. Increeee in reserve for supplementary contracts without liie contingencies and ior dividend accumulations V
19.
20. Subtotel (Items 8 to 19) . .-
I
21. Commissions on premiums end snnuity considerations . . I
22. ....-VV....__V .VVV..._ . ...... I
28. Generel ineurence expenses (Exhibit 5, Cole. I end 2, Line 13) . ..... I
at. lnsurence tsses. licenses end ices (Exhibit 0. Cole. I end 2. Line 10) ..... I
23. lncreeu in loedlng on end cost oi collection in eecees oi landing on deferred and uncollec ted premiums I
so. . ....... I
27. Totel (Items 20 to 20) V V . I
28. Nelt gein from operetions before dividends to policyholders and excluding capital gains and losses (Item 7, minus :
tern 27) ......................... . . V .
I
39. Dividends to liie policyholders (Exhibit 7) ......... . i V _
so. Dividends on eccident end heslth policies (Exhibit 7) . ..... I V ...... I
31. lncreeee in emount provisionally held for deterred dividend policies . I I
32. Tour. (Items 29 to 31) ...................... . I I
33. Net Gnu Feou Oreurtons Arne Dmoeuos ro I’ouc mot uses no F.xcLuotnc.( Al'ITAl I I
Gems sun Losses (Item 28 minus Item 32). V V V . . . . V V . V, I
I I
SURPLUS ACCOUNT
nouns centre I oocues cents
34. Speciel surplus funds Deeember 31, 43. Dividends to stockholders V ‘ I
previous yesr ................
Unessigned surplus December III, «-
prevsoue yeer ........... ..I «A. n
" «B. .
36A. 45. Net cepitel losses (Exhibit 4, Col. 6). .
353- ~~~~~~~~ I ‘‘‘‘‘ I 46. lacreese in reserve on eccount of
c enge in velustion basis . . 3
’7' N" gein (from item 33) """ I """""""" 47. Net loss Irom non- admitted and reldt
a. Net cepitsl gslns (Exhibit .. Col. 5). I ed items (Exhibit Is C.ol 3 Line 40).
. l8. increese in mandatory securities val-
IO. M“. P.” in. -------- I uetion reserve . .....
d). Net gein irorn non edmitted end relet- 'I 43A, Decrease in sur us oi Separate Ac '
Gd items (Exhibit 14. C0l 3.14M 40) I ~ count Business see Separate Account I
41. Decreese' in mendetory securities vei- I Ststement) .. . TI
tation reserve I ........ I I 49. Special surplus iuntis Decerrrbcr 31 I II
“A. increase in sur us oi Separate Ac h 1 current year (Item 27 Page 3) V . . . I"
count Business see Separate Account I' I 60. Uneesigned surplus December (ll. cur- II I |
Stetetnent) . I; rent ycer (Item 29. Page 3) . [t__ I
is. Tom. . ...... I I 51. Tom . I I I
.I I I T ,
I! I I .-
'I I : I
I I ' I-
I. V I: II 1 21

 

 

l
32 Appendix III

For-H ANNUAL STATEMENT FOR TIIE YEAR I962

The “urns on this. pegs II. not Include
A: It tens any.
Separate eon 0F Till...

 

 

I (N’rib-I IIsIap antic—hi!) COMPANY
EXHIBIT S—GENERAL EXPENSES
_ _ ___ _» JNEILRQNCE ‘ _ INVESTMENT 10m.
Lin Action: urn I’IlAlflt
(I) (2) (3) M)
1. Rent .......... . . . . p _ . ....
2. Salaries and wages .....
3. ll 'Contributions Ior benefit plans Iur t-luplIIyu-I.
3.12 ’Contributions [or benefit plans Ior .IgIrntII
3.21 Payments to employees under non-funded hem-{It prtigrdms
8.22 Payments to agents under non-IumlI-tl benefit programs '
3.31 Other employee weilare . ..... , . I!
3.32 Other agent welIare ....... , I . . I
3.6 .......
4.1 Legal Iees and expenses .....
{.2 Medical examination Iees .
4.3 Inspection report ices . .
4.! Fees oi public accountants and Iunsulting a: tunriu ,
6.6 Expense OI investigation and settlement 0! polir y tlaima
6.1 Traveiing expenses .
6.2 Advertising . . .
6.3 Postage. expreu. telegraph and telephone ‘
6.‘ Printing and stationery . , ‘
6.6 Cost or depreciation oi Iurniture and equipment I.
6.6 Rental 0‘ equipment
6.1 Books and periodicals . T'
0.2' Buresu and million dues . . . _ . ‘ I I
6.3 Insurance. eatept on real estate . . . . I I I
6.4 Miscellaneous losses . . . , I I . I' . .I ..
6.6 Collection slid bank servite tharges . . i! I . .. .
6.6 Sundry general expenses . , I‘ 1 ‘
6.7 Group service and administration Iers : F; _
«.3 . 4 : 7 _ I
7.1 Agency eapense allowance . If g _ .-
7.2 Agents' balances charged 00 (le. 6 recovered) I 7 I
7.3 Agency conlerenoes other than local meetings I i
8.l .. .. , 1 . I ..
8.2 . '. 5 .. ...
1“ Real estate eapemes . .5 _ . I I
9.2 Investment expenses not induded else! III re , -’ .. _‘ ,
o.a..... . " I 'II I I.
to. Genaast. Expenses PAID . . l5“ ‘ .. II
;I I III II ;I II‘IIsIth6I7.6hII~iiIIIiII
ll. General expenses unpsid December 31. t'urlt'III year i . I- II ' ;
. l2. Genersl expenses unpsid December 3|. previous ye.“ .I
13. General expenses incurred during year 00+“ 12) i; . .. ..I If , , .. . I _.
; (I‘sltn-‘Pspfl .f nous-0.1mm» |
A. Compensation to agents on a plan other than commissions, included in ('ol. (1)» First yI-ar 6 , Renewal 6
3. Agency supervision. eacept Home (Mite, included in (‘ol (1): Line 2 6 .I [nor 5.I 8 . Lin..- 8
C Branch oflce expenses other than those in A and 8 included In ( ol. (1): I.int I I8 , Line 2 8 , All othI-I linm 8

'I'I-blnl‘L .. . onsoeountdpiorasrvnee

EXHIBIT b—TAXES. LICENSES AND FEES

i I
I' INSURANCE _ INVESI'MENII I l‘U'i Al.

 

 

 

 

'.._ _ -_I._..___,,- __ l
I. Llll IAtTweni AND ileum
(I) (‘1) * (3) . U)
I. Reslestatetsans ............ . . . ,I , _ ___ _: _ _ 3 .7 _ ,
2. State insurance depsrtment licenses and lees . II ,,,,,,,,,,,,, . “I ‘I
3. Statetaaesonpremiums ... -----II.... I. I
4. Other state taxes. incl. 6 ...... . .Socinl Security II,...... , I; .I
5.1 U.S.Iederalincometaa ............... [W a I
6.2 OtherUS. Iederaltanes. incl. 6 Soctol Security 1' II I, ,I
o. All other taaes .............. I ' .I I
7. Tues. Licenses All) Fans PAID II ”I ,, I” .I, ., _.
1 f ‘I muses-sum I
8. Taaelecenusandlees unpsid December3|.current year I, _____________________ 7_ . -I _ ~ A _ I... _ , 7 f
9. Taxes.licensesandlees unpaid December 3|.previous year iL I1 I
10. Tmlhmmdlmincmeddwineyud7+8~9l I .. ...; .. . I . , I
III (1’- liars 61}. Pay 0 ‘ I: (In “or A. lam-I I) 2

NOTE: mamhfi-u—mWWuynumI. 6. 3. dandu
EXHIBIT 7-DIVIDENDS T0 POLICYHQIéPERS

sun “NI AND MALT“

Applied to pay renewal premiums ................. h .‘ ..

Applied to morten ths endowment or premium paying period . . . y; I!

Applied to provide paid. oup additions . ......... :I ';

Applied to provide paid-up annuities . . I . . . . 'I
Tow. Lines 14 ................... --I 1

Paid in cash .................. . . . . . . I‘ -.....

Lei! on depodt with the company . . ......... II‘ -

 

 

 

 

 

 

 

 

Tom. Lucas 5 8
Amount due and unpaid (ltemI 6. Page 3) I
Provision [or annual dividend policies including 6
terminal dividends (Item 7. Page 3 in part) ........ . , .. ........................... .
Provision [or deferred dividend policies (Item 7. Page 3. in part) I
Tom. Luisa um ................

 

FPPPT'PPPS‘P.”

__

 

 

 

 

_—~-
9‘99.”

 

Tom. Dmonuos to Poucvuowans (Lines 9 +13 ~ H) . .I ....................... .
fioImQPsgeC) (Toltenfll’sge‘) ‘

 

Form I

322

ANNUAL STATEMENT FOR 'I‘IIE YEAR I962

Except tor Item. HA. Is. 37A .nd sit-it. the
“urn. on thl. out. do not Include Sepurot.
Account Item. ll .ny.

or ’rrrr-z

—

1"!

9989.99.“

21.
22.

23.
24.
25.

37.

37A.

38.

39.
40.
4|.

. Group convenion.

. Intere.t on policy or contract fund. i

“I‘m: a run. In... J ( ”Hoyt

EXHIBIT lZ—RECONCILIATION OI" LEDCER ASSETS
INCREASES IN LEDGER ASSETS

Premium. on lile prrlir‘ic. and .rnnuity consideration. (see Exhibit I, Part I)

Accident and health unit premiums, including 8 policy, lllt'tllIK'flhlp and "the! lee:
Consideration for .upplennntury r'olttrdctn with hie (untinut‘llt’it‘. .

Consideration for .upplenientary rontrtut. without lile iontinxern‘ie. inr luding 8 disuluhty
Dividend. left with the Company to nu “IIIUIJIl‘ .it interest

Intere.t, dividend. and read euute intome (Exhibit :1. (’olumn l) r

Increarre OI puid~up capital during the year .

Front other .ouree. (give item. 4nd amount“.

8.1

8.2

8.3

Borrowed money grunt. t . It‘sl amount repaid 8

From sale or maturity of lulger .u-et. (Exhibit -l, (‘ulurnn 2) .

By adjuntment in book value of lulger auet. (Exhibit 4. (‘olumn I)

. Separate Account Bur-me.- (nee Separute Account Statement)

Tom. IMJEAstts m Levon Assus

DECREASES IN LEDUER ASSETS
Policy and t‘oltlrut‘t clairno.
16.1 LiIe (lee Exhibit ll. Putt 2)
16.2 Accident and he.ilth

For annuitie. with life contingent in, excluding payment. on supplementary eontmr t.
(including cash refund payment.) . . . . . . . . . V

Premium note. and lien. voidul by lap-e, lead I restoration.

Surrender value.

Dividend. to policyholder.;
20.I Lile inumince and .nnuitie. (Exhibit 7)

20.2 Accident and health (Exhibit 7) .

 

 

Tum. Pun Poucyunwv... .
Paid [or claim. on .upplernentury contracts;

22.1 With lilc contingencie. .

 

22.2 Without lile contingencie.

Dividend. and interelt thereon held on depmit disbursed during the year

Comrniuion. to agent. (In. cornmiuion. on reimiumnce):

26.! Like innumnce and annuities. (including S. commuted com-
miuiun.) . . , .

unnrnutrd corrtrniuirin.)

20.2 Accident and health (including t.

 

20.3 Policy. membership and other lee. rctninul by agent.

General expenee. (Exhibit 5. Line 10) ,

Tm. licenoe. and lee. (Erihibit 0, Line 7) .

Decreaw of paid-up capital during the year

Paid .toclrholder. lor dividend. (cash . , . stock 8 )
It“ amount borrowed 8

Borrowed money repaid you 8

Intere.t on borrowed money .

From Isle or maturity ol ledger «net. (l-Lxhihit «t. Column 4) .
By adjuument in book valur- of ledger unset. (Exhibit 4. ('olumn 3 and Exhibit 2, Line 4)
Separate Account BuIineu (.ee Separate Account Statement)
Tour. Ducnusu. in Lemma. Assets
RECONCILIATION BE'I‘WEEN YEARS
Amount of ledger unset. Iler ember (list ol previous year
Increase (+) or dcr rcunl' (-- l in lulger rum-t. during the year (Line 1.") lIIIlltIrl Line :th)

TOTAL ..4 Liturmtr Anna lit-tr MIN-It am or ('utririmr Yr.”

Appendix III

. . COMPANY

DOLLAR!

(EVTS

 

“’2; _"_LL ‘

.3," -.

.. saw: 3‘: W '

r-rrc

_._ ...: A‘_l

 

=:: II‘

;.‘1“.

_' - fim'

 

_‘-.__

 

 

ii
. I
i i-
i J‘
r 'l
5 i
i ’i
, ;|
‘ ii
I r
i i!
i 1%
i I;
l
e if
i i'

 

 

IS

 

IA

“..II_
0 U e

we

10.
11.
IS.

18.
1A.
15.
16.
17.

IS.
IS.

323

ANNUAL S'l'A'I'INlNT POI Till M 1962

0ST!!!

(I'm. a ...-p a... d (can...

EXHIBIT II—ASSETS

Bond. .
Stock.
Mort3u3e Icon. on ml e.t.te:

3.1 Pint lien. .

I.I Other that Ant lien. . . .
Real flute (It. S encumbrance”:
A. I Propertie. murpied by the mmpnny _
A. I Propertie. acquired in utidnt tion at debt
A 3 Inve.tnient real e.t.te .
Policy Icon. . .

Premium note. (includin3 S

premium)

Colllternl loun. . . . .

Coir .nd bank depooiu:

S. 1 Cult in compuny '. Mice .

S. 8 Depooit. in bank. and tru.t companie. (Schedule E)

Amount. recoverable from rein.urer.
Other nuet. (give item. and .mount.);
12.1 Agent.’ bulunce. (debit I

18.1 Bill. receivable . . _ .
11.3 Furniture .nd equipment . .
11A Cult .dvuneed to or in land. at olicer. or .3ent.
I}: Loon. on parental .ecurity. endured or not . .

credit I

LiIe in.ttrnnce premium. and annuity con-
u'derntion. deterred .nd uncolkcted on in
late. Dec. an: at current year (I... rein.ur-
.nce premium):
17.1 Induotriul uncollected (excluding

S ................ lo.din3) ..
17. I Ordimry delerred .nd uncollected-~
New budneu (ucludiu I
loudin3) .
Ordinuy deterred .nd uncollected—-
Renard (errcludin3 S ., . . . .
loading) .
Group lile deterred .nd uncollected
(excludin3 S. . loudin3). .
17. 5 Group .nnuity uncollected (excludln3

I bulb.)
17.6 “rent (to Col. I)
Accident .nd hulth premium. du. .nd unp.id
Intere.t .nd m1 e.t.te income due .nd .ccruod:
10.1 Intere.t due .nd loomed
19.2 Real at... incorneduelnd .ccrued
III .
Net .djuurnentm in wet. .nd llnbllitie. due to lorei3ii
eacb.n3e r.t..

.........

17.3

17.A

 

..............

.............

...................

25A. Sepurite 1...... iim' " " mi... 5...." " 4.1.... smog.)

. J lu-:&.a—1-nn=:=u :muuza.‘ _'

Tor...

...................

"l

”1.x-wcr‘ - “Jaw—n“... 1‘ IA.“

 

A !

-—--.—.L~A—47 :-

;. --.-1.

Lotion
A...“

(i)

XSSXS

Non-Lena.
A..."

(I)

 

 

 

L ..u—qu .“

 

SSSXS1

gum... 1

Appendix III

Form 1
Except [or Item. ISA .nd 3.. the “ore. on
til. .6. nottne tud. Senate Account

Ito... my.
”PM

A..." Nu Aourtnn
Nor Ammo A...“

(a) (A)

.___. we: - c-

 

H H

-.. t_- .._._.- .—
Y—
i

XSXXX

 

 

 

L. .... ._c.* ...- ...-.._.L-

M_ -.L—J

 

EXHIBIT IA-ANALYSIS OI" NON-ADHI‘I'I‘ID ASSETS AND “LAND ITEMS
(Intuit... “mt Minn-cut. Net um.)

__ .—..‘ ...-...— _._

 

 

-.....'- ...n.x--. 19L...l'1‘--“'

(1)

3:2“?
(I)

 

..11. ...—AAA- 4.

-um a

Compuy'. .toek crud .............
Loon. on compuny'. .toek ............
Supp“... .utionery. prlnted nutter . . . .
Furniture .nd equipment
Commutod communion. .....
Agent.‘ bounce. (not).
C..h.dv.nced toorin thtlmid.ololcer.or.3.nt..
Lamonperunleeeurityendorudornot ..
Dill. receiv.ble .................
Premium not... etc.. in em 0' not «In. .nd other
policy li.bilit1e. on lndividud pollcle. .......
Accident .nd hulth prunlum. du. .nd unpdd. do
Ioetlve prior to Centre 1
Other ...... .ot .dmltted (Itomlu)
II .. .,
A3ent.’ endlt 13.1.an (P.3e I" Item 19 lndd.)u
Tour. Curio. (Col. Ii“-..

rum...

............

8‘ .3 83.388.33.313

~HJ»&‘4 .,

‘ Cary to Item A0. P.3e A it (+). or to Item A7.
bth—H

 

.. ij

i...

S X S HS_S

 

’.‘.._._!‘..__!‘ .23 ?‘

SSSXS

SSXSX

SSSSS

 

 

 

REES??? m2?

uUHt (4.33;

am

.Q I‘D-6‘ f

 

 

m’f’
A"
H
H
II"
n
u

3 1293 03178 3156

mummmimmuu

flu

 

W