Business & Finance: Insurance Half-Holiday

State insurance commissioner is in ordinary times a job much like the job of state bank commissioner: super-auditor to see that no one plays hocus-pocus with money that the public lays away for emergencies. The March bank holiday, which boosted bank commissioners to jobs approaching economic dictatorships, gave a similar boost to insurance commissioners. Runs on banks led to runs on life insurance companies (by policyholders who wanted to borrow on their policies or surrender them for cash) and runs on insurance companies led to an insurance half-holiday: death and disability benefits, matured endowments and annuities continued to be paid, but the state insurance commissioners put their feet down hard, forbade loans on policies and cash surrenders, suspended declaration of dividends to stockholders.

In most places the bank holiday is long since past. Not so the insurance half-holiday. The whole investment policy of life insurance companies has been aimed to have liquid each year the average amount of money needed to pay maturing policies and the normal run of loans and surrenders. What to do when the run of loans and surrenders soared above normal? Last week the insurance commissioners of 31 states who ordinarily meet twice a year assembled in emergency conference at Chicago. One thing was apparent to them all: they must take uniform action, as the bankers of neighboring states had failed to do.

But there was no agreement among the insurance commissioners about what to do. Some wanted to declare the half-holiday ended, argued that abnormal loans would cease just as withdrawals of cash from banks ended after the bank holiday. Others wanted to turn the half-holiday into a quarter-holiday by limiting loans and surrenders to perhaps 50% of the normal allowance. Still others wanted to keep the half-holiday in force. Not only did the commissioners disagree with each other but so did life insurance officers. A committee of five stayed up all night arguing. The conclusion was for virtual retention of the half-holiday on the following terms:

1) Loans permitted to pay insurance premiums, taxes, interest and principal on home and farm mortgages.

2) Loans permitted of not more than $100 and only in cases of extreme need.

3) Loans permitted to pay hospital, medical and funeral expenses.

Then hastily the insurance commissioners rushed home to get the new rules put in force. The recommendations of their convention are only “advisory” but have such force that most states are expected to carry them out.

Last week Metropolitan Life Insurance Co., largest in the U. S., announced its intention of cutting salaries from 5%, to 25% on all jobs paying over $3,000. Other companies made similar cuts or prepared to do so, for policyholders would surely be wroth if denied loan & cash surrender privileges while high salaries were being paid. Until 1933 Depression did not greatly affect life insurance salaries, as is evident from the amounts paid their presidents in 1929 and 1932 by leading life insurance companies:

1932 1929

Metropolitan

(F. H. Ecker) . . . .$200,000 $175,000 Mutual Life

(D. F. Houston) . . 125,000 100,000 New York Life

(T. A. Buckner)’. . 125,400 100,400 Prudential

(E. D. Duffield) . . 125,000 125,000 Equitable

(T. I. Parkinson) . 100,000 75,000

Last week fire, marine and casualty insurance brokers eyed the reports of Alfred M. Best Co., insurance statisticians. In October 1931 the convention of state insurance commissioners permitted fire, marine and casualty insurance companies to value their assets artificially at the level of June 1931. Fire, marine and casualty companies hold many common stocks. Since the Standard Statistics general stock average has fallen from 118 in June 1931 to around 48, the market value of these companies’ securities depends entirely on how well their portfolios were managed. Best Co. set out to value insurance company assets on market prices, found that fire and marine insurance companies were in good shape with a large margin of safety, a number of casualty companies with much smaller margins of safety. Alert insurance brokers were busy last week shifting their clients from weak companies to strong ones.