Burton J. Hendrick

“ Every investment must stand on its own merits; large profits on trust company's stocks do not justify large losses on trust company deposits. Moreover, even allowing for the dividends received, the companies have not found their trust company affiliations profitable. The Mutual's net return, after deducting its loss on deposits from its profits as dividends, is little more than three per cent; the Equitable's, little more than one. Again, the increase in the value of the stocks cannot be admitted as an asset. ”

“ That they must earn to maintain solvency; anything beyond is theoretically returned to the policy-holders. Thus they have an absolute standard of investment earnings; the unpardonable sin is the realization of less than three per cent. If they have securities yielding less than this minimum, they have a deficit in the reserves which must be made up from other sources—that is, the surplus. Because these companies have this great accumulation to fall back upon they have sunk millions in investments that do not realize the interest rate needed to maintain solvency. ”

“ In general, the Equitable has seldom paid more than sixty per cent, of the estimated profits. It has averaged in the neighborhood of fifty; and frequently has ultimately paid only forty and thirty. The other New York companies have made records similarly bad. The Northwestern Mutual, although it also has failed to realize its anticipations, has made a much better showing. The Northwestern, on the whole, has played he game fairly and honestly. Its managers have run the company, not for their own advantage, but for that of their policy-holders. ”

“ The Mutual Life has wasted hundreds of thousands of dollars on its legislative agents which, in the official reports, have innocently figured as "stationery and supplies." To hide its tracks, it had forged the names of office boys, fixed up bogus vouchers, and paid bills to imaginary business houses created for this particular purpose. Its expenditures for advertising and supplies have aggregated, in one year, $1,134,000—half as much as it has paid in policy-holders' dividends ”

“ They have kept watch of all legislation affecting banks, trust companies, safe deposit companies, railroads, and numerous other corporations. They have uniformly used their influence in such cases against the public good and in favor of privileged interests. They have amended the investment law twenty times in thirty years, not for the sake of protecting their policy-holders, but to permit investments along lines that guaranteed private profit to themselves. Above all, the insurance companies must control the legislature to prevent exposure. ”

“ Neither do they need large balances as a basis for loans and other banking accommodations; they themselves have more available cash than they can use, and should look for opportunities to lend, not borrow. Better managed life companies do not carry such great balances. The Northwestern Mutual, for example, has had for several years, less than two per cent of its assets in bank; whereas the Equitable has had more than nine. But in all cases the New York companies are large holders of stock in the favored depositories. ”

“ Through the trust companies they have used the policy-holders' money in speculative enterprises. If the thing went well, the trust company kept the profits; if ill, it was sometimes turned over to the parent insurance company. Indeed, the officers of the United States Mortgage & Trust Company commonly referred to Mutual Life as their "grandmother." If a speculative enterprise turned out badly, the "old lady" sometimes relieved them of it. In 1899, for example, the United States Mortgage & Trust Company reorganized the Washington Traction & Electric Company. ”

“ Such men, that is, entered the company, not for the insurance, but for the "investment." In other words, men of wealth have taken Tontine policies in order to get the profits made by closing out those less affluent than themselves. In 1878 Elizur Wright declared that, up to date, 100,000 policy-holders in the Equitable and New York Life, who had dropped their policies, "found themselves in no better position than if the companies had failed." ”

“ It interposed a demurrer in the case of Bewley against Equitable on these grounds: "The plaintiffs, as policy-holders, have no rights which entitle them to bring this action. The policy-holder is not cestui que trust. And neither the directors nor the company are trustees. The policy-holder is not a partner. He is not a creditor. He is not a member of the company. The fund produced by the payment of all the premiums does not in any sense belong to the policy-holders, but belongs exclusively to the company." ”

“ In its only legitimate form, the syndicate is a combination of investors, personal and corporate, for the actual purchase of securities. It is thus only another manifestation of the magnitude of modern business enterprise. A great railroad, for example, offers $50,000,000 in bonds in a single issue. Manifestly, few bankers are strong enough to assume such a large flotation without promises of support. ”

“ The New York Life had a $100,000 president; four vice-presidents receiving anywhere from $20,000 to $40,000; three second vice-presidents, each receiving from $18,000 to $30,000; and the usual assortment of secretaries, treasurers, controllers, auditors, and the rest. In many cases the directors multiplied these highly paid positions in order to find soft places for relatives and other hangers-on. John A. McCall makes his son, recently graduated from Harvard, secretary of the New York Life at $15,000 per annum; his son-in-law, vice-president at $35,000 ”

“ They have constantly used the official machinery of the state against the interests of their policy-holders. They have fought all liberalizing reforms. In the '70's they opposed, year after year, bills providing surrender values on lapsed policies. They have stood against all legislative attempts to prevent cheating by agents. They have opposed legislative attacks on the Tontine and deferred dividend systems. Their interests have become so diversified that they have manifested interest in numerous questions not immediately connected with insurance. ”

“ The Equitable Society obligingly fitted up special quarters for this in its own building, and installed an expensive plant of safe deposit boxes and vaults. The Equitable, for the last fifteen years, has received net rentals for this establishment amounting to $230 per annum—not enough to pay for maintenance, light, heat, and janitor services. The Hyde family and their associates, however, have received in the neighborhood of $87,000 a year. The Equitable Society, that is, furnishes the entire plant, rent, and largely the maintenance; the Hyde interests take all the profit. ”

“ Innocent persons never bribe and seldom pay blackmail; but the managements of the New York companies have done both for thirty-five years. In 1872, for example, they collected $20,000 for legislative purposes ”

“ Why they have generally failed to make good their agents' "estimates" of profits is also partly explained. The greatest source of extravagance and waste, however—the millions spent in the solicitation of new business, the mania for size—still remains to be described. ”

“ He was evidently a man of large means. The New York companies have always preached Tontine, on the ground that many men were thus persuaded to insure who ordinarily would not have taken out policies at all. ”

“ In saying this we need not necessarily imply that trustees directly profit by the sale and purchase of these securities—though that has happened. The impelling motive is more deep-seated. If they invest in realty loans, they remove themselves from associations with the great men of the time. They do not associate with great bankers, railroad owners, captains of industry. They will not obtain appointments to the boards of great corporations; have their names put down for syndicate participations ”

“ For the next twenty years the policy-holders sought satisfaction in several ways. Through legislative investigations they tried to penetrate the Tontine secret. In 1885 the Ohio legislature authorized a committee to investigate Tontine. The New York Companies forced upon it, as consulting actuary, Mr. Sheppard Homans, the man who, above all others, devised the Tontine system and compiled the Tontine estimates. Homans led the committee by the nose. He held many of the sessions at his own office ”