making their collections and remittances, thus leading to the piling up of bank balances in favor of the agency or to slackness on the part of policyholders in paying their premiums. It is further argued that the general-agency system causes a lack of uniformity since the general agent can control and pay his agent as he pleases, whereas under the branchoffice system "the company conducts all of its agency affairs directly from the home office through its own branch offices, rented in the company's name, and placed in charge of managers under salary. . . . In a few words, the company acts as its own general agent, develops its own plan for the supervision, education and control of agents, and so conducts its affairs that any margin of profit in commissions reverts to the company for the benefit of its policyholders instead of going to a general agent." 10 Again, under the general-agency system soliciting agents have direct relations only with the general agent, he being the only representative of the company with whom they come into business contact. It, therefore, follows that unless the general agent calls the company's attention to the fact, the records and abilities of competent solicitors may remain unknown to the officials of the company. BIBLIOGRAPHY DAWSON, MILES M., "An Analysis of Agency Systems," in The Business of Life Insurance, chap. 16. DUNHAM, S. C., "The Systematic Training of Agents." Proceedings of the Association of Life Insurance Presidents, 1910, 88. ENGLISH, J. L., "Home Office Management," in H. P. Dun- 66 Organization of Agencies in Life Insurance: Details of the Branch-Office System." Yale Insurance Lectures, i, 126–143. 10 LUNGER, JOHN B., "Organization of Agencies," Yale Insurance Lectures, i, 136. WOODS, EDWARD A., "Agency Management," in H. P. Dunham's The Business of Insurance, chap. 21, pp. 355373. CHAPTER XXVI LIFE-INSURANCE INVESTMENTS Considerations that Should Govern Companies in Making Their Investments. The investment of life-insurance funds is important chiefly because of the fact that the companies must maintain reserves (which we have seen represent advance collections from policyholders) for all the contracts issued on the life and endowment plans, and that their obligations under these contracts do not mature as a rule until the distant future. Since these reserve funds, constituting over four-fifths of the total funds held by American companies to-day, serve as a guarantee for the payment of claims, it is of the utmost importance that the greatest care should be exercised to conserve them properly against loss. This is especially true since the mission of life insurance is a peculiarly sacred one, the insured relying upon it in the great majority of instances as the principal means of protecting his dependents against want. The great majority of contracts, as already noted, will run for many years before maturing and an increasingly large number have for their purpose the provision of a certain income for the beneficiary for life, thus in ever so many cases involving an obligation on the part of the company which will extend over a period of fifty or seventy-five years. Life-insurance protection to be real must be absolutely reliable, and life-insurance funds must, therefore, be invested with such care as to preclude during all this time the possibility of failure on the part of companies to meet their obligations. Almost the greatest calamity that can be imagined is the inability of a company to meet its contracts on which the insured has paid premiums for years and upon which he is placing dependence, and thus leave unprotected the home which it is the fundamental purpose of life insurance to hedge against the loss of the earning capacity of the breadwinner. But while the absolute security of the principal is the chief consideration that should guide companies in making their investments, four other factors should also be borne in mind. Briefly enumerated these are: 1. It should be the purpose of the companies so to make their investments as to yield the largest return consistent with absolute safety. Needless to say life-insurance investments must give a return at least equal to the rate which has been assumed for premium and reserve computations. But this rate is so low at present, being only 3 or 32 per cent., that the companies' investments may easily be made to-day to yield a higher rate and thus reduce the cost of insurance to the policyholders who contribute the funds. To accomplish this purpose safely investments should be so distributed, both as regards the number and classes of investments, that the company may secure the benefits of the law of average and have a loss in one investment balanced by a gain in another. As a rule, adverse tendencies in one class of investments will be equalized by favorable tendencies in another. 2. It should be the purpose of companies to invest a considerable proportion of their funds in long-term investments. Such a course will not only lower the expense of maintaining the investments, but is apt to secure a better yield over long periods of time. 3. Since the companies have followed the practice of issuing contracts which promise loan or cash surrender values upon demand by the insured, they should protect themselves against any unusual demand of this character by investing a fair proportion of their funds in securities which are readily convertible into cash. 4. But with the exception of surrender values and policy loans, and the latter we have seen are now often subjected to a sixty- or ninety-day restriction, life-insurance companies are practically exempt from the dangers connected with |