Some months ago I called attention to the fact that the directors of the New York Life Insurance Company had sold to themselves the stock of the New York Security & Trust Company at from three to four millions less than the property would have commanded from outsiders. Here is another transaction which requires explanation:
In 1901, ostensibly in order to maintain its position in the German states—I will explain later on what I mean by "ostensibly"—the insurance company disposed of its remaining holdings of stocks, the same having a book value of $2,965,000 and a market value of $5,471,000, as per report of 1900. These stocks, with possibly sales of some other securities, realized an actual profit of $5,839,087 instead of $3,075,392 as per the company's sworn report to the several State Insurance Departments.
Rather a queer proceeding, you say. Why should it do such a thing? Had some one stolen the extra profit? Or what? This is what was done: The company had simply availed itself of the opportunity to conceal an actual cash profit of $2,763,715 in order that it might sequestrate assets to that amount unnoticed by its policy-holders or the departments. The sum so sequestrated was made up of balances due from agents—presumed, as in all such cases, to be amply secured by pledge of renewal contracts—to the amount of $1,919,734, and $843,891 charged off depreciation of real estate. (See Massachusetts Report, 1902, pages 158-159.)
This illegal suppression of most important transactions, directly affecting, as will be seen later, the interests of policy-holders, would have remained a sealed book but for the careful audit of the Massachusetts Department, which revealed the fact, unnoticed by that of any other State (note in this one instance the boasted careful supervision and boasted double and triple auditing of all accounts before publication!), that the item "Agents' Balances," amounting in the preceding year to $1,527,123, had disappeared altogether from assets. This led to a prompt request from the Massachusetts Department for explanation.
The honorable business men of the New York Life, who pay out so many hundreds of thousands of dollars each year advertising the fact that they are sitting up o' nights to find new ways to acquaint the policy-holders with the innermost secrets of the company, finding there was no avenue of escape from their dilemma, quickly realized that the Massachusetts Department meant to have the facts, and publish them, too. Their own "faked" report was already before the public in the published reports of two departments, those of Connecticut and New York.
There was but one course open to avert the terrific scandal that was inevitable upon publication of the Massachusetts Report, and that was to head off and forestall adverse comment and criticism, as far as possible, by making a clean breast of it. No time was lost in preparing a letter of explanation to the Department. This answered the purpose of the Department, which did not care to press the matter, having accomplished its main object.
Now for the moral, or the iniquity, rather, of the preceding, the wrong to policy-holders, which has been so completely ignored and passed over by the insurance press and all hands: Either the company had, as at least supposedly it has in all such cases, ample security for its advances to agents in the pledges of their renewal contracts, or it had not. On the former hypothesis, that $1,900,000-odd was a sound and valid asset, earning a good rate of interest. On the latter, the company simply squandered this amount of trust funds belonging to its trusting policy-holders in its mad rush for business at whatever cost; or—In either case the money has gone from sight so far as any sign or indication appears to the contrary since.
And before leaving this point, it may be well to ask, "Has the New York Life Insurance Company altogether discontinued these advances to agents?" If not, how and where are they accounted for? An answer may be found, possibly, in the comparatively meagre underwriting profits of the company, growing relatively smaller and beautifully less with each succeeding year. I say it may possibly be found here, because this is the only place the item could be buried; but I am reasonably sure that it is not buried here, and that these advances to agents are being continued on a scale as large as, or larger than ever, for the agents could not have been shut off and the business increased at one and the same time.
Again, during the last two months of 1904, or at a time when my story, "Frenzied Finance," began to get in its work all over the world, I received from many quarters information that the Big Three had instructed their leading agents to get in a great lot of new risks "at any cost," so that the total business for the year would show such increase as to discredit my claim that the policy-holders were getting "scared." I watched the game with much interest, knowing that bunco would out in time, by whomever worked. During these months I read from week to week of this great policy, or that record-breaking risk just landed by this or that agent. One in particular made me chuckle at its transparency. A certain friend of the New York Life, a Wall Street man, "has just taken out a $2,000,000 policy." About the same time I began to receive information of the remarkable offers that were being made to prospective customers, offers which probably meant an indirect rebate of perhaps the full first year's premium; and I got to thinking and reaching back into my memory-box, and I raked out a number of instances of the same kind of offers which had been made to me in the past, and I ruminated to myself how all this was possible; for even if the Big Three were bold enough to get around the law against such practices, it puzzled me how they could pay to their agent the big cash commissions that new business called for. Presently as I waited I read, as did the rest of the world, the big January full-page advertisements of the New York Life to its policy-holders, calling their attention to the increase of $15,000,000 new business over the year before. Then I took another think and did a little work, with the following result:
A JOLT FOR THE NEW YORK LIFE