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accordance with the demand. The companies increase their rate in accord with the increased loss demand and are styled robbers and conscienceless trusts. The two interests, banking and insurance, should be viewed from the same mental viewpoint, for each only obeys the laws of the financial world in increasing their rates.

One of the principal counts in the critic's indictment of the fire insurance business is that it is immensely profitable and, because of this fact, that the rates should be materially reduced. This is a serious charge and if the evidence supports the indictment then there is reason for complaint. The findings, however, must be in accord with the evidence, so that it is in order to consider the evidence which may be educed. In determining the profit, several factors must be taken into consideration: first, the amount of capital invested, and, second, the balance available for dividend distribution, after providing for all the liabilities. Third, in determining the dividend distribution, the hazards to which the capital is subjected must be taken into account. In determining this question of profit, the figures of the companies reporting to the New York insurance department will be used, as they appear in the official reports of the insurance department of that State. While these figures do not include all the companies doing business in the United States, so large a proportion of them are included that the results attending the operation of these companies are controlling as to the profit of the insurance business in this country. The first evidence to be introduced consists of two tables made up from the figures of the New York department. The first of these tables is for a single year, and that a profitable one. The second table is for a period of five years, in which the figures of the first table are included.


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Premiums, Fire, Marine and Inland, five years.... $826,267,908

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These tables deal with the underwriting department of the business as distinguished from the investment side of the business. It will be noticed that the underwriting profit for 1903, the period covered by the first table, amounts to $16,941,088, or 8.60% on the premiums of $196,532,866. This covers a period of exceptional prosperity. The second table covers a period of five years, 1899 and 1903, inclusive. Here it will be observed, that the loss amounts to $10,827,321, or 1.31% on the premium income of $826,267,908. From this it will be seen that the profit and loss fluctuations of the fire insurance companies reporting to the New York department are very marked in the period of five years. Despite a profit of 8.61% in one of the five years, the account for the total period shows a loss of 1.31%. In computing the dividends earned upon the capital invested, only the American companies can be used, because the foreign companies are represented in this country by branches; therefore, we have no means of determining the proportion of the foreign companies' dividends which should be credited to American business. The average number of American companies reporting to the New York department during the five years was 116, and the average dividend on the capital was practically eleven per cent. From this, it will be seen that for the five years, the companies lost on a trade profit basis 1.31% on the premium income, while the dividends paid amounted to eleven per cent. These dividends were largely earned by the money which the State compels the companies to hold, in order to make their indemnity unquestionable. This is not a very large profit when all the risks written are taken into account. The risks in 1899 amounted to $17,797,572,061, and in 1903 to $22,007,442,608. Take the year 1903 when the companies had $22,007,442,608 at risk and had a capital of $56,102,875; for each

dollar of capital they had $392 at risk, which is a large hazard when it is taken into account that a few conflagrations would not only use up all the surplus which the companies have accumulated, but would also cause the retirement of many companies.

Taken upon this basis, 11% dividends do not seem to be an excessive return for the hazard to which the capital employed in the fire insurance business is subjected. It is urged, however, by those who estimate the fire insurance business a veritable gold mine, that the companies are piling up an unnecessary and useless amount of money in the surplus fund and that their claim that this accumulation of surplus is justified by what is termed the conflagration hazard, is unwarranted. It is said that conflagrations are of rare occurrence. Away back in the seventies, there was a conflagration at Chicago and another at Boston, but a gentleman, writing upon the subject of insurance last year, soberly stated that there was not much likelihood of a recurrence, owing to the largely improved fire fighting service of the country. It is urged that the provision against the possibility of conflagrations is simply a subterfuge on the part of the companies to accumulate large funds and thus have an excuse for not reducing rates. Some of these criticisms had scarcely been made public, before along came the Baltimore conflagration and upset all theories which attempted to reason that the day of conflagrations had passed.

It might be observed that the stockholders of some of the companies well known to-day were obliged, after the Chicago and Boston fires, to go down into their pockets and practically recapitalize the companies in order that they might continue as going institutions. In other words, the stockholders had to make from fifty to one hundred per cent. contributions in order that their companies might continue in business. The Baltimore conflagration and the subsequent investigations into the conflagration hazard of some of the large cities has revealed the fact that instead of the Baltimore conflagration being out of the ordinary, the wonder is that it did not come sooner and that the companies, in view of the great hazards in the congested centers of the country, have not made undue provision for guarding against conflagrations. When a company is compelled to pay a million dollars on account of a single fire, there is a good reason for the accumulation of large surpluses as a safeguard against conflagration losses. In the investigations into the conditions

existing in our large cities, in addition to the officials of the National Board of Fire Underwriters, the United States Government participated through one of its specialists. In reporting upon the conditions at Pittsburg, this gentleman, after careful investigation, endorsed all that the fire underwriters have been saying in regard to the hazard to which they are subjected in the large cities, in their work of distributing the fire loss of the country. This cannot in any way be termed partial or biased evidence. It is evidence of a disinterested observer.

There is still another phase of this question of profit of the fire insurance business. In computing the dividends from the figures given in the report of the New York insurance department, only the going companies are included. No account is taken of those companies which have found the heat of the fire insurance business so great that they have been compelled to retire from the field. Now, in determining the profit of the business, account should be taken of the capital which has been forced out because of lack of profit. The two tables given herewith are very instructive upon this question of profit. These tables simply cover American companies, because, as has been said before, there is no capital basis for American branches of foreign companies. The tables cover a period of twenty-five years, beginning with 1878 and ending with 1903. In these tables are included, as going companies, several which, since the beginning of 1903, have been forced out of business by the losses sustained at Baltimore. These tables show at a glance how capital has been forced out of the fire insurance business. The first column of each of these tables shows the companies which were in business and reporting to the New York insurance department, January 1, 1878. The first section of the second column shows the small number of companies which have survived the test of twenty-five years. The second portion of the second column shows the companies which have come into the business since 1878 and are still in. The third section shows the companies which have come into the business since that date and have retired during the period.

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