Most companies, in placing liens for the reserves on dated-back policies, take obligations either for the last terminal reserve, the present mean reserve or the next terminal reserve. Either of the last two methods sets all, or nearly all, the cash premiums, received at the time, free to be used to cover the current year's mortuary and ex pense costs. As a mere proposition of law, a company may be held to have the right to charge any lien it pleases; but it seems reasonable that, when a lien is exacted in ex cess of the correct amount of the reserve, the excess should be treated as a lien for impairment, and that the company should not be permitted to realize upon it by putting up no other reserve out of the premiums on the policy until the reserve charged against it catches up with the amount of the lien.
All the State departments, with the same exception as in other regards, accept the valuation of a company's policies, by the department of its home State. Elizur Wright, in his report for 1862, as Commissioner of In surance of Massachusetts, thus states the arguments in favor of an exchange of valuations or, more accurately, in favor of "a single annual valuation of each company" which "may be made to suffice for all the States," as fol lows : "In regard to the life insurance companies of New York, we are happy to be able to say that Mr. Barnes, the faithful and efficient superintendent of the Insurance De partment of that State, has taken measures to add to his elaborate annual investigation of their assets and securi ties a valuation of their policies on a plan similar to our own. Should this design be carried out, it will be very desirable that some arrangement may be made between the States by which the companies may be saved the labor and expense of furnishing the data of their policies to more than one State, and a single valuation of each com pany may be made to suffice for all the States, as this is obviously a work which, if well done in any one State, need not be repeated the same year in other States." Unfortunately, New York adopted first Farr's English Life Table No. 3 and 5 per cent., and afterward the American Experience Table and 4 per cent. as its stand ard, whereas Massachusetts had already chosen the Actuaries' Table and 4 per cent. Therefore the differ
ence in standard kept up the practice of a duplication of valuations.
In the general methods of valuation, used by all de 144 partments, but one change of great importance has been made since net valuation was introduced by Elizur Wright. Until in the seventies, companies were permit ted to report loans against renewal commissions as re sources, when within their commuted value, and in some cases so to report also the commuted values of renewal commissions payable in future which had been purchased for cash in cases when the renewal commissions were within the loading. This was tantamount to permitting a company to count as a part of its resources, the present value of part of the loading and was thus a departure from net premium valuation. Had this been permitted as to non-participating policies, with gross premium not ex ceeding the net premiums, the present value of a part of the net premiums would have been credited twice; for part would thus be given as a resource and all would be deducted in arriving at the net reserve.
This continued to be allowed by departments until the privilege was scandalously abused. Then a sudden ruling the other way completed the ruin of a number of com panies and made it impossible for weak companies to sur vive, because they could not pay, out of the loading on first year's premiums, a sufficient commission to procure the volume of insurance requisite to maintain themselves. Being no longer permitted to borrow against future pre miums to eke out this insufficient loading, they were un able to continue in the race.
The only changes relative to standards for depart ment valuations have been as follows : Several States followed the lead of Massachusetts and adopted the Actuaries' Table and 4 per cent. interest as the standard of valuation. Others followed New York and made the American Experience Table and 4j per cent. the stand ard. From about 1891 to 1901 the Actuaries' Table and 145 4 per cent. was also the standard employed by the New York department. As to policies issued since December 31, 19oo, the standard in both Massachusetts and New York is the American Experience Table and 3 per cent. This has now been followed in several States.