BEST'S NSI;RANCE REPORTS—FIRE AND MARINE.

Liabilities.— Most of the items set down in the published statements need no explanation. Losses are reported gross, with deductions, stated separately, for reinsurance recoverable. If a company's business is not prosperous, there is a temptation to minimize the estimates for unsettled claims, but usually this item is honestly reported. The item of unearned premiums (or reinsurance reserve) represents the amount returnable should all policies in force be canceled. This is computed on gross premiums, without considering the expense of acquiring the business, including the commissions allowed to agents. If policies are canceled, the agents's percentage of commission is in practice deducted from the return premium, and where business is reinsured en bloc the company assuming the business usually allows a very substantial commission upon the unearned premium turned over to it, representing the expense which would attend the acquisition of a similar volume of business through its own agents. There is, there-fore, an unrevealed element of strength in the statements of well-managed fire insurance companies, representing the amount which could be realized by the cancellation or reinsurance of the business in force. In other words, the unearned premium liability, under ordinary conditions, can be discharged by the payment of from 40 to l0 per cent. of the amount which the companies are required by law to report as a liability.

Premiums are shown net, after deducting return premiums on canceled policies and reinsurance premiums. The premium income is the fund from which losses and expenses are to be paid. Therefore, in all standard statistical publications the last-mentioned items are compared with the premium revenue. Roughly speaking, losses on a business which is of reasonably stable volume should average, over a period of years, about 50 and expenses 40 per cent., or a little less. On a rapidly increasing business the loss ratio is deceptively low, because premiums are paid in advance for a considerable period, during the whole of which period losses will occur and must be paid. The true test, therefore, of the progress of retrogression of a fire insurance company is a comparison of the losses and expenses incurred (taking into account the increase or decrease of those unpaid) with the premiums earned, taking into account the increase or decrease of unearned premium liability.

To sum up: The business man should satisfy himself as to the character of the management and the quality of the assets (including a consideration of their convertibility into cash quickly and without undue sacrifice) of each company whose policy is submitted ; he should make sure that it is transacting a volume of business neither too large nor too small in proportion to its net resources — i. e., first, its surplus, and, second, its paid-in capital, and he should make sure that its loss and expense ratios are normal, for a prosperous company is likely to be more just in its settlements than one which maintains only a struggling hold upon existence.

These comments apply particularly to the statements of standard stock fire insurance companies. The statements of mutual companies and reciprocal or inter-insurance exchanges are, in many instances, made up upon a basis so different from the one under discussion that it would be impossible within the limits of such a statement as this even to attempt to fix rules for their analysis.