Verhovayak Lapja, 1947 (30. évfolyam, 1-24. szám)
1947 / Verhovay Journal
PAGE 4 Verhovay Journal Journal of the Verhovay Fraternal Insurance Ass’n. OFFICE OF PUBLICATION 7907 West Jefferson Ave. Detroit 17, Mich. PUBLISHED SEMI-MONTHLY BY THE Verhovay Fraternal Insurance Association , Managing Editor: JOHN BENCZE Editor: COLOM AN REVESZ Editor’s Office: 436—142 FOURTH AVENUE PITTSBURGH 19, PA. . Telephone: COurt 3454 or 3455 All articles and changes of address should be sent to the VERHOVAY FRATERNAL INSURANCE ASSOCIATION 436—422 FOURTH AVENUE • PITTSBURGH 19, PA. SUBSCRIPTION RATES: United States and Canada ............................................... $1.00 a year Foreign Countries ................................................................ $1.50 a year ADVERTISING DEPARTMENT: P. O. BOX 7, WOOLSEY STATION — LONG ISLAND CITY 5, N. Y. Entered as Second Class Matter at the Post Office at Detroit, Michigan under the Act of March 3, 1879. Dividend Facts — ~\N ANALYSIS OF THE DIVIDEND SITUATION IN REPLY TO NUMEROUS INQUIRIES. — The news that the paying of dividends, suspended for the duration of the war, was to be resumed as of the end of the last year, was welcomed with high expections by the membership of the Association. Many of our older members, remembering the substantial dividends distributed before the war, expected to receive similar, or éven larger amounts and they certainly were disappointed to find that the dividends did not come anywhere near the amounts allocated in pre-w'ar years. Though the reasons of the reduction of dividends had been indicated in the Minutes of the Board of Directors’ Meeting, many of our fellow-members did not realize the full implications of the statements contained therein, and innumerable inquiries pertaining this matter were addressed to the Home Office. As it would be impossible to reply in detail to each and every one of these inquiries, the facts pertaining to the lowering of the dividends are analysed’ for the membership in the following. FACTORS AFFECTING DIVIDENDS. ^ First we must have an understanding of the factors affecting dividend-yielding profits in insurance business. There are three, and only three, sources from which dividends may be realized. These are: 1. ) Savings effected by a higher than assumed rate of interest. The total amount of dues (premiums) paid on any insurance certificate is always less than the face amount. The difference is being made up by the profits to be realized by the Association by investings all premiums at a certain rate of interest. Years ago the Association operated on a 4r/ó rate of interest assumption. We have a great number of certificates in force which can be matured only if a net interest return of 4fc is realized on the amounts invested consisting of the combined total of dues paid on all these certificates. Later, due to the persistent decrease of investment returns, the Association, like all other insurance organizations, was obliged to revert first to a 3ir/c and, finally, to a 3% interest rate assumption. In other words, rates had been increased so as to make up for the difference of 1 % in the rate of interest assumed. Savings, to be used for dividends, may be effected if investments yield higher returns than assumed. If an interest rate of 5% is realized, a favorable situation results enabling the Association to pay substantial dividends. On the other hand, if the rate of interest realized does not exceed the assumed rate, no profits result as the amounts gained by realizing only the assumed returns are needed for the maturing, of certificates. 2. ) Savings effected on expenses. A certain percentage of all monthly dues is allocated toward administrative expenses. If less than the amount allotted is used, profits result which may be distributed in the form of dividends. If the entire amount is used, there are no profits. If more than the allotted amount is used, a loss results which must be made up, presumably by profits realized on investments. 3. )Savings realized by a lower than assumed mortality rate. Popularly speaking, this means that if less members die during anyone year, than assumed on the basis of the scientific mortality table, savings, i.e. profits result which may be distributed among the insured. On the other hand, if the mortality rate is higher than assumed, losses occur that have to be made up from other sources. Let us see now how present conditions affect these dividendyielding factors. \ "• v INVESTMENTS YIELD LOWER RETURNS. Insurance organizations arc not permitted to speculate. All funds must be invested in first class bonds and securities. It is generally known, however, that the rate of interest realized on bond investments has steadily decreased throughout the last few years. The trouble is that few people seem to understand how these conditions affect insurance organizations. Previous to this period of decline, an interest rate of 4—5—6% on first class bond investments was commonly assumed. Lately, however, the maximum rate of interest to be realized has decreased to somewhat less than 3%, as is seen in the case of Government Bonds whose interest rate of far below 3% has come to be considered a favorable yield in comparison with other first class investments. As a result, no insurance organization is able to achieve a higher than 3% return on all of its investments. That is the reason Why most insurance companies were compelled to reduce their dividends even though they operate with higher rates which, to a certain extent, include the amounts of dividends to be returned to the insured. The Verhovay with certificates computed on 4, 3| and 3% interest rate assumptions, had to make every effort to attain higher than average returns on all investments and, due to following a very careful and far-sighted givestment policy, has succeeded so far. Throughout the last four years we have attained a higher rate of interest than most of the insurance organizations. However, that rate did not exceed 3% and, as a result, no profits could be realized from this source. This is fully in accordance with the findings of the Insurance Departments who had given full approval to the investment policies followed during the last years by the Association. REVALUATION OF CERTIFICATES. The State Insurance Departments, on the other hand, do not approve the maintenance of certificates computed on a 4% interest rate assumption because, obviously, it is impossible to attain such high rate of interest on first class investments. The Association, therefore, was instructed to revaluate all certificates in force so that the interest rate assumption on all certificates be reduced to 3%. This can be done only by increasing from the funds of the Association the reserves on all certificates computed on a higher than V/o interest rate assumption. This step, in turn, involves a transfer of available reserves to the mortality fund and a corresponding reduction of profits realized. Naturally, the financial .standing of the Association is substantially strengthened by this process which, however, could not be effected without reducing the reserves that otherwise may have been made available for the pavment of dividends. — i EXPENSES INCREASED. It is hardly necessary to point out that no savings could be effected on the Expense Account of the Association. Everybody knows that no organization could escape the consequences of present day inflationary tendencies. All expenses have gone up: costs of office supplies, printing expenses, wages etc. As a result, it is nearly impossible to stay within the amount allocable to the expense fund. — MORTALITY RATE FAVORABLE. The only source that did yield savings, is to be found in the favorable mortality rate of the Association which is far below that assumed in the American Experience Table of Mortality. However, here, too, the Association finds itself handicapped by various factors. One is that the lives of 190 young men had been lost during the war. These men would have lived and death benefits would not have become payable after them for many years. These 190 death-claims reduced, to a certain extent, the otherwise highly favorable mortality situation of the Association. Then, too, the loss of profits on investments and the heavy load on the expense fund had to be balanced by the gains afforded by the low mortality rate. As a result, a comparatively small amount remained available for dividends. — THE SCIENTIFIC COMPUTATION* OF DIVIDENDS. Fraternal societies are required by the Insurance Departments to effect the payment^ of dividends on thfe hasis of scientific computation. The main factors entering such computations have been explained above. Dividends are computed by the acturay of the Association and in compliance with the instructions and suggestions of the Insurance Department. This procedure was not followed in the past when dividends were voted in a more or less haphazard manner. No actuarial considerations had entered the procedure. Higher dividends were paid than would have been permissible had all factors been given due consideration and, as, a result, the members of the Association came to believe -that, in the future, similar dividends may be expected. Under the supervision and guidance of the insurance departments, however, fraternal societies have realized that 'the business-aspects of their activities must be handled in a business-like manner if their high standing in the insurance world is to be preserved. Needless to say that such modernization of fraternal business along scientific lines serves the best interests of the membership, for the short-term loss incurred by lower dividends will be more than made up by the longterm gain resulting an the absolute stability and dependability of fraternal insurance. This is the story of the dividends paid to the members of the Verhovay at the ená of 1946. We hope that our readers will appreciate the frankness with which this story is presented to them and that they will rest assured that as always the officers and directors of the Association have acted in the best interests of the membership of the Verhovay. Verhovay Journal______________ tOK JANUARY 8, 1947 NEWS From The Field MAYNARD, 0. Branch 5. The following had been elected officers of Branch 5, at our meeting held on December 15th: President John Kovach, Manager Julius ! iady, Sickvisitor Frank Sabo, Delegate to District Convention • 'rank Köteles, Alternate Delegate John Kovach. — Truly, it affords me great pleasure to have been given the opportunity by my fellow-members to serve them during the year of 1947, for this is a year of special importance to our branch. Few of our fellow-members realize that Branch 5 will observe its Golden Anniversary at the end of this year when we shall complete 50 years of uninterrupted service to the members of the sixth oldest branch of our great Association. This branch has the distinction not only of having been the first branch of the Verhovay organized in the State of Ohio but also of being the first branch west of the Ohio River. There was a time when this was one of the leading branches of our great organization. Though it has been surpassed by many others, Branch 5 is still not dead, only dormant, and I pray that God may awaken it from its slumber as we approach our great day, rnd keep it alive even beyond its diamond anniversary. 1 believe that all of the founders of this branch, like the late Paul Csajka and his partners, have made that great one-way journey, with the exception of Joseph Kozma. And I know that those departed will smile upon us in the land of Paradise and admit that they would not have believed on December 12, 1897, that the branch built by them will become a permanent institution. These are the brothers who, by founding Branch 5, had erected a living monument to themselves: Paul (’sajka, Joseph Bacskay, John Geczy, Joseph Kozma, John Kosztyu, Steve Kovach and Frank Moskocsky. Their memories will live even beyond the time alotted I to Branch 5, in the hearts of Verhovayans everywhere. Although I had my mind made ; up to resign as of the end of 1946, I could not let down my branch at the beginning of such important a year and, therefore, I consented to guide Branch 5 through the coming year, onward to its happy day. Now, in behalf of the members of Branch 5, I wish to thank the I Misses Josephine and Anna Csalka, daughters of our founder, for the use of their store where we were permitted to hold our meeting at no expense to the Branch. Fraternally, n JULIUS SHADY, Vfgr. __ ___ __ DUQUESNE, PA. Branch 71. Memorial Ceremonies. January 26, Sunday, is the date set for the Memorial Ceremonies to be held by Branch 71 in honor of the two hero dead members of this branch, and the bereaved parents. The Ceremonies will be held at the Carnegie Free Library, beginning at two o’clock. The portraits of the hero dead shall be presented to the next of kin by Continued on page 5.
