Verhovayak Lapja, 1947 (30. évfolyam, 1-24. szám)
1947 / Verhovay Journal
AUDIT REPORT Continued from Page 5 LIABILITIES The liabilities, as mentioned in our general comments on Balance Sheet, are not recorded on your boohs. In view of this fact we have not attempted to list your liabilities on the Balance Sheet as of June 30, 1947, but we have incorporated the liabilities on the Balance Sheets for the years ending on December 31, 1943, 1944, 1945 and 1946 as they appear on the statements submitted to the Insurance Department. Unpaid Death Claims — $17,032.42 The unpaid death claims were determined by an examination of your claim register and computed as totalling $17,032.42. We refer to Schedule 14 of this report for a detailed list of such claims. Sickness and Accident Claims An accurate determination of the amourit paid for sick and accident claims as at June 30, 1947 was impossible at the time of this audit as many claim certificates are still outstanding. The Supreme Officers of your Association estimated the amount of sick claims unpaid at $8,576.26. Accrued Liabilities As we mentioned before your Association owed on the Home Office outstanding bills in the amount of $5,458.37. These amounts were paid during the month of July of this year. We could not discover any other substantial liabilities outstanding as of June 30, 1947 and have been informed by the Supreme Officers of your Association that only minor expense items might be outstanding. Legal Reserve The legal reserve required by your Society is computed annually by your actuary on the American Experience Table for 4%, 3%% and 3% certificates. The last computation was made as of December 31, 1946. Considering the steady growth of the reserve, it is certain that the reserve as of June 30, 1947 is greater than the amount computed as of December 31, 1946, but no exact amount was available in view of the fact that the computation is made only at the end of each year. In this connection we want to refer to Schedule 1 of this report ■ showing the Balance Sheet of the Workingmen’s Sick Benefit Federation as of December 31, 1946. The legal reserve t)f this Federation, which in the meantime has been merged with your Society, amounted to $375,122.93. Contingent and Special Reserves The Insurance Department of the Commonwealth of Pennsylvania, in its report of examination as of December 31, 1944 made the following recommendation: “That a separate class for new members admitted on and after a specified date in 1946 be established for sickness benefits. By these benefits we shall mean amounts payable as the result ot temporary, total or partial disability of a member due to sickness or bodily infirmity. In this connection it will be necessary that the actuary compute adequate rates to charge for such sick benefits and that proper provision be made that adequate reserves be carried. That commencing with the valuation of certificates for reserve purposes as at December 31, 1945, the actuary be instructed to value all business on the American Experience 3%% basis, and that a program be adopted to further strengthen the reserves of all insurance in force gradually over a period of five years or sooner, so as to value the reserves on all business on the American Experience with 39c interest assumption.” As a result of this recommendation your Association has set up the following reserves which amounted as of December 31, 1946 to (a) Disability Fund — $350,372.74 (b) Reserve to strengthen American Experience 4% Business $400,000.00 (c) Special Reserve Juvenile Mortuary — $35,000.00 We shall have occasion to discuss these features of your Association in more detail later in this report. Non-Ledger Assets Our audit is not concerned with Non-Ledger Assets. The Non-Ledger Assets consist mainly of accrued interest on the interest bearing assets of your Association and of premiums collected by your branches but not yet received by your Supreme Ofifce. Assets Not Admitted As we have pointed out at an earlier time in this report, the laws and rules established by the State of Pennsylvania and various other states do not admit certain assets in the computation of the available funds of an insurance company. We made foot notes to this extent on the Balance Sheets incorporated in this Report. We have not attempted to compute this amount as of June 30, 1947, but it is our impression hat the amounts appearing on the Balance Sheets as of December 31, 1946 are fairly representative- for the status as of June 30, 1947. Unassigned Funds The unassigned funds are the surplus reserve of your Association. We are referring to Schedule 16 attached to this report for an analysis of the funds and will have occasion later on in this Report to comment on this item in more detail. FUNDS GENERAL The preceeding comments on the Assets of your Association clearly reflect the continuous growth of the business of your Association. A discussion of the funds gives us a better opportunity to comment more in detail on your business/ An analysis of the fraternal insurance business revealed that your Association had a better than average share in the increase of insurance of Fraternal Societies during the period under review. We are referring to Schedule 15 of this Report which shows the number ef certificates and insurance in force and the changes during the period under review. Your Association had 50,121 certificates in force on July 1, 1943 with an insurance amount of $33,243,893.50. At the end of the period under review; namely, June 30, 1947, your business had increased to 60,882 certificates and the amount of insurance to $44,390,030.15. In this connection we have to refer to Schedule 16 which represents an analysis of insurance in force, admitted assets, contigent and legal reserves, unassigned funds and the ratio of unassigned funds to admitted assets. As we have pointed out before, we wish to direct your special attention to this schedule, because we believe that a careful study and analysis of this schedule could be very helpful to your management in the determination of your future business policy. You will have ta realize that a good part of the certificates in force has been written on the basis of the 4% American Experience Table, another part on the basis of the 3%% American Experience Table and only in the last few years you have written business on the 3% American Experience Table. The Insurance Department of the Commonwealth of Pennsylvania as a result of its last examination has very rightfully requested you to set up a special fund in order to strengthen your legal reserve based on the 4% American Experience Table and this will be necessary to a certain degree also for the reserve based on the 3%9fc Experience Table. The income on your investment contributes essentially to accumulation of the necessary funds which are required to pay the benefits to which the certificate holders are entitled. The business written on the 49c American Experience Table was based on the expectation that your assets will bring you a return of 4% and the business written on the 3V2 % American Experience Table was based on the expectation that your assets will bring you a return of 3Y2%. The actual yield during the period under review was as follows: 1943 -J- 3.69 1944 — 3.29 1945 — 3.08 1946 — 3.08 This tabulation clearly indicates the decrease in the yield on your assets. Your Association does not stand alone in this experience, but it is a general fact that the rate of return on investments has been steadily declining, particularly during the last few years. Your Association enjoys a rather favorable yield as compared to other insurance companies. Under these circumstances we consider it our duty to recommend to you that your Association should exercise utmost restraint in all -expenditures not necessarily connected with the insurance business, and furthermore, your Association should be very conscious of all other expenditures. Your Supreme Officers and the employees of your Home Office deserve full credit for the fact that the total expense during the four year period under review increased only from 22-7/ 109fc of the total income from dues and investments to 23-2/10% of that income. This is unquestionably an accomplishment, but in view of the fact that you should make the utmost effort to retain from your income as much as possible in order to strengthen the funds of your Association, you should examine carefully every possibility of savings. It is our impression that your Home Office operates very efficiently. We did observe that your Supreme Officers work under great strain and need some relief. On the other hand we believe that is should be possible to streamline the other organs of your administration such as the Convention, District Sessions, etc. Convention Expense amounted to $43,772.48 which is approximately one fourth of the salaries paid at your Home Office for the full four year period excluding the salaries to your Supreme Officers. Salaries and other compensation paid to the other bodies of your organization should be watched too. We are referring to Schedule 18 and 19 of this report in this connection. The same applies to the amount which is paid to the branches for their work. We strongly recommend that all these expenditures should be thoroughly examined and reduced wherever possible. Your dividend policy will have to be re-examined in view of the prevailing conditions on the money market. Restraint should be exercised in the approval of donations and similar expenditures. The mortality ratio during the period under review was comparatively favorable and was as follows; 1943 — 59.65% 1944 — 62.509c 1945 — 63.73% 1946 — 58.25% Comment on the Various Funds In accordance with the By-Laws and to properly segregate the various activities, your Association maintains the following funds: Mortuary Fund The Mortuary Fund which is credited with its portion of dues collected from Senior Members, except the dues paid for the first twelve months, and for the return of invested assets of the Mortuary Fund. This Fund is responsible for the payment of death claims of Senior Members, except when death occurs during the first year of membership; it pays, furthermore, cash surrender values and dividends and its share of investment expense. Your Association, in conformity with other insurance companies introduced the war clause on April 1, 1942. Your Board of Directors, however, resolved in March 1946 that all death claims, the payment of which would be precluded by the war clause, should be honored, and in compliance with this resolution all death claims retroactive to the introduction of the war clause were paid. Your Mortuary Fund amounted to $5,195,391.00 at the beginning of the four year period under review and to $7,761,999.94 at the end of this period. The increase in the fund during the four year period is very remarkable. The Disability Fund The Disability Fund collects additional dues from members who desire health protection; it pays sick, maiming and birth benefits and should pay its share of expense incurred in the administration of such benefits. However, with the exception of a very small amount for medical examiners’ fees, this Fund has not borne any burden for expense. The Insurance Department has objected to the manner in which this Fund is operated and has requested that the dues for sick benefits should be established on an actuarial insurance basis and should be operated accordingly. The fact that this Fund has collected dues in the amount of $593,204.07 during the four year period and has paid out $512,801.13 for sick benefits during the same (Continued on page 7) ___Verhovay Journal_____
