William Penn, 1963 (46. évfolyam, 5-23. szám)
1963-09-18 / 18. szám
September 18, 1963 PAGE 7 William Penn (Continued From Page 6) covering the states of Ohio and Michigan, and Frank Wukovits, Field IV, covering the states of Illinois, Indiana, Nebraska, and Wisconsin. Since it is the responsibility of the Board of Directors to cope with the complex problems that face an institution such as ours, we did survey the territories and market potential where we operate. We did evaluate the method used and results obtained in production, recruiting, training, servicing, conservation, sales, promotion, supervision ,and financing. The results of our inventory indicated that our problem is no different than the problems of other societies and commercial insurers. The problem of course, is how to sell an adequate volume of life insurance at a reasonable cost. The Field Department, aware of this problem, submitted a plan for the re-alignment of our field. The plan called for subdividing the four fields into Regions, Divisions, and Districts. The plan provided the opportunity to change the method of travel expense compensation to the Field Supervisors, reduce the size of the territories, and provide supervisory services on a commission basis. The plan was adopted and put into effect on July 1, 1960. A further revision was made on July 1, 1961. Regional, Division, and District Managers were appointed for each territory under a contract, providing commissions and Service Fees, between the Association and the managers. We also approved and adopted contracts for District Agents and Special Agents; both contracts provide first-year and renewal commissions only, with no salary or Service Fee. The Agency Manager’s contract was adopted in 1961 with hopes of providing an opportunity for acquiring new business on a commission basis only. The Agency Manager’s contract was modified and now provides agency expense alloca-s tion on a percentage basis. The ever-increasing competition, the economic changes, and the necessary reduction of our sales force limited our efforts in obtaining new production goals. The recrujting for full-time managers continued to present a problem, for many of our newly-appointed managers failed to qualify because of failure to meet our production requirements. In many areas where we have a large membership, we are compelled to retain a manager with low production because we must continue providing service. Several of our established districts formerly serviced by a full-time manager are now serviced by part-time branch managers. There are vacancies in several districts where the District Office Clerk carries on the servicing. Because of limited funds, promotional items, radio, and newspaper advertising were curtailed in sales promotion. We did, however, plan, print, and furnish literature advertising the insurance plans offered by the Association. We also made available proposal forms, educational literature on conservation, prospecting, selling, and buying life insurance. The premium billing system was utilized to distribute the literature among our membership. The Field Department ,from time to time, conducted membership campaigns to increase sales. Special awards are provided for qualifying managers of the President’s Club and the winners of membership campaigns. In view of the complex nature of the problems confronting the Field Department, it was and will be necessary to formulate plans and changes to better fit our future needs. The plans must always be formulated to govern/ our short and long-range goals in such fashion that they will provide conditions under which the managers will be able to work constructively at servicing, conserving, and selling life insurance. THE INVESTMENT MANAGERS DEPARTMENT During the past four years this nation has undergone a period of great economic expansion, and 1962 closed with the highest level of economic growth in American history — about 3%. The Investment operations of your Society far out-paced this growth in the national economy. It, too, closed 1962 with the highest level of earnings from investments in its 77 years of existence. Gains were made im every phase of its operations — profits, gross investment income, rate of return and quality. Investment income increased by slightly more than 17% and the return on assets, net after expenses, reached an all-time high of 3.68%. Interest rates reached their peak in January, 1960, after which they began a general decline. During the last three years, the American economy has been .riding along with an easy money policy which has resulted in lower interest rates on all forms of investments. Rates of return are one criteria which spell the success or failure of a life company’s earnings. Your Society's invéstments, planned and programmed within the framework of general economic activity, with due regard to the fluctuation in various types of securities, and a sensitivity to the so-called money market, could not help but be successful over the long run. Our objective during all this time has been to earn the maximum, on the money so invested and to pursue an aggressive investment management program consistent with safety and the income needs of the Association. Many important changes were made in the investment portfolio during the period under review and the attendant schedules will point these out. It takes many years to readjust a life insurance investment portfolio, and the first phase of a three phase readjustment has now been completed. The Association carried for many years a substantial investment in taxexempt securities. Some of these were general obligation bonds; but, by and large, the majority were revenue bonds of low quality and with low rates of interest, as they were purchased in an era of very low money rates. At the beginning of 1959, 9.77% of our portfolio consisted of securities in this category. At the end of 1962, this had been reduced to 2.15% and since then they have been totally eliminated, with the exception of those which are in default. The proceeds from these sales have all been invested in higher yielding, high quality, corporate obligations, private placements, finance paper, preferred and common stocks, and in a few instances, in mortgages and investment real estate. Government bonds were exchanged for higher yielding securities in line with the various Treasury Department refunding programs. Investments in both preferred and common stocks increased substantially — the former, to obtain a maximum return, and the latter, to participate in a rise in the National economy. At the end of 1962, stocks constituted 8.43% of the investment portfolio, as compared with 3.37% at the end of 1959. Our investments in corporate obligations, both public and private, have increased significantly. At the end of 1959, $3,811,000.00 was invested in the industrial category. At the end of 1962, this had increased to $5,549,000.00, a gain of 43.2%. 37.86% of these investments, or $2,067,000.00 consisted of obligations having a coupon rate of 41% or higher. We have never relinquished quality for the sake of return, and today, 76.76% of the securities held by the Association qualify in the three highest quality rated group. In 1959 this percentage was 74.08% demonstrating that quality has actually been increased, and high yield maintained, despite a trend toward lower interest rates and a shrinking investment dollar. By resorting to these devices, we were able to boost investment income to 28.33% of the gross income, as compared to 25.25% in 1959, despite a reduction of investment funds in excess of $2,159,000.00. As a matter of fact, the percentage of income derived from our investments is higher than the national average of life companies — 28.3% for the William Penn as against a national average of 22%. The following yearly comparisons will be of interest: 1. The yield on invested assets, net, after expenses, continued to climb. 1959 ................ 3.38% 1961 ................. 3.61% 1960 ................ 3.42% 1962 ................. 3.68% 2. Investment expenses as a percent of gross investment income was as follows: 1959 ......... ......... $110,876 ......... ..........10.9% 1960 ......... ......... $112,654 ......... ......... 10.7% 1961 ......... ......... $108,150 ......... ......... 10.3% 1962 ......... ......... $ 99,571 ......... ......... 8.6% If we were to translate the above into dollars and cents, it would show that to manage the investment portfolio of the Association during the four year period, cost an average of .025165? or of 1? for each $1.00 of investment. 3. Interest earned to that required to maintain reserves increased by $154,287.00 during the past four years. These excess interest earnings constitute a major contribution to profits. They were as follows: Year Required Earned Excess Ratio 1959 $ 706,312. $ 902,345. $ 196,033. 27.75% 1960 $ 720,482. $ 936,797. $ 216,315. 30.02% 1961 $ 732,306. $ 1,013,433. $ 281,127. 38.39% 1962 $ 750,045 $ 1,056,632. $ 306,587. 40.87% 4. Investment turnover during the period under review was as follows: 1959 ........................... $ 4,026,018. 1960 ........................... $ 6,935,497. 1961 ........................... $ 6,008,775. 1962 ........................... $ 8,265,778. Total $25,336,068. 5. On February 16, 1960, the Association acquired the property at 277-299 Washington Avenue, Bridgeport, Connecticut, at a cost of $60,000.00. This property replaced the Rákóczi Home Office Building which was sold to the State of Connecticut for $265,219.46, thus resulting, after expenses, in a net profit of $16,596.04 to the Association. The Washington Avenue property was renovated and leased to the Fletcher-Thompson Company for a period of 20 years. Our Eastern District Office is also located in the building. Of all the investments that we have, this shows the highest return to the Association. 6. Our return on mortgage loans during the past four years has been as follows: 1959 ................ 4.39% 1961 .................. 4.48% 1960 ................ 4.52% 1962 ................. 4.56% During the period under review, there has been a net reduction in our mortgage holdings of $209,248.00. New investments in mortgage loans has been severely handicapped due to competitive pressures from savings banks, savings and loan associations, trust funds, and the large insurance companies acting through their mortgage correspondents. Our loan to valuation ratios are very conservative, and this fact coupled with our geographical restrictions has acted to limit our acquisitions of mortgage investments. 7. Throughout these years, special attention has been focused upon the Pension Fund investment program. We attempted to maximize the investment return as much as possible, making allowance for inflationary trends in the economy so as to provide payments commensurate with living costs at time of retirement. The Pension Plan has made very satisfactory progress in both assets and income growth during the past four years, and it was this factor which brought about the liberalization in benefits as well as the additional interest on employee deposits. Income of the plan increased by 43% during the four year period and the funds are now invested 50% in fixed income securities and 50% in common and preferred stocks. No changes are planned in these ratios in the near future. 8. The 1959 Convention instructed the Board to study and undertake preparatory steps for the eventual establishment of the William Penn Retirement Home for our aged members. The matter was held in abeyance until October, 1961; when it was again reactivated and instructed the Investment Department to pursue these studies. This was done and an updated report was submitted to your Board in April, 1962, with recommendations for further action incorporated. At this time your Board temporarily tabled the matter. 9. Four years ago, the Convention approved by an overwhelming majority the William Penn Insurance Building, and instructed your Board of Directors to proceed with its construction. It is unfortunate that these instructions could not be carried out, and we report to you herewith the reasons for our inability. You, the members of this supreme legislative body, can evaluate our action and judge whether this action, in light of these developments, was taken in the best interests of the Association. Many years of exhaustive work went into this project, and our total expenditures, including engineering, legal, advertising, leasing, and the traveling expenses of your building committee was $265,274.95. The feasability of this program was established beyond question and everything indicated its soundness and capital contribution to our Society. During the past four years, your Building Committee worked with great diligence and prudence, with objectivity and a great sensitivity to the possible risks confronting the Association. Only when it appeared that the project, as orginally envisioned, would not materialize, did your Board with reluctance, finally cause the dissolution of this Committee and the abandonment of the project itself. (Continued On The Next Page)
