The company's operations are departmentalized as to ordinary, group, reinsurance, and special risks with a vice president in charge of each department. The ordinary department operates under a general agency system with approximately 75 general agents, 156 agents, 20 agency supervisors, and 267 brokers at June 30, 1963. Supervision of the agency organization is under direct control of a vice president of the company who is assisted by a director of agencies, three regional sales directors, and an assistant vice president in charge of conservation and an assistant vice president who acts as supervisor of training. All contracts are made directly with the company, but general agents may appoint their own subagents subject to approval by the home office. Exclusive territorial contracts are not normally given, although in one instance an exclusive contract was made for the development of one State. Writing agents, including brokers, are compensated on a commission which is graded according to plan of insurance with a maximum commission of 60 percent on first-year business and 5-percent commission on renewal premiums received on the 2d through the 10th policy year. A supplement to the writing agents contract provides for a bonus contingent upon sufficient volume of life insurance with a satisfactory quality rating. In addition to the regular commission paid the writing agent, the general agent receives 20 percent of first-year commissions, including quality bonus paid, excluding single premium life, endowment, and annuity business on his own production and that of agents and brokers under his control, plus 1 percent of premiums received in cash by the company on single premium life, endowment, and annuity business. The contract further provides for a renewal overwriting commission of 2 percent of renewal premiums received by the company in cash for the 2d to the 10th policy years. A supplement to the agreement provides for an expense allowance of 15 percent of first-year premiums collected in cash on life insurance and annuity business and 1 percent of renewal premiums on such business. The supplement also provides for a production bonus on life insurance personal production. All contracts provide for a vested interest in renewal commissions provided certain specified conditions are met. GROWTH OF THE COMPANY The following schedule is compiled from annual statements and examination reports and reflects figures taken at selected intervals in the company's history indicating its growth. Those figures shown before the year 1959 are for the old Security Life & Accident Co. only. BUSINESS IN FORCE BY STATES Business in force by States in which the company is licensed is shown in the following schedule. Number of policies includes reinsurance assumed and master group policies. The number of group life insurance certificates is shown separately. Accident and health premiums represent the direct premium income for the year 1962. The company's mortality experience for the years indicated is as follows: The regular forms of ordinary life, individual annuities, group life and accident and health, and personal accident and health coverages are written on the participating and nonparticipating plans. It also operates extensively in the life reinsurance field. The maximum net retention on one life is $50,000. A few of the policy forms written by the company might warrant a brief description: The security home protection policy has been referred to as a single plan mortgage redemption contract. Each unit of this plan provides $5,000 of life insurance the first year. This amount is reduced by $150 each year for the 10 succeeding years, and then by $200 each year for the following 10 years, reaching an amount of $1,500 at the beginning of the 21st year, and remaining level thereafter. The premium remains level throughout the lifetime of the policy owner. The family security policy provides coverage for the entire family in the form of permanent insurance for the father and temporary insurance for all other members of the family unit. Security's education plan is a juvenile 20-payment life policy which furnishes a flexible plan to provide $50 monthly over the 4 college years. The security career builder policy provides a minimum amount of protection during childhood years when needs for protection are at a minimum. At age 21, when needs for protection have increased, the amount of insurance under the policy automatically increases from $1,500 to $5,000 for each unit in force. The premium remains level throughout the duration of the contract. The salary savings plan provides a way for employees to pay premiums on their own and their families' lives through automatic deduction from their pay. The collection of the premium is handled directly between the company and the insured's employer. Joint policies are issued on two lives providing for payment of the face amount upon the first death. These policies are issued on the following plans at nonpar rates: Ordinary life, 20-pay life, and 20-year endowment. The company's nonmedical limits are as follows: Even though an applicant comes within the nonmedical limits, the company reserves the right to request an examination. REINSURANCE The company is protected on life risks in excess of its authorized retention through an automatic reinsurance agreement with the Connecticut General Life Insurance Co., Hartford, Conn. Coverage is automatic within the following limitations: NOTE. Substandard reinsurance is automatic within scheduled limits. Waiver of premium disability benefit coverage is automatic for an amount not greater than the corresponding life reinsurance. Accidental death benefits are automatically reinsured within scheduled limits. In addition to the foregoing, the company has binding authority on two companies for reinsurance in excess of the above limits under reciprocal obligatory contracts. Facultative reinsurance is available under several agreements, four of which were active in the current year. Accident and health risks are reinsured under an agreement with Employers Reinsurance Corp., Kansas City, Mo. The company has assumption contracts in effect with approximately 250 companies. Of these, 64 are automatic agreements and of the remaining, 25 were active during the current year. DIVIDENDS TO POLICYHOLDERS The profit-sharing provisions of the company's participating policies provide generally as follows: An annual dividend, as determined by the company, out of its surplus, will be payable hereon at the end of the second policy year, and at the end of each subsequent policy year, for the life of the insured, while this policy be in full force. Each such annual dividend will be payable in cash and will not be contingent upon payment of any premium next due. Any dividend, when available, if not withdrawn in cash, may be used in any one of the following ways: (a) Applied toward payment of any premium next due hereunder, if the balance thereof be duly paid; or (b) Carried to the credit of this policy under the deposit provision hereof; or (c) Applied to purchase paid-up life insurance as an addition to this policy. If within 2 months after a dividend becomes payable the insured shall not have withdrawn it in cash, or filed written election as to the way in which it shall be applied, it shall be applied automatically under option (b) above, unless the laws of the State in which this policy is delivered require otherwise. Of the $523,271,503 ordinary business in force, $89,921,867 is on the annual dividend or participating basis. The dividends to policyholders for the year 1962 amounted to $375,054.26. TREATMENT OF POLICYHOLDERS The treatment of policyholders was observed during a review of claims that had been resisted, compromised, or closed without payment during the 3-year period covered by this examination. In all cases the company's position appeared to be tenable. In addition, a review of paid claims indicated that the company settles just claims for death and other benefits promptly upon receipt of necessary proofs and in accordance with policy and contract provisions. The only exception: A few older claims remained open due to the lack of followup on the part of the company. This was brought to the company's attention and remedial steps have been taken to alleviate this situation. Other various phases of the examination disclosed fair and equitable treatment of policyholders under the general provisions of the policy contract. ACCOUNTS AND RECORDS The company's general ledger is maintained by electronic data processing equipment. Entries into the general ledger are made either by summary punchcards, prepared from totals of daily transaction journals, or from punchcards prepared from individual transaction data. At the end of each month the new monthly totals of the general ledger are arrived at by preparing a run which combines the beginning of the month's year-to-date punchcards with the previously mentioned punchcards which reflect the transactions for the month. As this run is being prepared the electronic accounting equipment simultaneously punches new year-to-date cards which reflect the updated account balances of the general ledger. A run which constitutes the current trial balance of the general ledger is prepared from the year-to-date cards. The company's general ledger and subsidiary expense records are not coded in many instances so as to allow the electronic accounting equipment to produce the various account categories required by the annual statement blank. Numer ous yearend adjustments to the general ledger and subsidiary expense records are required to prepare the annual statement. This necessitated preparing yearend trial balances of the general ledger, the subsidiary expense ledger, and the new account balances resulting from the yearend adjustments in order to trace the ledger accounts to the individual categories required by the statement blank. A comprehensive review of the company's accounting procedures and internal controls was made at the outset of the examination. Individual transactions were reviewed on a test basis for proper distribution. The company's 1961 and 1962 summary of operations was reconciled to the ledger accounts. No exceptions were noted. Employees' retirement trust The trustee of the employees' retirement trust fund maintains accounting records of the transactions involving the income, disbursements, and corpus of the fund. Details of the transactions are reported monthly to the retirement committee which are summarized showing receipts and disbursements for the month and the aggregate for the year to date. At least once each year the trustee submits a detailed listing of all investments held for the fund. FINANCIAL STATEMENTS Financial statements are presented in the following pages of this report as follows: Balance sheet-assets, liabilities, surplus, and other funds as of December 31, 1962. Reconciliation of ledger assets for the year 1962. Surplus account reconciliation at December 31, 1962. Exhibit of net investment income for the year 1962. Exhibit of interest, dividends, and real estate income for the year 1962. |