basis of calculation. This is no easy task in the present condition of the money market, and exceptional skill, prudence, and forethought, are required to secure safe and profitable investments. It must be remembered, too, that theoretically all the funds on hand are supposed to bring interest, while in practice a considerable part must always remain unemployed, so that the average rate realized is less than the current rate of interest. On the other hand, well-managed companies accumulate a surplus over the net reserve, and have their interest income largely increased from this source. Still more important is the fact, as far as New York is concerned, that, since Massachusetts and some other States have established four per cent, as the legal standard for reserve, and all companies desire to transact business in those States, they keep their surplus sufficiently high to be virtually on a four per cent, basis. Whether a lower rate than this will be realized on safe investments in the next quarter of a century, expert financiers and economists seem hardly prepared to answer; but, should a reduction to a three and a half per cent, standard become necessary, it would only temporarily incommode our sound offices.
With mortality tables as reliable as any human estimate can make them, and with reserves based on a sufficiently low rate of interest, the management of a life-insurance company does not materially differ from that of other moneyed institutions. The proper selection of business and the safe investment of funds require prudence and sagacity, and devolve great responsibility upon executive officers. But mutual-insurance companies (and nearly all stock companies in the United States also embody the mutual principle) have a margin far above any probable exigency, in the excessive loading of premiums. This very safeguard, it is true, may be perverted, and in some cases has been a temptation to abuse and extravagance. A life-insurance company once fairly established, however, ought to be as safe as any other financial institution, and, where failure occurs, it may always be traced to either gross mismanagement or intentional fraud. State supervision, which has been of great benefit to the system and to the community, can never supplant individual judgment or probity. In fact, it ought to be limited to prescribing minimum reserves, the character of investments, and the publication of truthful statements of the condition of companies.
While life insurance is of comparatively recent date in the United States (the oldest company now in business having been organized in 1843), its development has been so rapid as to have probably surpassed that of every other country. The following table shows the condition of the business, as reported to the New York department, in its infancy in 1859, its period of highest inflation in 1870, and at the lowest point of reaction in 1879:
