pany's financial statement for the quarter ended June 30, 1919, on file in the department, which shows a divisible surplus at June 30th of $152,443.70. This is in excess of this dividend requirement in the sum of about twenty-six thousand dollars.

It is to be noted that the divisible surplus shown in the foregoing financial statement is $115,042.04, which is $27,401.66 less than reported by the company, and $11,062.98 less than the disbursements subsequently made for dividends earned at June 30,

1919.

In other words, if a liability were charged in the foregoing financial statement for these dividends, not only would there be no divisible surplus remaining, but the special contingent surplus would be reduced in the sum of $11,062.98.

The explanation of the difference in the amount of divisible surplus reported by the examiner and by the company is found for the most part in the workmen's compensation loss reserve. Greater care should be exercised by the company in calculating this reserve. This is of special importance when its ability to pay dividends depends upon the adequacy of its reserves, as in this instance.

Special Contingent Surplus

Under a rule of the Department (see circular letter W. C. 166) companies organized under Article 5-a of the Insurance Law are required to accumulate and retain this surplus as a protection against extraordinary losses. The method of computation, in brief, is as follows:

An amount equal to 10 per cent of the earned compensation premiums is charged; from this there is deducted 50 per cent of workmen's compensation catastrophe reinsurance premiums; the remainder is "special contingent surplus." When this surplus thus computed reaches one hundred thousand dollars, additions thereto are thereafter made at the rate of 5 per cent of the earned premiums, but without deduction for reinsurance.

Reinsurance

The company has entered into a contract with the American Re-Insurance Company of Huntington, Pa., which provides that said company shall protect the Allied Mutuals against loss on its

liability policies in excess of the five-tenths limits; i. e., any loss in excess of $5,000 on account of injury to one person and in excess of $10,000 on account of one accident.

The company is a member of the Mutual Corporations Reinsurance Fund. The inter-reinsurance agreement entered into by the several members of the Fund provides that if any member corporation shall suffer loss on account of any one accident covered by a workmen's compensation policy in excess of $25,000, such member corporation shall be deemed reinsured as to so much of such loss as exceeds the sum of $25,000, but not exceeding $75,000, shall be reimbursed to such member corporation.

The Reinsurance Fund itself, as agent for its several members, has entered into a reinsurance treaty with the American Re-Insurance Company which provides that such treaty is a reinsurance of the signatory corporations of the Fund, to cover loss incurred under any workmen's compensation policies in any one accident, or series of accidents, in excess of $75,000 up to $100,000. In other words the maximum liability assumed by the reinsurer company is limited to $25,000.

The Reinsurance Fund, as agent for its several members, has also entered into a reinsurance treaty with "certain Lloyds' Underwriters, British General Insurance Company, Ltd., and British Standard Fire and General Insurance Company Ltd." (commonly known as Lloyds of London) which provides that such treaty is a reinsurance of the signatory corporations of the Fund to cover loss incurred under any workmen's compensation policy in any one accident or series of accidents in excess of $100,000 up to $500,090. In other words the maximum liability assumed under this treaty is $400,000.

So that in case of a catastrophe involving a total liability of $500,000, the loss would be apportioned as follows:

The company has issued two series of certificates entitling policyholders to participation in any profits earned, in excess of

dividends already paid, in proportion to their respective earned premiums. They cover premiums earned on policies terminated from July 1, 1915, to June 30, 1916 ("1915" series); and from July 1, 1916, to June 30, 1917 (" 1916" series).

These certificates provide that they "shall not entitle a member (policyholder) to any definite fixed sum, or give him any legal right to require the board of directors to declare any dividends or make any apportionment of profits. The board of directors reserves without qualification the right to determine, subject to the approval of the New York Insurance Department when and if apportionment shall be made."

The board of directors has thus far taken no action for the purpose of redeeming these certificates, and accordingly no liability therefor has been charged in the foregoing financial statement.

Comparative Exhibit

The following table has been compiled for the calendar years 1914, 1915, 1916, 1917 and 1918 from the company's audited annual statements on file in this Department. The figures for the first half of 1919 were obtained from the company's books and compiled by the examiner during this examination.

It will be seen from the foregoing that the expense ratios have been rather high throughout the life of the company, although the trend has been pretty consistently downward. The loss ratios have been unusually low with a general upward trend. The combined loss and expense ratios also show a general downward trend. It is of especial interest to note that the ratios for the entire life of the company to June 30, 1919, are 26.8 per cent for expenses and 46.3 per cent for losses, a total of about 73 per cent.

*Includes $77,517.46 "Audit Additions" not included in written premiums until after June 30, 1919.

Summary

Growth in premium volume (from $30,234.96 in 1914 to $565,241.89 for the fiscal year ended June 30, 1919) has been constant and substantial.

Expense ratios, while high in the beginning, are diminishing. Loss ratios are low.

The company is in good financial condition and I believe it to be worthy of public confidence.

However, as indicated in various parts of this report, there are certain conditions which ought to be changed, viz.:

Premiums paid by assureds should be received by the company immediately and without intervention of the Manager.

All disbursements should be made by the company itself.

All checks should be signed by the Treasurer and Secretary, or by the Manager and some other officer, in accordance with Article VIII of the by-laws. Facsimile signatures should not be used.

By-laws should be amended so as not to permit their waiver under any circumstances.

Reserves for losses should be computed with more care and

accuracy.

EMPIRE STATE MUTUAL INSURANCE COMPANY

NEW YORK CITY

Examined upon organization.

Report dated March 1, 1920.

Examiner: W. A. Billingham.

JAMESTOWN MUTUAL INSURANCE COMPANY

JAMESTOWN, N. Y.

Examined upon organization.

Report dated June 8, 1920.

Examiner: W. A. Billingham.

LUMBER MUTUAL CASUALTY INSURANCE CO.

NEW YORK CITY

Examined to ascertain condition December 31, 1918.

Report dated July 22, 1919.

Examiner: W. A. Billingham.

Organization and History

The company was incorporated February 21, 1914, pursuant to the provisions of Article 5-a of the Insurance Law with authority to transact the business of insurance on the mutual plan as follows:

Against loss or damage resulting from accident to or injury suffered by an employee or other person and for which the person insured is liable;

Against the liability of an employer to pay compensation to his employees; Against the liability of an employer to pay compensation to his employees under any workmen's compensation law;

Against loss or damage caused by a truck, wagon or other vehicle propelled by steam, gas, gasoline, electric, mechanical or other power, or drawn by horses or mules, used in trade or manufacture and owned by any such person, to the property of another, for which loss or damage the person insured is liable.

A certificate of authority was issued to the company by the Superintendent of Insurance on June 25, 1914, and the company began writing the kinds of insurance above enumerated as of July 1, 1914.

Upon April 24, 1918, the board of directors voted to amend the company's charter broadening its powers so as to enable it, in accordance with the provisions of section 185 of the Insurance Law, as amended, to write insurance as follows:

(a) Insurance of employers on the mutual plan against loss or damage resulting from accident to or injury suffered by an employee or other person arising out of or in connection with the business of the person insured and for which the person insured is liable, or the liability of the employer to pay compensation to his employees, or the compensation of employees under any workmen's compensation law, or against loss or damage caused by a truck, wagon or other vehicle propelled by steam, gas, gasoline, electric, mechanical or other power or drawn by horses or mules, used in trade or manufacture and owned by any such person to the property of another for which loss or damage the person insured is liable.

(b) Insurance of any individual employer, co-partner in a firm which is an employer, or officer of a corporation which is an employer (such employer