Reserves to cover non-deduction of deferred fractional premiums at death of insured.

July 1, 1952 SUBJECT: INSURANCE WITHDRAWN TO ALL FRATERNAL BENEFIT SOCIETIES: A review of the 1951 Annual Statement and Valuation Report of authorized societies indicates that certain societies have failed to include appropriate reserves to cover the non-deduction of deferred fractional premiums at the death of the insured, in item 26, page 5 of the Annual Statement form. This reserve applies to all outstanding certificates of each society. It corresponds to the reserve required in Exhibit 8 of the Annual Statement blank for life insurance companies. The use of the approximate methods for determining the above reserve is acceptable. In the case of societies which charge so-called true monthly premiums, the attached comparison would indicate that the reserve for the Whole Life plan should be increased by approximately one per cent and on other plans as indicated therein. Where a society charges true annual, semi-annual, or quarterly premiums, approximate methods similar to those used by life insurance companies are appropriate. Will you please see that this letter is called to the attention of the Actuary of your Society and that your Society's 1952 Annual Statement and Valuation Report indicate the amount and manner of reporting the above reserve. Yours very truly (Signed) ALFRED J. BOHLINGER Superintendent of Insurance Enclosure Comparison of Terminal Reserves -- American Experience 3 1/2% assuming true Annual and true Monthly Premiums Age 25 at Issue Age 35 at Issue Monthly Annual Monthly Annual Whole Life Terminal Terminal Ratio Terminal Terminal Ratio 5th Terminal $ 41.21 $ 40.91 1.007 $ 63.31 $ 62.73 1.009 10th " 90.06 89.42 1.007 137.03 135.76 1.009 15th " 147.58 146.54 1.007 221.20 219.15 1.009 20th " 214.55 213.04 1.007 313.65 310.75 1.009 20 Payment Life 5th Terminal 83.22 83.17 1.0006 105.64 105.51 1.001 10th " 184.21 184.14 1.0004 232.42 232.19 1.001 15th " 306.85 306.79 1.0002 384.26 384.02 1.001 Age 45 at Issue Monthly Annual Whole Life Terminal Terminal Ratio 5th Terminal $ 97.78 $ 96.48 1.013 10th " 205.18 202.47 1.013 15th " 318.39 314.19 1.013 20th " 432.61 426.90 1.013 20 Payment Life 5th Terminal 135.78 135.23 1.004 10th " 292.37 291.42 1.003 15th " 472.88 471.96 1.002 Note: A reasonable approximation of the extra reserve would be to increase the reserves for Whole Life forms with thirty premiums or more by 1 per cent and reserves for other forms by .2 of 1 per cent.