of companies increased from 871 to 1,062, or by 20 percent. Perhaps more significant is the fact that only 122, or 53 percent, of the 1967 groups existed in exactly the same way in 1969. In brief, great change has taken place in the past two years. As before, most of the companies in the all-lines groups were stock companies. Of the 1,062 companies, 914, or 86 percent, of the companies were stock in form; 121 or 11 percent, were mutual. The remaining 27 were 15 reciprocals, nine Lloyds, and three fraternals. Of the 1,062 companies, 650, or 61 percent, were non-life companies and 412, or 39 percent, were life companies. The average all-lines group consisted of 1.6 life companies and 2.6 non-life companies. Table 1 shows how the life and non-life companies are grouped in the all-lines groups. There are 40 different combinations of life and non-life companies, ranging from the combination of one life and one non-life (found 91 times) to one group of five life companies and 27 non-life companies. Conclusion 1. The movement towards concentration in the insurance industry continues. There are 30 more groups today than two years ago. Moreover, the number of new groups exceeds 30 because there have been numerous instances involving the merger of two or more groups. One tends, perhaps, to think that it is the control of small companies and groups that is changed. Of course, that is usually the case. But the recent concentration has also involved some hundred-million dollar operations, which organizations can hardly be called small. For instance, the Glens Falls Group has joined with Continental, the Commercial Union Group has merged with Employers of Boston, the Hanover Group is now under the effective control of the State Mutual Life interests, and the New Hampshire is joining the American International Group. Several 50-70 million dollar insurance organizations have also had changes in control. 2. The movement to all-lines continues, too. In total, the number of all-lines groups has increased by 21. However, at least 40 new all-lines groups have been formed in the past two years. Interestingly, in the same period of time nine all-lines groups disbanded. 3. The appearance of title insurance companies in insurance company groups increases. At least five more groups include title insurance companies: American General, Continental, Lincoln National, Richmond, and U. S. Life. A Note on Surplus Accounts in Property-Liability Insurance Companies Richard de R. Kip, Ph.D., CPCU, C.L.U. Professor of Risk and Insurance, Florida State University, Tallahassee Introduction Annual reports to stockholders and annual statements to the state insurance departments reveal a variety of surplus accounts in the net worth section of the balance sheets of property-liability insurance companies. The variety is so great that one has difficulty in really understanding the account titles. In fact, two companies may use substantially similar titles to refer to accounts quite different in nature and purpose. The author has become attracted to the situation through reading numerous reports. No attempt has been made to develop a random sample. No need for such was felt. Examination of annual reports and annual statements has led to a long list of titles of accounts of a surplus nature found in the net worth section of balance sheets. Three tables are used to present the accounts. Table I lists the accounts in which the word "surplus" is actually used. There are twenty-five titles in the table. From the titles of many other accounts one can ascertain that the account was established because of Dr. Kip is a graduate of the Wharton School of Finance and Commerce and the Graduate School of Arts and Sciences, University of Pennsylvania. From 1936 to 1958, save for a period of military service, he was on the faculty of the Wharton School. The next two years he was at The Florida State University as Professor and Head of its Insurance and Real Estate Department. During this period he also served part-time on the staff of the State Treasurer and Insurance Commissioner. From February, 1960 through November, 1963 he was Director of Examinations of The American Institute for Property and Liability Underwriters and the Insurance Institute of America. He returned to Florida in December, 1963, serving part-time as Professor and Head, Risk and Insurance Department, The Florida State University, and part-time as Associate Dean, Division of Advanced Studies, The Florida Institute for Continuing University Studies. In the fall of 1968, he returned to teaching fulltime. A CPCU since 1948, he is an Assistant Editor of THE Annals. The Society of Chartered Property and Casualty Underwriters, 1969. All Rights Reserved. some concern about the valuation of the company's investments. Table II contains twenty-five such titles. There were twenty-seven other surplusreserve titles; they are set forth in Table III. The lists are long; in some cases the difference in wording is not great. It is questionable that accounting understanding is increased by the use of so many different words and titles in the net worth sections of property-liability insurance companies. Although accounting theorists may dislike the term "surplus" and although the public's misconceptions of surplus may be many and serious, TABLE I NET WORTH ACCOUNTS FOUND IN ANNUAL REPORTS OR ANNUAL STATEMENTS IN WHICH THE WORD "SURPLUS" IS USED TABLE II NET WORTH ACCOUNTS FOUND IN ANNUAL REPORTS OR ANNUAL STATEMENTS, THE TITLES OF WHICH INDICATE A CONCERN ABOUT INVESTMENT EVALUATIONS Account Title Accumulated discount on bonds Appropriated for unrealized gain on investment Contingency reserve representing difference between total values carried in assets for all bonds and stocks owned and total values based on December 31, 1966 market quotations Equity in undistributed increase in net worth of subsidiaries Excess of market value of stocks other than subsidiaries over cost Excess of underlying book values of wholly-owned subsidi Reserve for excess of convention value over market value of all securities Reserve for excess of market values of stocks over cost Reserve for fluctuations in security values X Reserve for fluctuations in market values of securities.. Reserve for investment fluctuations X X Voluntary reserve to provide for security fluctuations, undeclared dividends and other contingencies X Voluntary reserve for unrealized appreciation of stock investments other than affiliates Voluntary security valuation reserve Χ X TABLE III RESERVE ACCOUNTS IN NET WORTH SECTION OF ANNUAL REPORTS it does seem that insurance accounting is "stuck" with the term and will be using it for some time in the future.1 The basic sources of surplus are three in number: 1. Funds paid into the company by the stockholders in excess of the par, or stated, value of the shares issued to the stockholders. 1 Now there is a new concept in insurance: "Surplus surplus." See Report of the Special Committee on Insurance Holding Companies to the New York Superintendent of Insurance, February 15, 1968, pp. 43-47. Surplus beyond that "adequate to cover for a reasonable period of time any losses and expenses larger than those predicted and any declines in asset values, including all chance variations in the crucial factors of the operation" is "surplus surplus" (p. 43). It is surplus not really needed in the efficient and safe operation of the insurance company. |