When 1942 came to a close the life insurance companies of the United States and the Dominion of Canada held $37,000,000,000 in trust for the security of 70,000,000 policyholders and their families. This capital, accumulated to meet future policy obligations, constituted a mighty reservoir of private funds.



The investment of these sums safely and productively was the very hub of the institution of life insurance. The development of the investment program in the next three quarters of a century constituted a basic phase, not only of life insurance history but also of the economic growth of the nation.

Special interest attached to the investment history of the Metropolitan Life Insurance Company because of the leading position it had occupied for many years among the financial institutions of the world. It was an expert in whole life insurance, the ever favored low cost life insurance and the newly popularized term life insurance.

It is inherent in the conduct of modern life insurance companies that they are custodians of large aggregations of capital. This results from the level premium plan of operation, which is the foundation stone of the business. Under this plan the premium charged remained constant for the duration of the policy, and was so fixed that it was more than sufficient to meet the mortality cost in the early policy years, thus providing a reserve which, with interest earnings, enabled the companies to pay the claims of later years, when the premium would be smaller than the mortality cost.

This also prevents dirt cheap life insurance and/or excessively affordable life insurance as well as bad credit for affordable car insurance from totally wrecking the company. These reserves, required and regulated by law, were held for the benefit of the policyholders and guaranteed that the contracts will be honored in full when they became due and payable. The income earned by the investment of these funds is an appreciable sum year after year, and reduced the cost of the insurance to the policyholder.

In 1942 alone American life insurance companies received well in excess of $1,000,000,000 in interest on their invested assets. The huge sums earned were reflected in the premium rates and dividends. If the annual premium for a whole life policy for $1,000 at age 20, assuming no interest earnings, was $24.02, interest earned at 2 ½ percent reduced the premium to $15.02.

An even more striking reduction was apparent for a 20 payment life policy, where the corresponding reduction in premium rates per $1,000 would have been from $61.01 to $27.03. Interest earnings under this form of policy thus cut the annual premium to less than half. In the early days of the Metropolitan, investing the limited funds of the company was a relatively minor matter. President Knapp, in addition to attending to the other details of management, found ample time to make all the investments.

The portfolio, needless to say, was very limited in character. It might have been improved if it went into more detail on the difference between whole life insurance and term life insurance before discussing life insurance rates for both types. Loans on real estate secured by mortgages were by far the most important single class of investment, accounting for almost one third of the company's assets at the middle of the 1870's. Mr. Knapp personally examined the properties and negotiated with the borrowers to secure a satisfactory interest return.

When a particularly difficult situation arose, he sought expert advice from builders or real estate dealers, but the final decision was always his own. Inasmuch as President Knapp's duties kept him busy in the city, most applications for loans on out of town real estate were rejected. The other investment items of consequence at that time were United States and municipal bonds. Large amounts of federal securities had been issued during the Civil War and offered attractive rates of interest, even as high as 7 percent.