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ERIE - LACKAWANNA MERGER STUDY

Insurance

Study XVIII

The purpose of this study was to examine the practices of both roads with respect to insurance of all kinds and determine whether merger would make possible a reduction in the cost of insurance.

Schedule A shows the kinds of insurance carried by each company today, the present annual premiums, and the average annual losses. It will be noted that on the average premiums have been exceeding losses by $389,406.

We believe that the merged. company would be large enough to carry its insurance through an Insurance Subsidiary organized under New York State Insurance law, for which we estimate the requirements at Capital of $1,150,000 and Permanent Surplus Fund of $1,800,000, or a total of $2,950,000. The annual interest at 5% for providing the funds for the organization of the insurance subsidiary would be $147,500, but the subsidiary would probably realize an average return of 3% on its investments.

If this could be done, we estimate the annual net saving in insurance costs would be $300,000. However, in view of the decision to conserve Capital money and not consider an Insurance Subsidiary at this time, we have shown no such savings or cash outlay in this report, but the estimated saving is a potential one at some later date when the merged company is in a position to make the necessary investment.

        Schedule A

 Insurance - Analysis of Present Annual Premiums and Average Annual Losses

                                                                  Excess of
                                            Present    Average    Premiums
                                            Annual     Annual      over
Kind of Insurance             Erie   DL&W   Premiums   Losses     Losses
Fire and Lightning
 Selected Properties           x      x    $162,040    $24,759    $137,281
 Diesel Locomotives            x            15,317       None       15,317
 Contents - N. Y. City Piers   x             3,976       None        3,976
 Structures - N. Y. City Piers x            43,716       1,800      41,916
 Leased Structures - Chicago   x             1,088       None        1,088
 Pier 8 - Jersey City          x             7,166       None        7,166
 Open Docks - Weehawken        x             7,372       None        7,372
 Diesels (All Risk)                   x     42,130      10,511      31,619
 Passenger Cars (All Risk)            x      9,416         962       8,454

Marine Operations
 Fire & Collision-Marine Equip. x           17,790       4,757      13,033
 Car Floats                           x      1,800         444       1,356
 Builders Risk - Brighton             x      1,175       None        1,175
 Dry Docks - Brighton                 x      3,284          50       3,234
 Float Bridges                        x      2,825       2,727          98
 Floating Equip. - Cargo       x             4,167       None        4,167

Passenger Liability
 Railroad & Floating Equip.           x     52,912       None       52,912
 Passengers on two Erie Ferries x            1,200       None        1,200

Bodily Injury & Property Damage
 Fork Lift Trucks, Tractors    x             1,819          42       1,777
 Piers Leased from N. Y. C.    x             8,889       None        8,889
 Surety Bond - Leased Piers    x               535       None          535
 Automobiles                   x      x     42,559      14,543      28,016
 Automobiles in Massachusetts  x               712          50         662

Other
 Boiler Explosion              x      x      4,105       4,899        794 Cr.
 Bill of Lading Liability      x      x     28,060      16,374      11,686
 Workmen's Comp. - N. Y.       x      x      6,250       None        6,250
 Fidelity Bond                 x      x      5,037       4,413         624
 Theft                         x      x        666         269         397
                                       ------------------------------------
       Totals                             $476,006     $86,600    $389,406