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On a general Formula for the value of present or future Benefits, whether
free or burdened with charges; and on the application of the Formula to
ACTS OF PARLIAMENT:-
The Life Assurance Companies Acts, 1871 and 1872
On the Valuation of Claims upon current Policies in the Liquidation
of a Life Office, with reference to the Decisions in Bell's and Lancaster's Cases. By C. J. BUNYON, M.A., Barrister-atLaw, a Vice-President of the Institute of Actuaries.
[Read before the Institute, 29th January 1872.] THE question which it is proposed to consider in the present paper is the correct mode of valuation of current policies, or true measure of proof to which claimants thereon are entitled in the liquidation of a Life Office. The subject is of especial interest at the present time, because its solution is even now waiting settlement by the Court of Chancery; and the interest is heightened by the fact, that conflicting judgments have been delivered by two eminent equity Judges, namely, by Lord Justice James, in Bell's case, when sitting as Vice-Chancellor in the Court of Chancery, and by Lord Cairns, in Lancaster's case, when sitting as Arbitrator in the Albert Arbitration. It does not appear that among actuaries there is a complete agreement. Nevertheless, the case ought not to present any great difficulty, and whether among actuaries or in a Court of Equity must be decided by argument alone. It is therefore proposed to consider the question, in the first instance, upon principle; and secondly, with reference to the doctrines laid down in the cases to which we have referred.
It will, of course, be remarked by every lawyer at the outset of
this discussion that the two cases are not of equal authority, the decision of the Vice-Chancellor being law and a binding authority, subject only to the revision of a Court of Appeal, wbile the decision of the Arbitrator is not law and binds the parties to the arbitration alone. As, however, they were both solemnly decided after argument by Judges of such eminence, and our object here is theoretical only, we may for our present purpose treat this distinction as unimportant.
The 158th section of the Act of 1862, under which this question arises, provides that “a just estimate shall be made as far as is possible of the value” in cases like the present, namely, "of all such debts or claims as may be subject to any
contingency, or sound only in damages, or for some other reason, “ do not bear a certain value.” This is pointed out by Lord Cairns to mean, not that account shall be taken of the peculiar damage done to any particular individual, since the inconvenience or disappointment arising from the non-receipt of money may be much more serious in one case than in another, but that the contract or policy, whether of life assurance or annuity, sball be valued, and the only question is as to the scale and manner of valuation. Now, in the first instance, it must be admitted that if it formed part of the contract that policies should be valued upon any particular scale, by any defined table of mortality and interest, and in any particular manner, the discussion must be closed, for no other mode of valuation could be admitted. We must, therefore, assume that this is not the case, but that we may proceed in the matter as res integra to be decided only by abstract equity.
In estimating the value of a policy, there is obviously one question antecedent to that of the selection of the elements of calculation, and that is the consideration of the state of health of the assured.
In Bell's case, the Vice-Chancellor laid down the rule as follows:-"As to the lives, it will be assumed, unless the contrary " is shown, that they are all in a normal state, and no other change “ has taken place than that which arises from the advance of age. “ If in addition to that, either from accident or illness, a higher “ rate of insurance is required, that must be added to the proof. “ That is one of the things which the Office has assured against, " and the chance of life has diminished.*" And again, “The dropping of the assured life after claim taken in and before
* Bell's case, 9 Eq. Ca., 719.