reading of the paper is abridged from the Insurance Record.

Mr. A. II. BAILEY believed the principle which Lord Cairns has enunciated to be sound, and would give the reasons for that portion of the decision. The problem is-an Insurance Company is avowedly insolvent and has stopped payment, the assets have to be realized, the expense of realization and distribution has to be deducted, and the net fund has to be divided amongst the several creditors in proportion to their relative interests. He laid emphasis on the word "relative," because this is something analogous to the rating of a parish, where the absolute value is of secondary importance and the relative value is everything. In order to arrive at the value of these you must ascertain the amount of damage sustained by each creditor. If you ask any ordinary policyholder what is the amount of damage he has sustained by the stoppage of the Company, the reply of nine out of ten would be, "The amount of premiums I have paid and lost is the amount of my damage." Any actuary would say, "No, that is a "mistake; you have had some return for the premiums paid, for you have "been assured for a term of years. The measure of your damage is the "difference between the premium for a whole life insurance and that for "the period during which you have been insured." Not to complicate the question, he would take the case of a man assured a year before the stoppage. The annual premium for the whole term of life is P, the annual premium for one year (1-px)v. So that the amount of damage sustained will be represented by the formula

The first formula represents the amount of damage done, which is thus proved to be equal to the value of the policy. The same principles apply to any number of years. He thought it better to look at the case thus retrospectively and not prospectively, because in these insolvent Companies there is no future whatever. The question is not, what reserve has to be made to provide for the liability of the future, but what is the amount of damage occasioned by the misdeeds of the past? We have now to consider what is P; what is the premium Pr actually paid. And here he must join issue with Mr. Bunyon, and, to use his own forcible expression, say, that his views on the matter are "hopelessly misleading and erroneous.' The premium on every assurance-not in any way from the manner in which it has been constructed, but from the nature of the case-consists of two parts-one, to provide for the risk, and the other the surplus or margin that is over. To divide that premium into these two component elements, is a problem of difficulty and delicacy, but it must be attempted. The cause of the damage to the unfortunate policyholders in the 55 Companies, forming the congeries of the two great insolvents, had been the ignorance of the managers as to what portion of the premiums might be devoted to other purposes than the risk; or, if not ignorance, then the recklessness, or worse, in applying that knowledge to the practical concerns in which they were engaged. And the damage done

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extreme accuracy the amount of the damage in the case which Mr. has put, as between the representatives of the claimants under which have lapsed and the existing assured. The object of Lord judgment was to endeavour to carry out this principle with sufficient a for practical purposes. He had heard with regret the statement ma public meeting, that the insolvency of the European was due in measure to their not having been sufficiently careful in the sele lives that if they had rejected more lives, what has occurred woul have happened. He did not think any actuary would deny that th vency was due to trenching, in ignorance or recklessness, on the po the premiums that ought to have been reserved for future claims. in illustration the age of 40, where the mortality is almost exactly o cent. If 100 men at that age had insured their lives one year bef insolvency of the European was proclaimed, one out of the 100 have died, and the contract of all the 100 would have been broken. admitted by all parties that the representatives of the deceased ma prove for the sum assured; and he believed that as between the rep tatives of the deceased and the 99 survivors, Lord Cairns's jud maintains the relative proportion of the damage sustained by each accurately in principle, and with as much accuracy in practice as th will allow. He had listened with attention to Mr. Bunyon's paper, b unable to say what he proposes to substitute for these principles. It s to him, at the conclusion of the paper, that he proposed to substitu decision of Lord Justice James in Bell's case for that of Lord Cai Lancaster's case. The decision in Bell's case is in effect to capitali difference between the premium at the age when the policy was effecte the present age. Now, the difference between that and the principle Lord Cairns has laid down, would, as regards the relative interests of holders, be so slight as not to be worth contending for. But Mr. Bunyo in a previous part of his paper, arrived at a conclusion which seemed t to be wholly different. Mr. Bunyon maintained strongly that whatev the measure of solvency must also be the measure of proof: and yet the measure of solvency which he himself suggested in the case of the Euro is a wholly different measure from that which a valuation on the princ of the decision in Bell's case would give. And if he values by premiums, why take off 10 per-cent or any other percentage? Upo amount of this deduction will hang the question whether a policyhold a creditor or not. According to the principles Lord Cairns has propoun every whole-term policyholder is to be a creditor. But let them fanc appeal from the Vice-Chancellor to the Lords Justices, and then to House of Lords, as to whether 9, or 10, or 11 per-cent shall be deduc in order to determine whether or not a man is to prove at all. That measure of solvency is to be the measure of proof, has at first sight so thing plausible in its favour, but he thought it would not bear investigat When a Company is on its trial for solvency, and a petition presente wind it up, it is something in the position of a man tried as a crimi who, if there is any doubt, gets the benefit of the doubt.

A participating policyholder contracts for two things,-a promise to

the sum assured, and a speculation for future profits during the currency of the policy. But when the contract is broken, the only thing for which he can claim damage is the non-payment of the sum assured. The surplus is a speculation avowedly on both sides; and because the speculation has turned out to be a bad one, it was admitted most fully he cannot claim any damage on that account. At the same time, it seemed like adding insult to injury to say to such a man, "We cannot pay what was promised you, and also your speculation has turned out badly, but because you have paid us more "than another man you are damaged less or not damaged at all." He could not follow that reasoning. With reference to Mr. Bunyon's remark as to the universal applicability of a pure premium valuation, he admitted fully that that method was not applicable in all cases; but he thought it applicable to the case of proof, when the insolvency of the Company has been admitted.

Mr. C. WALFORD thought the discrepancy between Lancaster's and Bell's cases arose, in a great measure, from the omission of a very important order of the Court, which is a legal interpretation of the 158th clause. The order (the 25th) is as follows:-"The value of such debts" (referring to the debts spoken of in clause 158) “and claims as are made admissible "to proof by the 158th section of the said Act shall, so far as is possible, "be estimated according to the value thereof at the date of the order to "wind up the Company." Then comes the simple question of the "value thereof." He believed with Mr. Bunyon that consequential damages cannot, in a legal point of view, enter into that value. It therefore narrows to that extent all those circumstances affecting the health of the party, or any circumstances arising incidentally out of the period for which the person has been assured. Whatever may have happened, short of death, since he effected the contract, does not actually reach the conditions of his contract, and therefore does not come into the matter of valuation from a legal point of view, inasmuch as, if it did, it would partake of the nature of consequential damage. Vice-Chancellor James, trying to find a rule which should admit of being placed alongside the instructions of the Act, hit upon two points, namely, the case of persons who had become in impaired health between the date of the insurance and the failure of the Office, and that of the with-profit policyholders. Lord Cairns, coming to a decision upon three points, and having before him the rule above quoted, together, no doubt, with the experience of Vice-Chancellor James in Bell's case, and with a far larger grasp and view of the whole case, laid it down that, substantially, the details which the Vice-Chancellor had tried to reach did not meet the merits of the case, and were not worthy to be estimated at all in forming part of the claims. He put it in this way, that whatever rule you lay down for proof does not very much matter, if you are all put upon the same basis, because there is only the pudding to divide, and if some get a larger slice than others, they must get it at the expense of others.

Mr. A. HENDRIKS believed the pure or net premium valuation was the proper process to be employed for an ordinary investigation of any Company's affairs, but did not go so far as to say that no other system is as good, inasmuch as there are other systems which produce about the same result. He thought also that when a Company is insolvent, the net method

is not the one to apply to ascertain its liabilities M. Runwon had shout his

the creditors are entitled to, he did not go upon the amount which will produce, but upon the amount which the estate ought to pro▪ was secured according to the proportion of the assets for the amou original debt. Therefore, he thought that it reduces itself to the rule-of-three; the first term being the total amount which should duced by the net premium valuation. This method gave the profi holder just the same sum as the non-profit policyholder; and he this was just. As to amalgamations, he thought, in most instan had been a benefit to the public. He thought the failure of the Companies was due to the abuse of amalgamation. The majority Companies, instead of failing now, might have failed years ago amalgamating with other Companies. [Mr. PATTISON-It would ha much better if they had.] If these fifty-six Companies had been together, and if the old French proverb of L'union fait la force, b carried out in its integrity, not only would they have existed at the time, but they would have saved a vast amount to the public. If the sticks which illustrate the proverb had been bound firmly and I together they would not have failed; but if you abstract from th pith and leave only the bark bound together, putting the sticks a into the pockets of people who are not entitled to them, then it is sible to carry out those benefits which would otherwise have accrued public in general. This illustration of amalgamation is borne out b of the institutions which have honestly entered into amalgamatio which have given, and will continue to give, very great benefit insuring public. It is difficult to say when a Life Insurance Com insolvent; for if the European had fallen somewhat short of Mr. Bu standard of a 4 per-cent valuation with a 10 per-cent margin, business would have been taken over by the American Company, would have assumed 5 per-cent interest and 10 per-cent margin, a only would they have said that the European was solvent, but possessed a considerable surplus. The law is very defective upo point, and naturally so, because it never contemplated that a Life Ins Company would become insolvent.

Mr. PITCAIRN (of the Chancery Bar) thought it was difficult skilled actuary like Mr. Bailey to place himself in the position ordinary policyholder. For himself, not being an actuary, if he w policyholder in an Insurance Company that had failed, he should co that the measure of damages to him was the sum of money with whi could go to a solvent Insurance Company and buy a policy upon the terms as the policy which he had lost. Lawyers are accustomed t extreme instances, in order to show the merits or demerits of any propos and therefore he would say suppose that he, as a young man, had F low premium to an Office yesterday. In the meantime some acciden happened, and his life has become what is called uninsurable to-day may be, if Offices were a little more adventurous than they are, the value of his life might be assessed, and if that were the case he s consider that, in his injured condition, his policy would be as valuab him as if it were the policy of a very old man who had enjoyed

1872.]

in the Liquidation of a Life Office.

17

health for a great number of years, and had paid in premiums perhaps more than the sum assured on his life. In such a case as that, he thought Lord Cairns's decision would work the highest injustice. He regretted, also, from another point of view, the difference of opinion that has taken place in the two decisions. The one we are told is law, and the other is not law. That may be very true in theory, but he thought that any lawyer, having to argue the same case over again in a court of law, would not be ignorant of the decision which has been given in the case of the Albert, and would bring that case to bear. The arguments of such a man as Lord Cairns cannot be passed over, and there will be great difficulty in saying which decision is to be followed. No doubt, if we are to follow the principle which Lord Justice James has laid down in Bell's case, and which, he thought, is just, there will be great difficulty in putting it into practice: there will be immense expense in proving in these cases of damage. But he believed the true, the proper, and just mode of winding up these Companies has not been applied. The proper mode, in his opinion, is to lump all the policies together and to prove for them; that is to say, that either by amalgamation, or by a temporary means of carrying on the business-because without the addition of new policies it would be impossible to continue the business altogether[Mr. BAILEY: "No"]-the proper way would be to issue new policies to the persons who have had the old ones reduced, and for them to pay the premiums reduced in proportion to the amount which they are to receive. Suppose that the Company has got into such a condition that it has only half the money necessary to get another Company to take over all its policy and annuity contracts. He would then hand them over, and arrange with the Office that took them that policies of only half the original amount should be issued, upon which only half the original premiums should be payable.

Mr. T. B. SPRAGUE said the question came before them under two aspects-one was the legal aspect, the question of how the measure of proof is to be made according to Acts of Parliament, the statute law, and the regulations of the Court of Chancery in force for the time being; and the other was the measure of proof according to principles that actuaries think correct and just. He would not dwell at any length upon the first aspect of the question, but thought there was something to be said which had not yet been said about it. Mr. Bunyon had said that, as far as possible, the just value of each claim is to be estimated. Now, he (Mr. S.) thought that the method which Lord Cairns has laid down does not give the correct value to the claimant, "as far as is possible." Lord Cairns disregards the state of health of the claimant, which certainly throws out of consideration one most important element in determining the value of the claims. If a man has a policy at a certain premium, it is quite clear that, if he is in a bad state of health-if his expectation of life is less than the average his policy is of much greater value than that of a person who is in robust health, who might go to another Office and get assured for a premium very little, if at all, exceeding that which he has been paying. Therefore, that decision does not carry out the principle of determining the value as far as possible. It might be difficult to lay down a

scheme which should do so but he did not think it impossible. One method