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a non-profit policy under a winding-up were maintained, it would have a very injurious cffcct upon policyholders, and it would be difficult in future to get anyone to insure on the participating scale.
The PRESIDENT, in asking for a vote of thanks to Mr. Bunyon, observed that he still held the opinion he had uttered on a former occasion, that it is quite impossible to devise an equitable mode of winding up an insolvent Life Insurance Company.
In the first place, with regard to the question of health, Lord Cairns had decided that that question is not to be taken into consideration in valuing the liability of the grantors of the policy to the policyholders; but if a life happens to drop before the stoppage takes place, then the full amount of the policy is to be a claim. The result of that may be, in the case of a man dying the day before the stoppage takes place, his representatives would be able to prove to the full amount of the sum assured, while those of a man who died the day after would only prove for the value of his policy, estimated upon his being a healthy life. It had been pointed out by Lord Justice James that, as deterioration of life is one of the considerations which the Office undertakes to guarantee the policyholders against, no cquitable adjustment could be made unless a proper appreciation of that deterioration were made in the valuation. The difficulty of making such a valuation was one reason that led him to the conclusion that you could never get an cquitable plan for winding up in cases of insolvency. He thought that there was a great deal of truth in what Mr. Pitcairn had said as to the view the policyholder, who knew nothing whatever about pure or gross premiums, or loading, would take of the matter. He would say, “I have entered into a contract for the payment of a certain annual premium in consideration of a sum to be paid at my death to my family, but you tell me you are unable to complete your contract.” If the Office were not insolvent, but chose to discontinue business, he would have a right to ask for such compensation as would enable him to go to another Office and get the same advantages as he had covenanted for with the first. But the failure of the Office has nothing to do with the amount of the policyholder's claim upon it. Of course, it makes the greatest difference as to what he can obtain from it, but his claim is the same, whether he gets one shilling in the pound or twenty, and we ought to consider the two questions entirely irrespective of each other. With regard to Lord Cairns's decision, there appeared to be a contradiction.
“How are the annuities to be valued ? They are to be valued upon a scale at which the Office would have granted an annuity on a life of the advanced age.” We suppose that the annuities are granted with the view of profit, so that, according to Lord Cairns, the annuity-holder is entitled to prove for the value of his annuity according to the Office tables, which are calculated to give a profit, while the policyholder is to have no such right. It must be remembered that the policyholders who have taken ont profit policies have contributed a large portion of the fund which it is proposed to divide. They have contributed a much larger proportionate sum than the non-profit policyholders, and yet, as he understood the proposal in the present paper, they are to be entitled to less than those who have contributed a smaller proportion. This seemed an anomaly which can never be upheld on any principle of equity. Moreover, he wished to protest against the statement which he had heard over and over again, to
the effect that the man who takes out a profit policy enters into a speculation. He thought the system of profit policies one of the greatest securities for the community in the practice of life assurance, and most valuable. What was the contract entered into between the assured and the Office ? It was this : “We say we will undertake for a certain " annual sum of money to pay another given sum of money at your “ death. We make our estimates according to the best of our ability as “ to the circumstances under which we shall accumulate the money we have “ agreed to pay; that is to say with regard to the probable mortality and “ rate of interest. The contract may last for 20, 30, 40, or 50 years. Those “ circumstances which we rely upon may vary very greatly in the course “ of that term, and, therefore, altho' we might be contented to take a “ lower premium from you if we could be assured our estimate could be
certainly depended upon, yet to guard us against fluctuations we take a
higher rate of premium, and that higher rate of premium will, if our “ calculations prove correct, give us a larger profit than we should be “ content to accept if we could be quite secure of obtaining it. Supposing, “ therefore, the profit to be realized, we shall be willing to return to you a “ considerable proportion.” That was not a system, perhaps, which could be defended on theoretical principles, but, nevertheless, it was a satisfactory system and one which contributed materially to the safety of Insurance Companies, and was, therefore, of advantage to the public. He did not think a person taking out a profit policy had entered into a speculation at
The same thing is done with regard to other insurances. In the case of marine insurances, for instance,-in war time it was common to take a heavy premium for a ship bound from some port abroad, when neither the insurer nor the insured knew the precise circumstances under which the ship was to sail. It was a common practice to take a premium—say of ten guineas—with a stipulation that if the ship sailed with a convoy, and arrived safely, a portion of the premium should be returned. [Mr. BAILEY.
- That is the common practice now.] The person who goes in for a return of premium does not enter into a speculation. He pays the extra premium as a protecting premium which more than covers the risk, and if the risk turns out favourably, he gets a certain return. Whatever opinions, however, might be formed on the subject of this paper, it was very important that it should be fully criticized and discussed.
Mr. BUNYON, in reply, said that the discussion proved how difficult it is to get over preconceived notions. The profit policy is the favourite of the Insurance Offices, and, therefore, actuaries find it very difficult to mete out justice to anybody else who comes in contact with them.
That appeared to be the foundation of the views enunciated on the other side. What really had been the contention all through was, that when a Company fails, a profit policyholder is to have a profit policy in some other Company. Now, if we look at it in that point of view, what can be more unreasonable ? A profit policyholder is entitled to have, and can only havc, his dividend, and it is unreasonable to propose that he is to be placed, notwithstanding the insolvency of the Company, in the same position as he would have been in if the Company had been in a condition to make a profit, by being given a profit policy in another Company. Now, he thought that very unreasonable, because you cannot alter the contract. The contract is simply that he shall have the sum assured and a proportion of the profit that is made, and also that he shall pay a premium daring the existence of the policy. Mr. Manly illustrated that question exactly with his statement about the builder. A builder has entered into a contract to build a house, and he is to receive certain sums of money for it. He digs the foundation and brings a few bricks on to the ground, and then fails. What measure of proof in bankruptcy can be brought against him? Why, the sum required to complete the house and nothing else. That is precisely our case, and shows that the insurer is entitled to prove for the amount of his contract, namely, the value of the sum assured, less the premiums—that is to say, if you put it the other way, the value of the money to build the house. [Mr. BAILBY—The employer did not contract for a share in the builder's profits.] That would have placed him in a more difficult position, but here, if he contracted to share in the profits, he contracted for something which eventually has no existence whatever. Now, in spite of this buying something which turns out a nonentity, if you give him a pure premium valuation, you give him a value for that bonus. He had suggested the measure of value as the difference between the non-bonus premium on one side and the actual premium, which might be a bonus rate, on the other, because the man had absolutely lost that for which he speculated. Now, with regard to the general scope of this paper, he did not think he had laid down any rule too strongly. He had contended that a pure premium value is not admissible, and rather proceeded to a consideration of the principles upon which dividend should be actually made, because it is impossible for any actuary to say decisively what decision should be ultimately arrived at. That can only be arrived at by the Courts of Law. A suggestion was made that he had overlooked the general order of the Court of Chancery. Now that general order he did not overlook at all, but the reason he did not mention it was this—the general order is difficult to apply, and no doubt will be very shortly brought under the consideration of the Courts, and really it does not affect the principle which he has laid down, and, therefore, he thought it better to omit reference to it. The general order does not apply to Insurance Companies only, but to all proofs under the winding up of Companics, and it says, practically no doubt, that the date at which the winding up order is made shall be the date of proof, but that must be only so far as it is practicable. Now, take the case of the European, where the affairs have been held in abeyance for six months at least, and consider how exceedingly difficult it would be to apply the date of the winding up order as the date of the proof, remembering that by the Winding-up Act—that is to say the Act of 1862—which is conclusively binding, while the general order is not equally binding upon the Court, but only explanatory of and subject to the statute—that the Winding-up Act does say that the date of the winding-up shall commence from the filing of the petition. He did not think it necessary to go further into details, because those persons who are conversant with this question will see it raises many difficulties as to the date at which the valuation should be made, and that matter must ultimately be decided by the Court. That was the reason he did not allude to the general order. As to what he had said about the pure premium having no existence except in the mind of the actuary, what he meant was this : That the pure premium depends upon the rates of mortality and interest which are used. There is no absolute purc premium. The pure premium has no independent existence in itself, but arises merely from the calculations which the actuary chooses to adopt. One gentleman observed that if the policy had a surrender value, then the policyholder had a right to claim, but that is not conclusive. If it can be shown a policy has no value, then it cannot be valued. [Mr. SPRAGUE—It may have a value by contract.] If you have a contract that must override everything else. He would illustrate that by this observation : Take the case of any Company which has been accustomed, from time immemorial, to use one method of valuation—take, for instance, the case of the Equitable. He could not conceive such a thing as the Equitable becoming insolvent, but it might be possible that the assets of the Equitable might be divided, and then it is perfectly clear that no better table or mode of valuatiou could be used than that table which has for the best part of a century been used by the Equitable—the Northampton Table. [Mr. Smith.—“ Many Offices advertize that after two or three years' premiums have been paid they will give surrender values.”] They may for the sake of obtaining business do that, and they may be content to give something; but that does not prove that the policy is itself worth anything. In conclusion, he would ask their careful and candid consideration of the arguments adduced in the paper, which, to his mind, were perfectly conclusive; bearing in mind that if you are to use a pure premium valuation, you are going to entitle a policyholder to prove for those profits which he paid for but cannot obtain.
Observations on the Rate of Mortality in Infancy and Childhood.
By WILFRED ARTHUR BOWSER, Actuary and Secretary of the London and County Provident Institution.
[Read before the Institute, 26 February 1871.] THE desirableness of obtaining trustworthy statistics as to the mortality prevailing in Infancy and Childhood has been frequently insisted upon by Actuaries; no apology therefore is needed for placing before the Members of the Institute the results of some original investigations into the subject. Whilst regretting that the materials at my disposal are not very extensive, I trust that this contribution to the subject of Vital Statistics will, nevertheless, be found to possess some degree of value and interest.
The difficulty of tracing a large number of individuals throughout the entire period between birth and death, in order to form an unexceptionable mortality table, may be said to be insuperable; and the only tables, with which I am acquainted, which trace a number of children from birth till death, or the date upon which the observations closed and the survivors were treated as still living, are those given by the late Rev. John Hodgson, M.A., in his “Observations on the duration of life amongst the Clergy of England and Wales”; wherein he gives the statistics of 1087 Children born to Clergymen residing chiefly in the County of Kent; together with those of 1839 Children born to Parents residing in the parish of St. Peter in the Isle of Thanet.
The investigations which form the subject of the present paper originated partly from a desire to obtain further information upon the subject of infant mortality, but chiefly because, having occasion to value the engagements of an Annuity Society for Baptist Ministers, their Widows and Orphans,—a portion of whose obligations consisted of contingent temporary annuities to children,-I considered it advisable to ascertain the rate of mortality actually prevailing amongst the class of children with whom I had to deal. Accordingly in October 1870, I issued a schedule in the following form to each of the Members, requesting him, in a circular attached, to fill it up, giving the date of birth of every child born to him and the date of death of each one who had died. I pointed out the absolute necessity, for my purpose, that the greatest care should be taken to give the dates correctly; and it may be well to observe that in the prospect of an increase of benefits from the Society, in the event of the Valuation proving favourable as was anticipated, there was a strong inducement on the part of the Member to supply the desired information, and to give it accurately.
With one exception only, the whole of the Members returned the schedule carefully filled up, the result being that 86 of them