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THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA.

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INSURANCE-ROYAL COMMISSION REPORT.

PART I.-LIFE ASSURANCE.

Presented by Command; ordered to be printed, 6th Jniy, 1910

t . t ·ven · 9n0 copies· approximate cost of printing aHd putJlishing, £126.] [Cost of Papm·.-Prepn.ra IOtl, no g1 , '

No. 6.--F.5332.

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Royal Commission Report-1. Introduction .. 2. Preliminary :::

3. Mode of Investigation

CONTENTS.

4. Scope of Inquiry ••• ...

5. Extension of time for furnishing report· ·· 6. for .Assurance legislatio1; ..

7. Provisions for securing stability

8. Life Assurance Legislation .•.

9. Exisll.ng Legislation

10. AtneriCan Legtslation ... ...

11. Necessity for a uniform Australian Life

12. Nr.ture of suggested Federal Law 13. of suggested Act .. · ·.. ·"

14. LICense to transact Business 15. of Life Assurance ..

16. Inspectwn of Pre-Registration Returns \7. Cancellation of License 11!. of Existing and ...

19. Expert AdviCe for Commissioner 20. Auatralian of Foreign

21. Representatives of all Companies 22. for Recovery of Penalties .. .

23. by or against a Private Person .. .

24. Deposit with Government 25. Periodical Returns to be lodged. with 26. of Returns to Shareholders and Policyholders 27. R1ght o! Inspection by Person interested ...

28. Inspection by Commissioner 29. Standard of Solvency... . . . . ..

30. Amalgamation &nd 'fransfer 31. Non-Forfeiture or Deferred ...

32. Cash Surrender Values ::: ...

33. Limitation of Con testability of Policy ••• .. .

34. Company's Default not to Affect Validity of Policy 35. Suicide ...

36. Cr.pital Punishment 37. Admission of Age 38. Proof of Death .. . .. . . ...

39. Protection of Policy Moneys against Creditors 40. Assignment of Life Policies .. . .. .

41. Lost Policies... .. . .• . . ..

42. Carrying a Liability to Increase

43. Marned Women's Policies ... .. . • •.

44. Minor's Assurances . .. . . •. . .. . ••

45. Payment without Probate or Letters of Administration 46. Transfer· from one State to another .. . .. .

f7. Relative Merits of Mutual and Proprietary Compan-ies 48. Representation of Participating Policy-holders -i9. Qualifications of Company's Actuary ... 50. Insurable Interest ...

·51. Industrial Assurance... ...

52. Deferred Bonus Distributions ... 53. Audit . 64. Twisting 55. Rebates ...

56. Standard Policies

Recommendations Appendix A.-Q.uestions submitted to officers of Life Assurance Companies ... Appendix B.-Replies to Questions submitted to officers of Life Assurance Companies Appendix C.-Correspondence with Life Offices' Association .. . ... ··· .. . ...

Appendix D.-Summary of evidence furnished in writing in response to request of Royal. Commission ... Appendix E.-Principal Life Assurance A cts in foree· in the Commonwealth of Austraha and the Dominion of New Zealand ...

Appendix F.-Life Assurance Legislation Comparative Statement ... to English Act of 1870 ... ".' ··· . . ...

H.-Comparison of schedules to Acts of Australian those of Act

Append1x I.-Statistics of business of Life Assurance Compames operatmg m Austraha ... .. . Appendix J.-Copy of Preliminary Report of Commission embodying application for extension of time Appendix K.-Not.ification of extensiot' of time ...

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THE OOMJJIISSION.

COMMONWEALTH OF AUSTRALIA.

EDWARD THE SEVENTH, by the Grace of God of the United Kingdom of Great Britain and Ireland, and of the British Dominions beyond the Seas, King, Defender of the Faith, Emperor of India.

GREETING:

TO our Trusty and Well-Beloved

The Honorable JosEJ?H HENRY HooD, one of mtr Judges of the Supreme Court of our State of Victoria; and GEORGE HANDLEY KNIBBS, Esquire, Commonwealth Statistician.

KNOW you that we do, by these our Letters Patent, appoint you to be Commissioners to inquire into and report upon the law relating to and the methods of operating Fire, Life, Industrial and other Insurance in Australia:

AND we appoint you the said JOSEJ?H HENRY HooD to be the Chairman of the said Commissioners:

AND we direct that, for the purpose of taking evidence, one Commissioner shall be sufficient to constitute a quorum, and may proceed with the inquiry under these our Letters Patent :

AND we further direct that in the event of the votes given on any question at any meeting of the said Commissioners being equal, the Chairman shall have a second or casting vote :

AND we require you, with as little delay as possible, and before the thirtieth day of June, in the year One thousand nine hundred and nine, to report to our Governor-General in and over our said Commonwealth the result of your inquiry into th6 matter intrusted to you by these mtr Letters Patent :

IN TESTIMONY WHEREOF we have our Letters to be made patent, and the Seal of our said Commonwealth to be thereunto affixed.

WITNESS our right trusty and right well-beloved WILLIAJ!!: HuMBLE, EARL OF DUDLEY, a member of our Most Honorable Privy Council, Knight Grand Gross of our Most Distinguished Order of Saint Michael and Saint George, Knight Grand Gross of our Royal Victorian Order, our Governor-General and Commander-in-Chief in and over our Commonwealth of Australia, at

Melbourne, in the State of Victoria and in the Commonwealth aforesaid, this fifteenth· day of December, in the year of our Lord One thousand nine hundred and eight, and in the eighth year of our reign.

(Signed) DUDLEY.

By His Excellency's Command, (Signed) E. L. BATCHELOR.

ENTERED on record by me in Register of Patents, No. 3, page 198, this sixteenth day of December, One thousand nine

hundred and eight.

(Signed) ATLEE HUNT.

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REPORT OF THE ROYAL COMMISSION ON INSURANCE.

PART I.-LIFE ASSURANCE.

To His Excellency the Right Honorable WILLIAM HuMBLE, EARL OF .DuDLEY, Member of the Most Honorable Privy Council, Knight Grand Cross of the Most Distinguished Order of Saint Michael and Saint George, Knight Grand Cross of the Royal Victorian Order, Governor-General and Commander-in­

Chief in and over the Commonwealth of Australia :

MAY IT PLEASE YouR ExcELLENCY-

1. INTRODUCTION.

We, your Commissioners, appointed by Letters Patent on the. fifteenth day of December, in the year One thousand nine hundred and eight, to inquire into and report upon the Ll.w relating to and methods of operating Fire, Life, trial, and other Insurance in Australia, having made diligent inquiry into the

matters referred to us:, have now the honour to present for Your Excellency's acceptance, the following i'eport.

2. PRELIMINARY iSTEPS.

Immediately upon their appointment, your took steps

to render themselves conversant with the 1aw and methods of transacting Insur­ ance business in the several States of the Commonwealth. With this end in view, they asked the Prime Minister to obtain for them from the Premiers of the several States the following particulars :-

(i.) Copies of Acts at present in force regulating the transaction o£ ·Fire, Life, and other Insurance. (ii.) Reports, if any, of State Government officers, Royal Commissions, or Parliamentary Select Committees on Insurance. (iii.) Returns showing the names and addresses of Insurance Companies

registered with the Registrar of Companies. (iv.) Particulars COJ}cerning the extent to Government property is insured with Fire Insurance Compames. (v.) The approximate proportion of the total risk which is carried by

Government Departments uninsured. (vi.) The nature and extent of special insurance funds (if any) created in such cases. (vii.) The ai?-ount paid by the Government in Fire Insurance premiums

durmg the last financial year. (viii.) The names of the Companies with which such fire insurances •re effected. ·

Your Commissioners also communicated directly with the Crown Law Departments of each State asking to be furnished with a complete reference to the legislation, past and present, of the State, bearing upon the question of Insurance, in such reference particulars relative to "Employers' Liability" and

" Workmen's Compensation."

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In response to these requests, extensive information was furnished by the State authorities concerned, which has been of considerable service to your Com-missioners. •

Your Commissioners are of opinion that a complete view of the position as regards Australia can best be obtained by examining not only the Australian records, but also those of other countries carrying on Insurance business under somewhat similar conditions. For this purpose extensive particulars were,

thrO'Ugh the Prime Minister of the CommonweaJth, obtained from the Prime Minister of New Zooland, while similar information concerning the United King­ dom, Canada, and South Africa was obtained as a result of direct communication with the Board of Trade, London; the Insurance Superintendent, Ottawa; and the Government Actuary, Cap·e Town, respectively. Your Commissioners were also informed that the various Companies carrying on Insurance business in Aus­

tralia were willing to furnish them with every information desired. They there­ fore determined to avoid, as far as possible, the tedious and expensive course of examining witnesses on oath, and decided to ascertain in the first instance how far they could proceed in a cheaper, quicker, and more satisfactory manner. They accordingly caused a set of questions to be forwarded to the representlltives of the various Companies transacting Life, ]'ire, or Accident Insurance business in the

Commonwealth, with a covering letter setting forth the objects and requirements of the Commission; The answers received to these inquiries proved, on the whole. very satisfactory, and showed that matter been g:one into very care­

fully by the persons to whom the mqmnes were submitted, with the result that your Commissioners were afforded the utmost assistance in their deliberations. In order to obtain the views of persons not directly concerned in the man­ agement of Insurance Companies, a notice was inserted in the :leading newspapers of the several States, indicating that your Commissioners were desirous of receiving

evrdenpe from any persons who, having given mature consideration to the various aspects of Life, Fire, or Accident Insurance, considered that the law or the methods in operation in Australia in connexion with these classes of business are, in the interests of the public, susceptible of improvement. This request resulted

in the receipt of a very few replies. In addition, two other informants furnished statements prior to the appearance of the notice referred to. Your Commissioners were informed that a body known as the Life Offices Association, and comprising representatives of most of the leading Australian Assurance had its head-quarters. ip Sydney .. that a Com­

mittee of the Assoetatlon had recentlv maae a cnt1cal exammat10n of the Law relating to Life Assurance in Australi'a, and had considered the subject generally, with a view to suggesting the lines which, in their opinion, legislation should follow. Your Commissioners accordingly communicated with the Assoaittltion, asking that they would be good enough to place the results of their deliberations at the disposal of your Commissioners. As a result of this communication. a special meeting of the Association was convened, and the suggestions formulated

thereat. :relative to amendments in the Australian law of Life Assurance were duly submitted to your Commissioners.

3. MODE OF INVESTIGATION.

In pursuing their investigations, your Commissioners have adopted a somewhat unusual course, inasmuch as they have not hitherto

taken evidence on oath. Their reasons for this are as follow :-The

subject which they are directed to consider consists partly of law which is tc, be :found in the various statute-books; partly of figures about which there can be very little dispute; and partly of matters of opinion which do not receive any extra weight by being given on oath. Any disputed questions of fact are very rare, and may easily be disposed of us they arise. Moreover, your Commissioners have had the-assistance of the evidence taken before a Select Committee of the Legislative Council of Victoria, in 1890, and the H ansaTd Report of the debates thereon; the evidence taken before the Life Assurance Inquiry Board of Victoria in 1896, and

the report thereon; the evidence taken before a Select Committee of the House of Lords in London, in 1906, and the report thereon; and the discussion in tl1e House of Lords and House of Commons on the English Life Assurance Companies - - -- .J

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of .1909; ·all directly in point. : In ·addition, they have had the

evidence taken by the Canadian Royal Commission ·on ·Insurance appointed in and the report thereon, together with some evidence taken in·New York;·­

whiCh also been of. indirect assistance. Numerous papers and discussions repo.rted I.n the pr?ceedmgs of professional societiesin Australia and elsewhere with questiOns. of law and practice of Life Assurance have also been

exammed, and useful hmts and suggestions have been derived therefrom.

4. SCOPE OF INQUIRY.

Hoyal Patent appointing y·our . Commissioners set forth that

the. obJect of that appomtment is "to inquire into and report upon the ·law re­ to, the of 1operating Fire, Life,· a!ld other

m This has not been understood by your Comnnsswners as reqUiqng

an of . the financial position of any of the companies carrying on

Ih but as requiring a review of the nature of the

busmess winch such compames transact, and of the laws which at present control their operations. The instruction "to report upon" the law and the methods appear to call for definite expressions of opinion on the part of your Commis­ siOners concerning amendments which they consider desirable and to warrant them in furnishing extensive recommendations. It has been considered necessary to specially refer in this place to the interpretation placed by your Commissioners

upon their instructions, as certain comments which have been published appear to have been dictated by an idea that their labours would lie mainly in the direction of an exhaustive audit and actuarial investigation of the . business of existing companies. Apart from the fact that had any such searchi;ng finan­

cial inquiry been desired it would have been embodied in a definite unequivocally set forth in the Commission itself, and not have been left a mere matter of inference, the time allotted clearly showed that no such intention existed. Such a:ri investigation as that suggested would necessarily have involved

a very large expenditure of time and money, and would have virtually amounted to a radical change in the method of regulating insurance business without the requisite authority from .Parliament. What your Commissioners have done has been to suggest a course of action which, as the result of their inquiries, they' believe will lead to satisfactory results, and which, while safeguarding the interests

of the public, will not unduly- .harass the companies or retard the development of insurance along those lines which best meet the public requirements.

5. EXTENSION OF TIME FOR FURNISHING REPORT. The very complex character and extensive range of the subject referred t0 your Commissioners has rendered impossible, within the time laid down in the Commission, an exhaustive consideration of all aspects of Insurance. Your Com­ missioners consequently decided to devote their attention in the first place, mainly to the business of Life Assurance (Ordinary and Industrial), and to examine thoroughly the Australian law and methods in connexion therewith, so as to be

in a position to present an early report on this important branch of Insurance business, reserving other branches for subsequent reports. One of your sioners (Mr. G. H. Knibbs) was about to leave for Europe upon public business, in the course of which he would attend, as representativ_ e of the Commonwealth. an

International Congress of Actuaries, to be held in Vienna, between the 6th and 13th of June. Before presenting their report on Life Assuro.nce, your Commis ;. sioners were desirous of considering the various aspects of the question in the light of the information obtained from the discussions of this Congress, which would have a direct bearing upon the subject submitted to them. Under these cir7

cumstances, therefore, your Commissioners respectfully requested that the time for presenting their final report be extended at least to 30th June, 1910. To this re­ quest Your Excellency was graciously pleased to accede.

6. NECESSITY FOR LIFE ASSURANCE LEGI6LATION. ' The necessity for special legislation dealing with the business of Life Assurance recognised in almost all_ in such business is

transacted, and .m general it has been considered msufficient to allow only the

general law relating to contracts to apply to this class of business. The maHJ. features of Life Assurance business that have contributed to this result may be ro:fd to be as follows:-(i.) The fiduciary character of the business, and the remoteness of the

date of maturity of the contracts. (ii.) The objects for which assurances are usually effected. (iii.) The conditions under which the contract usually matures, viz.:--by the decease of one of the parties. . .

(iv.) The circumstances under which the recipients of policy moneys are often placed. (v.) The complexity of the business and the far-reaching effects of maladministration. Although the business of Life Assurance consists essentially in the deposit and withdrawal of moneys under certain conditions set forth in the contracts forming the basis of the business, and for that reason might appear, on a limited view, to stand in no greater need of special legislation than such a business as banking, nor to require for its control any further provision than the law relating to contracts in general, the features above set out furnish ample reasons for special legislative control. Even when compared with other forms of insurance, Life As­ surance business may be said to occupy almost a unique position, and to warrant in connexion with the institutions transacting it, regulations which in many other cases might be considered unduly inquisitorial or dictatorial. For example an essential distinction between a Life Assurance contract and that connected with almost any other form of insurance lies in the fact that the former contract is for an extended period, while the latter usually relates only to a year or shorter term, or perhaps, in the case of marine insurance, to a particular voyage. A conse­ quence of this, where the Life Assurance is by level premiums, or premiums of

constant amount throughout the duration of the period stipulated for their pay­ ment, is that whilst each annual premium in the earlier years of the Life Assur­ ance contract contains more than sufficient to pay for the risk run in the year m respect of which it is paid, the premium in the case of most other forms of in­ surance merely covers the risk for the year or shorter as the case may be. The excess in the earlier Life Assurance premiums over the value of actual risk incurred, requires to be accumulated to meet the defect in the premiums payable. in respect of the later years of the contract, rand for this reason Life Assuranc0 funds partake. largely of the character of trust funds. Owing to this character­

istic it is necessary that greater precautions should be taken to ensure the stability of Life Assurance Companies than is necessary for securing that of Companies not transacting this or a similar form of insurance business.

7. LEGISLATIVE PROVISIONS FOR SECURING STABILITY. The two principal methods which have been adopted by the legislatures of various countries for ensuring the stability of the Companies transacting the business of Life Assurance are those which may be known as the "Publicity" method, and the " Supervision " method, the former being that which has been followed in England, and the latter that which is in vogue in America. Under the "Publicity" method, each Company is required to publish such full details of its business as would enable. any competent person to form a general opinion of the stability of the Company. Under the "Supervision" method a scrutiny of a more or less searching nature concerning the detailed workings of the Company's business is undertaken by . the Government. The main objection to the " Pub­ licity" method is that by its means rival institutions are placed in possession of information which may be, and is alleged to be, used unfairly. As a

consequence, •:1 sound and progressive, but young, Company may possibly by such means be seriously checked, if not ruined. The business of Life Assurance is so complex that the unscrupulous use of comparative results of different companies might easily convey ideas of instability which, though wholly unjustified, gain strength from the fact that the comparisons referred to are based upon figures published in official returns. The principal objections to the "Supervision" method are (a) that the Government scrutiny may be presumed by the public to imply a Government guarantee of the stability of the institution concerned; (b)

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that such an impression tends to reduce the sense of resronsibility, and the efficien?J: of the officers ?f the Company; and (c) that the expense of efficient supervision must be considerable.

8. ENGLISH LIFE ASSURANCE LEGISLATION.

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legislation dealing specially with the business of Life Assurance

may be sa1d to from the passing of Life Assurance Companies Act

1?70. The PohcMs of Assurance Act 1867, which was passed three years pre­ relates merely to the assignment of Life Assurance policies, and contains

proviSIOns_ for enabling assignees of such policies to sue thereon in their own names. The passing of the English Act of 1870 was the direct result of the of. c.ertain Life Assurance Companies, and the necessity, shown by the

d1stress ansmg therefrom, for some special means of ensuring the stability of Companies transacting this class of business. Of the companies which collapsed during this period, the "Albert" and the "European" were those whose failure caused the most widespread loss. The former of these, it may be noted, had, iu

its _ career of thirty-one years' duration, absorbed no fewer than twenty-six other Life O-ffices. The provisions of the Act of 1870, and its extensions in the Life Assurance Companies Act 1871 and the Life Assurance Companies Act 1872, are given in a summary form in Appendix F hereto. These Acts, which, to,ken

together, were known as the Life Assurance ComDanies Acts 1870 to 1872, have formed the basis for most of the Australian legislation for regulating the business of Life Assurance. During the session of the British Parliament in 1909, a Consolidating and Amending A\Ct was passed, which, in so far as it relates to Life

Assurance, follows the same general lines as the Acts of 1870 to 1872.

9. EXISTING AUSTRALIAN LEGISLATION.

In Appendix E hereto, are given lists of the Acts of the several States of the Commonwealth dealing with Life Assurance matters. In each State, with the exception of New South vVales, there exist legislative enactments dealing with the conduct of Life Assurance business, which follow more or less closely the pro­

visions of the English Acts of 1870 to 1872, but which differ from them and from each other in many matters of detaiL A of these

is furnished in Appendix F hereto, thus enabhng the mam fe.atures of the provi­ sions of the several State enactments, and those of the Enghsh Acts, to be com­ pared. In all these Acts, the principle of requiring the extensive publication of details of business, and of allowing practically complete freedom as to methods

of conducting such business, is observed; in short, they conform to the " Pub­ licity," and not to the " Supervision" method.

10. AMERICAN LEGISLATION. In the United States of America, on the other hand, the principle of Government supervision has been extensively applied, •J.nd as each State has power to make its own insurance laws, and in many instances used power to

regulate and control the methods of conducting the busmess. of Life Assur.ance within its boundaries, the restrictions imposed on Compames spreads over several of the States, is cm;sideroble. Some of the leadmg provisiOns of these State laws relate to the followmg matters:-

(i.) Authority to transact business. (ii.) Appointment of Attorney in each State. (iii.) Liability to special taxation. (iv.) Possession of stipulated amount of funds.

(v.) Filing of annual accounts. . (vi.) Methods and bases of valuatiOn. (vii.) Annual licensing of agents. (viii.) Prohibition of discrimination.

(ix.) Fraudulent statements. (x.) Paid-up insurance.

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-_ In all cases an Insurance Commissioner is appointed, and in a majority of tne States the tables of mortality and rates of interest according to which the liabilities of !the Company must be valued, are specified. The diversity in the State laws has been a cause for frequent complaint on the part of the American Com­ panies with widely spread business, and the case for uniformity in this respect has been well stated by the late Mr. Sheppard Romans, an eminent New York Actuary, as A Life Insurance Company essentially consists of a trust fund and

the proper administration of such a fund demand3 equality between the benefi­ ciaries. As the policy holders, the sole beneficiaries of such a trust fund reside in different States, the necessity of uniform laws for the administration of the trust inheres in its very nature. 'l'he rights of a beneficiary residing in one State in the administration of such a trust should be determined by the same law which governs those of his fellow benefiei•aries residing in other States. Any dis­ crimination in favour of a beneficiary residing in one State would impair the

vested rights of beneficiaries residing in other States.':

11. NECESSITY FOR A UNIFORM AUSTRALIAN LAW OF LIFE ASSURANCE. Owing to the nature of the legislative enactments of the se•eral States of the Commonwealth, relative to the conduct of Life Assurance business, and the

fact th•:tt these 'have all had a common basis, viz., the English Acts of 1870 to 1872, there does not exist in Australia the same degree of inconvenience and want of equity from variations in State legislation that are to be found in America; but even here the diversity is of such an extent that the enactment of a uniform :Federall•aw superseding the existing State legislation would represent a distinct gain to the Companies transacting Life Assurance business in Australia, and in­

directly to their policyholders, since under :i.t the present necessity for lodging separate deposits and returns of revenue, expenditure, assets, liabilities, &c., with the separate State Governments would be obviated, the deposits a,nd returns loJged with the Commonwealth Government applying to the whole of A\ustralia.

The authority for such a Federal law is furnished in Section 51, Sub-section xiv., of the Commonwealth Constitution, in which power "is given to the Commonwealth l)arliament "to make laws for the peace, order, and good government of the Commonwealth with respect to Insurance, other than St'ate Insurance, also State Insurance, extending beyond the limits of the State concerned."

12. NATURE OF SUGGESTED FEDERAL LAW. In view of the nature of the existing hws of Life in Australia,

of the conditions under which the business of Life Assurance in the Common­ wealth has been developed, and of the generally satisfactory nature of that busi­ ness and the methods by which it has been transacted, it appears desirable that the suggested Federal .A,ct should be based upon the principles underlying the English Acts, that is, that it should proceed, in the main, upon the lines of the

''Publicity" method rather than upon those of the "Supervision" method. It is, of cou:z:se, not intended to suggest that the provisions of the Federal Act should adhere closely to those of the English Acts, as the period of nearly forty years which has elapsed since those Acts were passed has witnessed many important developments in the fieid of Life Assurance, and the difference in the circum­ stances and conditions connected with this business in England. as compared with those in Australia require to be taken into account.

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13. ADMINISTRATION OF SUGGESTED ACT.

In the case of the United Kingdom, the returns furnished by the various Companies are printed annually, presented to Parliament, and made available for public sale. In the several States of Australia, on the other hand, the returns a!e lodged with the Registrar-General, or other officer occupying a similar posi­ twn, but except in so far as extracts and summaries are obtained therefrom for statistical purposes, the returns do not in any case appear to be made readily t? the _Public by the Government. It is probable that, .in connexion with

the admm1stratwn of the suggested Federal Life Assurance Companies Act, the

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most would be obtained by appointing an officer possessing

the requisite qualificatiOns to some such position as that of "Insurance Commis­ and by !eqU:iring him to see that the provisions of the Act are duly com­

pl.Ied ":"Ith. 1'his officer should be required to promptly examine all returns 1odged w1th h1m and to forward to the Company concerned any queries or comments in c?nnexion therewith that he may consider it necessary to make. • After sufficient t1me had eloapsed to admit of replies being received from the vari<:>us Companies.

the o! the returns, together with such queries, comments, and replies should be m such form as the Commissioner deems desirable, for presentation to Parliament.' and for public distribution. By such means the fullest publicity would be given to the business of the companies, and to their explanations of any

may have appeared to the Commissioner, to require elucidation,

and the similar features of the returns could, if desired, be presented in a suitable form for effective comparison.

14. LICENSE TO TRANSACT BUSINESS. On the due compliance by any company with the requirements of the Act, your Commissioners consider that the company should receive from the Commi s.sioner a license entitling it to carry on the business of Life Assurance in the

wealth, and that such license should continue in force until it had been proved to the satisfaction of the Commissioner that, owing to misadventure, fraud. or other cause, the Company was no longer worthy of public confiaence. It may, perhaps, be thought, and it has been alleged, that the of such a license by the

Government would be taken by the public as a guarantee of the stability of the Company, but such an opinion does not appear warranted, since in many other classes of business licenses are issued without any implication of Government guarantee.

15. REGISTRATION OF LIFE ASSURANCE COMPANIES. Before the issue of a license to any Company, it should be compulsory for he Commissioner to obtain evidence concerning the Company's bona fides, and aJso to procure from the Company for public inspection such documents and

returns as would enable an intending policyholder to form a reliable opinion cerning the stability of the Company. By such means, while not undertaking to auarantee stability, the Government would be ensuring that the claims of any such Company for consideration should be made fully •:lvailable to all whom it con-

cerned. ··

One of the primary evidences of bona fides should be the lodging with the Governn;ent of adequate and .no Company should be reg;istered for transactiOn of Life Assurance busmess m the Commonwealth until such depos1t had been lodged. A copy of the document constituting the whether.

Ac.t, Royal Che.rter, Deed of Settlement, Memorandum of AssoCiatlon, or other document, should also be lodged as further evidence of the Company's standing, and this document should be accompanied by particulars concerning the share·· holders, chief executive officers, auditors, solicitors, and bankers of the Company, as

well as the name and qualifications of the Actuary responsible for the valuation of the Company's liabilities and assets. In connexion this latter, it appears advis­ able that a statement should be given as to the relatwn of the Actuary to the Com­ pany, that is, whether continuously employed as an ?fficer of the Company, o! only

retained for special purposes, If the Company Is one already engaged 1ll the business of Life Assurance, it should be required to furnish particulars of its revenue and expenditure for its previous financial year, and a copy of its latest V>:1luation report. ..T.hese, toget . her with. a statement o.f the .met.hods in making the valuatiOn, and the rate of mterest. at the funds are mvested,

would enable an idea to be formed of the financial positiOn of the Company. formation should also be furnished concerning the oopital ?f the Cm;npany if proprietary; and a distinction should be made between nommal, subscnbed, and paid-up capital. H to the foregoing a ropy of the Company's Articles

of Association, By-laws, &c., the locatiOn of Its Head Office, a statement of the countries in which it is doing business, and of the branches of business in which it is eno-aaed. it mav be considered thilt a sufficiently complete funrl of information the and methods of the Company will have · heen obtained.

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16. INSPECTION OF PRE-REGISTRATION RETURNS.

. . In order that the documents and returns lodged with the Insumnce Com­ missiOner on application for registration should fully serve the purpose for which they intended, it would be desirable that arrangements should be made for the to inspect them on the payment of a nominal fee, say, two

and. sixpence (2s. 6d.). Such inspection would probably be most readily

provided for at the office of the Insurance Commissioner.

17. CANCELLATION OF LICENSE. As the issue of a license to transact Life Assurance business is contingent upon Comp 8:-ny duly satisfying the Insurance. CoJ?missioner that it. has complied with the reqmrements of the Act, and has furmshed the prescribed of. b_ona fid es, so any deliberate failure in the continued compliance

with the provisions of the Act on the part of the Company, or the possession by Commissioner of evidence sufficient to satisfy him that the Company is in an

msolvent condition should warrant the cancellation of the license by the Commis­ sioner. Where, for example, it has been found that, through loose methods of business, th;rough malversation of funds, or for other causes, the Company's position has become hopelessly insolvent, it would clearly be inadvisable to permit the Company to continue to take new business, and the cancellation of its license should be a necessary consequence. It would also appear desirable that the con­ tinuance in fore& of the license should depend upon due compliance with the

provisions of the suggested F ederal Act since that A.ct is intended to safeguard the interests of the policyholders, and since also a wilful failure to comply in any material point should be regarded as a serious offence. Moreover, should a charge of corrupt practices or malversation of funds be proved against the Company a cancellation of the Company's license should follow. In order, however, that the

Company may have due opportunity to appeal against the action of the Commis­ sioner, it should be provided that the cancellation shall not take effect for the period of one calendar month, during which time the Company may apply to the Court to restrain the Commissioner, and power should be given to the Courts to deal with the matter.

18. REGISTRATION OF EXISTING AND NEW COMPANIES.

All Companies carrying on the business of Life Assurance, whether exist­ ing prior to, or starting subsequently to, the commencement of the proposed Act, shou1d be required toregister with the Commissioner, and to obtain a license from him. In the case of existing Companies, a term, say, of six months, might be allowed within which registration should be effected, but failure to register withiD

that time should obviously carry with it a somewhat heavy penalty. Similarly the commencing of Life Assurance business in the Commonwealth without due registration should be punishable. If the principle of pub1icity .is to be fully carried out, it must be enforced at the initiation as well as at the subsequent stages of the company's business in the' Commonwealth. As to the extent of the penalty, it may be suggested that an initial penalty of, say, £2,"000 for the original offence, with a further peru-:1lty of £500 a day for a continuance of it would probably act as

a sufficient deterrent. A similar penalty per day should also attach to any Com­ pany continuing the transaction of Life Assurance business after the cancellation of its license.

19. EXPERT ADVICE FOR COMMISSIONER.

I n many matters connected with the business of Life Assurance, particu­ larly in connexion with such matters as solvency, amalgamation, and transfer of Companies carrying on such business, it is of importance that the interests of both the public and the Companies concerned should, as f•:1r as possible, be safe­ guarded. For this purpose, it appears desirable that the Commissioner should be

authorized to obtain such actuarial, or other advice, as may, in his discretion, appear to be necessary.

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20. AUSTRALIAN REPRESENTATIVES OF FOREIGN COMPANIES.

. For the purpose of facilitating negotiations between the Commissioner and Companies, it would appear desirable that some person permanently resi­

dent m the Commonwealth should be nominated to act in all such matters as tho of the Company, and that all contracts and agreements made by

him on. behal.f of the Company should be binding on the Company. At present, in With some branches of Insurance, certain Companies have central Aus­

tralian offices, while regard the business of each State as forming a sepa­ rate agency in direct communication with Head Office. As this latter arrange-· ment would, in connexion with the suggested Federal Act, only tend to complicate matters, it aprears desirable that in all cases of foreign offices conducting Life

Assurance busmess in the Commonwealth, an Australian representative should be appointed, and tba.t his name and address should be registered with the Com­ missioner. It would, of course, be necessary to arrange for the registration of a, fresh representative from time to time as occasion required. •

21. STATE REPRESENTATIVES OF ALL COMPANIES. For the purpose of providing with the most complete facili­

ties for obtaining the rights accruing to them under their · contracts, it

would appear desirable that in each State of the Commonwealth in which any Company is carrying on the business of Life Assurance, a permanent resident of the State should be appointed as the agent of the Company for the purpose of suing, or being sued, on behalf of the Company. Where the Company is a foreign

one, the Australian representative might, if it be so desired, be also the State repre­ sentative for that State in which he permanently resides. The necessity for such a representative is evidenced by the fact that in New South Wales an action against a foreign Company failed on the ground that the Company was not

domiciled in that State. (See Trans. 2nd International Actuarial Congress, 1898, p. 187.) 22. ACTION'S FOR RECOVERY OF P.ENALTIES. It is desirable in all cases th.at the against a Company for the

recovery of penalties should be so taKen as to inflict on the Company as little hard­ ship as possible in addition to the penalties themselves. With this end in view, it is suggested that all actions for the recovery of penalties taken by the Govern­ ment should be taken in that State in which the offence is alleged to have occurred,

and that if it is alleged to have occurred in two or more States, the action should be taken in the State in which the Head Office of the Company is .situated, or in which, in the case of a foreign company, tbe representative o[ the

Company is registered as resident. Such penalties should be sued for

in .the naJIIle of the Insurance Commissioner, or any person authorized in writin()' by him to act in his behalf. All moneys received by way of penalties should 0

be paid by the Commissiqner into the Consolidated Revenue Fund of the Commonwealth.

23. ACTION BY OR AGAINST A PRIVATE PERSON. Where the. action is taken by or as-ainst a than a

tive of the Commonwealth Government, It would be meqmtable to reqmre the attendance of such .a person at a Court in any other that in which he

resides. The cost of an action often falls with comparative lightness on the Com­ pany which bas extensive resources available f?r such w:hile on the indi­ vidual litigant the law costs may press heavily, hence It IS desuable, as far as possible, to limit the expenses of action.

24. DEPOSIT WITH GOVERNMENT. At the present time a deposit with the Government is required in all the States, except New South' Wales, from Compan!es commencing the of Life Assurance therein but the amounts vary considerably, as also do the conditiOns

relative to the or return of such deposits. In Victoria, a deposit of

£5,000 is required, and this deposit is returnable to the Company when accumulation of premiums reaches £15,000. In Queensland and Western Austraha

14

the deposit, which is not returnable, amounts to £10,000, while in South Australia there is a non-returnable deposit of £5,000, rising to £20,000, 'and in Tasmania a deposit of £5,000, returnable in the case of a local Company on the accumula­ tions of premiums reaching £15,000, but not in the case of a foreign

Company. The English Act of 1870, from which the principle adopted in these State Acts has been derived, provides for a deposit of £20,000, to be returnable when the accumulated premiums amount to £40,000.

The main object in requiring a deposit has been that of preventing the pro­ motion of "bubble" or "mushroom" Companies, but it has been urged that the imposition of a heavy initial deposit would effectually prevent the formation of any mutual societies. It has also been stated that if the present English law relating to deposits had been in force in Australia throughout, none of the exist­ ing Australian mutual offices could have been .started. A reason which IDas been urged in favour of the principle of requiring a Government deposit has been 'that of guaranteeing that a certain amount of funds should be available in the State to meet any claims arising in the State. In several cases the Acts distinctly provide that the deposits in the State should be regarded as securities to be held for the

benefit of that State's. policyholders, and should not be withdrawable whilst any policies on the lives of citizens of the respective States remain in force. The question of special deposits with the Government in the case of .foreign companies was exhaustively investigated by a Committee of the British House of Lords in 1906, and objections raised to such a course are stated in the Commit­ tee's Report in the .following terms (see House of Lords' Reports, 1906, p. 217) :-

The principal objections raised by the witnesses to making it compulsory on Foreign Companies t) deposit in this country funds (beyond the sum of £2o,ooo under the Life Assurance Companies Act of r87o, to which reference will :be made in a subsequent paragraph) for the special benefit of their British policyholders seem to be:-

(i.) That such a system would be contrary to the principles with regard to Insurance Com· panies, which have hitherto prevailed in Great Britain. (ii.) That it would violate the principle that the whole of the funds of an Insurance Com­ pany should be available for the claims of all policyholders alike. (iii.) That if any regulations of this. kind 'Yere adopted it would undoubtedly lead to

reprisals on the part of Foreign Governments. (iv.) That if any such deposit of funds made compulsory on Foreign Life Companies, it might lead the public to suppose that the solvency of such Companies was guaranteed by the British Government.

(v.) That any such deposit might seem to imply a st!l-tutory basis of valuation, the tendency of which, it has been pointed out, would be likely to weaken rather than to strengthen reserves. (vi.) That any such deposit of securities would appear to give an unfair advantage to

British subjects holding policies in a Foreign Company, whilst under such limited State supervision it is doubtful whether the policyholders would be as well pro­ tected as they are by the control through publicity and freedom, which exists with regard to British Companies.

The report then proceeds as .follows:-In view, therefore, of the evidence which they have beard, the Committee do not consider that, in the interests of British policyholders, it is desirable to compel Foreign Companies to deposit funds in this Country.

But the Committee, although they cannot recommend that any obligation should be placed on Foreign Companies to which British Companies are not also liable, are of opinion that Foreign Com­ panies, which do business in this country, should be placed as far as possible in the same position as the British Companies with which they compete. They should, in fact, be made, as far as possible, to comply in all respects with the requirements of the Life Insurance Compajllies Act of r87o. ·

The statement that the Committee did not consider it "desirable to compel Foreign Companies to deposit funds in this country" would appear in the light of subsequent statements and recommendations in the Report to require a qualifica­ tion similar to that used in the paragraph summarizing witnesses' objections. What the Committee evidently intended to state was that it did not consider it " desirable to compel Foreign Companies to deposit funds in this country " beyond

the sum of £20,000, under the Life Assurance Companies Act of 1870. The recommendation of the Committee with reference to Government Deposit was "that every Company which carries on business in Great Britain should be required to maintain this- deposit of £20,000 permanently so long as any poheies continue outstanding in this country." This recommendation was em­ bodied in the Act which was passed by the British Legislature in 1909.

15

. With a vi.ew to ascertaining the opinions on this question of representa-of transacting Life Assurance business in the Commonwealth, a

senes of was submitted, the replies to which appear in Appendix B

hereto. 65-70. The opinions expressed differ considerably from each

other, but the of opinion appears to favour the provisions of the English Act for a of £20,000, with a proviso, however, similar to that of House

of for a permanent retention of the deposit, while Australian

r:emams on companies' books. The weight of opinion also is in favour

of reqmrmg a deposit from all companies, and not only from those commencing business, thus further agreeing with the recommendation of the House of Lords Committee.

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. A as the a d.eposit bearing a definite

ratio to liability mcurred, elicited conflictmg rephes. For example, the of one Company stated that he thought "it would be an excellent

If the Government were to a deposit of assets representing the

liability on, say, 4 per cent, pure premmm basis," and remarked further that "if assets were made readily .available by the Government, there could be no more objection to depositing with the Government than with a bank or a safe deposit company." On the other hand, one representative stated that he believed " such a method would be unsound in practice, and hurtful to Life Insurance institutions

generally," while another-who said that" if the ratio referred to were much less than unity, the Commonwealth would appear ridiculous when winding up, showed that it had been holding on to an insufficient amount of deposit "-stated that" if the ratio were unity, or nearly so, the solvent companies would be much hampered · in their operations needlessly." .

In January of the present year the matter was also oonsidered in Sydney by a meeting of the Life Offioes Association, at which most of the Australian companies were represented. In the opinion of the Association, it was desir­ able that a Federal Life Assurance Act should contain provisions " that an

initial deposit of £10,000 be made by every Company, to be increased from time to time by an amount equal to 25 per cent. of the excess of the Company's receipts over disbursements within the Commonwealth until a maximum of £100,000 has been deposited. Such deposits to be in the form of freeholds, mortgages, and other approved securities. The Company to have the right to withdraw any

deposit on substituting securities of equal value. All deposits to be liable to be levied upon in satisfaction of a Supreme Court judgment." After a careful examination of the various aspects of the question, we consider that it is desirable that a substantial deposit should in all cases be lodged with the Commonwealth Government, and that-the case of any Life Assurance

Company formed within the Commonwealth after the passing of the Act should receive special treatment. · We also agree with the principle contained in the recommendation of the Committee of the House 1 0f Lords, and provided for in the Assurance Companies Act of 1909, viz., that the same deposit should be

required from all Companies carrying on the business of Life Assurance in the Commonwealth, and that it should be retained so long as any of the Gompany's Commonwealth policies continue outstanding. This deposit, it must be understood, is not to be. regarded. as in any way guaranteeing the solvency of the Company, or as formmg for the S?le

benefit of the Commonwealth policyholders, but only as providmg a substantial sum which, in case of need, may, by order of the Court, be made . to

creditors of the Company. In the event of de?lared we are of .opmwu

that the. course suggested by the represent.at1ve of (;me of the Appendix B, QuestiOn 70, Reply 4) should, m the mam, be followed; that IS, 1La Company becomes insolvent, the deposit should not be held by the until the whole of the Company's liabilities in the C?mmonwealth shall be paid m

full, but only until the liabilities of the Company m the Commonwealth on the basis of the winding up are paid in full, and any surplus be

to the. liquidator to enable him to carry out the scheme of Distnbutwn of Assets. As regards the amount of deposit to be it a;ppears to that an

initial deposit of £20,000 by existing Compames, or formgn com­

mencing business rising by annual increments of £10,000 to a maximum of

. •f'

16

£100,000, would not be unduly severe, and would furnish all that could be reason­ ably required as a guarantee of the bona of any Company undertaking tho business of Life Assurance in the Commonwealth. As to new companies, the objection that such a stipulation if unqualified, would prevent the formation in the Commonwealth of any further mutual societies appears to us a valid one, as we consider that it should be no part of the business of the Legislature to prescribe, either directly or indirectly, the proprietary form of government as that to be adopted by future Australian Life Assurance Com­ panies. It would, however, he impolitic in our opinion to reduce the initial deposit to a merely nominal amount, as that would offer no safeguard against the

introduction of so-called "mushroom " companies. We are of opinion that the best course to follow would be to require an initial deposit of not less than £2,000 with annual increments of 25 per cent. of the premium income of the company until the maximum of £100,000 is reached, provided that if 25 per cent. of the premium income should in any year exceed £10,000, no greater increment than

£10,000 should be required. As regards foreign companies proposing to commence business in the Com­ monwealth, the same objection to a heavy initial deposit does not apply, for we consider that no foreign company should be regarded as eligible to conduct Life Assurance business in the Commonwealth until it has established itself sufficiently

in its country of origin to be in a position to make the initial deposit of £20,000 with) the suggested annual increments. In some cases the provision of an initial deposit of £20,000, with annual increments of £10,000, might possibly press unduly on certain -recently formed companies at present carrying on the business of life assurance in the Common­ \vealth. In this case we would suggest ·that the initial deposit should represent not less than 25 per cent. of the present assurance fund of the company, and that

the annual increments should represent 25 per cent. of the premium income, or £10,000, whichever is the smaller, the determination of the amount of the initial deposit being decided, with the above proviso, by the Insurance Commissioner. The nature of the securities lodged by any company will, of course, depend

largely upon the class of business done on the investment side of the company's business, but in every case these should be subjected to careful scrutiny, and should be accepted only if approved by the Government official responsible for the custody of trust funds. It would also be a serious handicap to a company if the retention by the Government of its securities should lead to its losing an opportunity for a sound and profitable change of investments. It is conse­ quently considered that provision should be made for enabling any company to substitute, at as short a notice as is consistent with a careful scrutiny, other approved securities of the requisite amount for those previously deposited. In the absence of an offic.er specially appointed to undertake the custody of trust funds, we consider it desirable that the Commonwealth Treasurer should be responsible, and that the Secretary to the Treasury shoula furnish to the Insur­ ance Commissioner annually, or at such shorter periods as may be deemed advis­ able, returns showing the nature and extent of the securities held' in respect of the various companies. It also appears desirable that any proposal to substitute fresh securities for those already lodged, should be notified to the Insurance Commissioner, so that he may be informed in regard to all the transactions of the companies. As the amounts lodged with the Commonwealth Government are intended to be sufficient for the whole Commonwealth business of any com­

pany, each company which has a aeposit lodged with a State Government should be empowered to withdraw it on making the requisite deJ?Osit with the Common­ wealth Government, or, if so desired, and the securities are approved by the Commonwealth Government, to arrange for the transfer of the custody of the 3ecurities from State to Commonwealth Government.

As the deposits are required mainly for the purpose of ensuring that any action in the Courts which has gone against a company should have reason­ able certainty of prompt satisfaction, it would be necessary to authorize the Commonwealth officer responsible for the custody of trust funds, if so directed by the Court, to satisfy any judgment given against the company out of the securities held by him in respect of the company.

17

It is possible that by the operation of orders of the Court, such as that referr.ed to, ?r by depreciation in the value of securities, the amount of the held m respect of any company m1ght become less. than that statutorily

In such a. case it would, of be necessary for the Insurance

CommissiOner to a further deposit, and any failure on the part of a

to comply With such a request, within a reasonable time, should

furmsh grounds for the cancellation of its license.

25. PERIODICAL RETURNS TO BE LODGED WITH GOVERNMENT . . In cases i.n any appropriate measure of legislative control is

exercised m connexwn with the business of Life Assurance somewhat extensive from the companies carrying on such Under the

supervision method of control, these returns form the basis for the Govern­ ment whilst under the" publicity" method they form the basis on which stability of the company may be appraised by the public. It is clear that

If the returns furnished are intended to be used for the purpose of an inde­ they need to be much more detailed than if only intended to

give a fairly complete but somewhat general idea of the position of the company. In the English Act _of 1870, six s.chedules are provided, setting out the nature of the information which each company is required to furnish.

For a company transacting Life Assurance business only, the first of these s?hedules provides a form of revenue account for the company's preceding finan­ Cial year, and the second provides a form for the statement of its liabilities and assets at the end of that year.

For a company combining Fire, Marine, or other Insurance business with that of Life Assurance, provision for revenue account and statement of liabilities and assets is made in the Third and Fourth Schedule, the life assurance accounts being required to be kept distinct from those relating to; other classes of business. In the Fifth Schedule provision is made for a statement respecting the valuation of the liabilities under the company's life policies and annuities, in which, inter alia, particulars are asked concerning the principles on which the valuation and the disirifiution of profits have been made, the rates of mortality and the interest

assumed in the valuation, and the detailed results of the valuation of the various classes of policy. In the Sixth Schedule provision is made for a statement of particulars concerning the nature and extent of Life Assurance and Annuity business of

the company. In the five States of the Commonwealth, in which legislation controlling the business of life assurance is in force, returns somewhat similar to tho'Se provided for in the English Act are required, but in all cases the information asked for is considerably fuller in detail.

In Appendices G and H hereto, particula;rs given concerning requirements of the several Acts, and an opportumty 1s afforded for comparmg the schedules of the original English Acts with those of the Australian Acts based upon them.

Queries relating to the lodging of returns .with the. Gov:ernment addressed by your Commissioners to the representatives of the vano_us com.Pames transacting life assurance business in the Commonwealth, and their replies are given in Appendix B hereto. (See Questions 71-80, 91-96, and 108.)

Under the English Act the returns required on the First, Second, Fourth and' Fifth Schedules must be lodged annually, and those on the SIXth Schedule within nine months of the date of each valuation, the proviso being made that in the case Gf a company having an annual valu.ation, a return in the form of the Sixth Schedule should be lodged at least once m every three years. .

The most serious objection which your Commissioners h.ave heard raised the publication of such returns as those here .referred .to, particularly. when, as .Is the .case in some of the States, the returns reqmred furmsh somewhat mmute details F.5332. B

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?f. business, has been that the disclosure of such details is, in certain cases, to company's welfare, it places in the hands of rival companies

matenal by of cornparati_ve statements, may be .made to misrepre­ sent pos1t1o? of ::ffa1rs. The question has been carefully considered by your CornrniSSI?n:rs m all1ts aspects, and the conclusion arrived at has been that, whilst pubhmty should be enforced as is requisite to furnish reasonable evidence

Wlth reference to the stability of the company, it should be no part of the duty of the Gov:ernment to undert_ake to supply intending assurants with the material for comparm_g profit-earmng powers of _different companies. Your Commissioners are therefore, that, although in certain matters more detail is desirable than Is furmsh_ed l!-nder the forms provided in the schedules. to the English Aot of 1870, the pubhcatwn of many of the elaborate returns whwh have been either enforced or suggested is undesirable. Your Commissioners feel that in such matters the co:npanies which are honestly carrying out the principles of Life Assurance busmess should be entitled to at least some share of the consideration

shown to producers and manufacturers in connexion with the collection of statis­ tical information, and that where details are required for enabling complete Commonwealth statistics of insurance to be obtained, but are not essential to an estimate of the company's standing, such details should be collectible, but should be regarded as confidential, except in such combination with other returns as would prevent the disclosure of individual results. ·

The schedules relating to the revenue account of the company should be lodged with the Insurance C10mmissioner not later than three months after the close of the company's financial year, while it should be possible to secure the 1odging of the valuation returns within six months from the date to which they

relate. It is, at present, a frequent source of complaint that the Life Assurance returns published by various Governments are exceedingly belated. This can only be remedied by requiring the returns to be supplied bv the companies with the utmost expedition practicable. "

The marked characteristic differences between "Ordinary" and "Indus­ trial " Life Assurance business renders it desirable that the returns relative to these two classes should be furnished separately, and that in the case of ,a· company transacting both classes of business, there should be a definite apportion­ ment to each class not only of the liabilities, but also of the revenue, expenditure, and assets of the company. Special forms for the publication of in,formation relative to industrial business should be given in the suggested Federal Act, and it would appear desirable that special confidential returns of Industrial business should be furnished for statistical purposes.

It is evident that all returns lodged with the Insurance Commissioner should be duly certified, and for this purpose it appears desirable that all such returns should bear the original signature of the Chairman and one other of the Directors of the Company as well as that of the chief executive officer. In addition to this all returns so lodged relating to valuations should bear the original signature of the actuary responsible for the valuation. In order that

for a sufficient supply of the returns to be lodged With the Insurance Commis­ sioner, and for him to relodge them where necessary at the office of -a Commonwealth officer stationed in the State concerned. The office of the Com­ monwealth Public Service Inspector, of the Collector of Customs, or of the Deputy Postmaster-General, would, according to circumstances, appear suitable. The fee charged to the public for . the inspection of such returns slwuld be merely nominal, say, ls., and a similar fee should apply in the case of the returns at the office of the Insurance Commissioner.

. On receiving the annual and valuation returns from any company, it may . appear to the Commissioner that certain of the items are not in the form requi:ed by the Act, or bear evidences of discrepancy with other items, or that the positiOn

19

of c?mpany as _disclo!ed by its valuation returns is unsatisfactory. In these and s1m1lar cases, 1t would be in the interests of the public if the Commissioner were to ask for an explanation from the company, and were to publish his letter and the company's reply with the returns. This publication should take place as early as possible after the close of the yEar. The fact that the financial years of the different c_ompanies end on various dates complicates the matter somewhat, but. does _not seriously effect the issue. The majority of the companies doing busme_ss m Australia close their accounts as at 31st December, so that with prompt

c?mpha;nce on the part of the companies with the requirements of the Commis­ siOner, 1t should be possible to publish not later than the end of May in each year complete returns of the revenue accounts and balance-sheets of all companies, and before. the end of August complete valuation returns for all companies whose valuatiOn period ended during the preceding year.

26. SUPPLY OF RETURNS TO SHAREHOLDERS AND POLICY­ HOLDER-s. In the English Act of 1870 provision is made for the company to supply every shareholder and policyholder on application with a printed copy of the last

deposited statement, abstract, or other document which the Act requires to be printed. This provision has been included in the State Acts, with the somewhat important extension that all shareholders and policyholders are to be so supplied, and only those that make application. This extension has the effect of con­

siderably increasing the printing, postage, and office expenses of the ,company without usually bringing with it any commensurate benefit. In the opinion of your Commissioners, it should be compulsory for the company to supply a copy to every shareholder or policyholder applying for one, but it should not be compulsory to supply to all.

27. RIGHT OF INSPECTION BY PERSON INTERESTED. As a further measure for securing the utmost publicity, it appears desirable that facilities should be provided for enabling any person pecuniarily interested in the business of any company to obtain an order from the Court, permitting him to have access to the accounts and other books of the company. The applicant

for such an order should be required to satisfy the Court that there is some prima facie error or some omission or some perplexity in the published returns. The order should be nisi merely, calling on the company to show cause why an inspection should not be had, and the applicant should be required to aeposit in Court some

amount sufficient to pay all costs and expenses if the Court should so order. The fullest discretion ought to be given to the Court as to the mode in which such inspection is to be carried out, and there should be power to award costs to the applicant out of the funds of the company, and also against any official personally responsible for any default. · .

28. INSPECTION BY COMMISSIONER. While your Commissioners consider that the publication of minute details of business is not only unnecessary for the protection of policyholders, in certain cases prejudicial to the interests of the compames, they a:re of

accounts and other books of the company, _or of authorizing, in writing, other person to make such an inspection on his behalf. Any person. so authonzect should, however, be required to take an oath or make a declarati_on. of concerning the information so obtained, as his

representative, to whom he should be reqmred to d1sclose all mformatwn acqmred.

29. STANDARD OF SOLVENCY. In certain of the States of America provision is made that companies whose valuation according to a specified "standard," indicates an excess of liabilities over assets should be debarred from transacting new business, and that if accord­

ing to another and somewhat less stringent " standard " a deficiency is still shown B:Z

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the co_mpany should be declared insolvent. In the case of an office of some years' there is little doubt that such a provision would usually not have any

senous consequences,_ as the valuation basis voluntarily adopted by the company much stronger even the more of

the standards referred to. Where an mJury might be done, however, is m the case of a young company, or of one which for any cause is at the time transacting an amount of new business bearing a large ratio to its total existing business. In such a. case, although. the position of the company might be intrinsically sound, an _ordmary net premmm valuation might give apparently unsatisfactory results owmg the large expenditure which under modern conditions the acquisition of new busmess necessarily entails. As a matter of fact the business of life assur­ ance at the present day is so complex, and the changes taking place in the circum­ of a company during its development are s10 considerable, that the

application. of a hard-and-fast "standard of solvency" to all companies, irrespec­ tive of then age or the nature of their business, would often result in serious injustice to the company, and through it to its pplicyholders. In every case, therefore, in which the Commissioner thinks that there is evidence of insolvency he should be fully empowered to obtain such actuarial or other opinion as he deems desirable. On receipt of such expert opinion, the Commissioner should be empowered to call upon the company to show cause why its license to transact life

assurance business in the Commonwealth should not be cancelled.

30. AMALGAMATION AND TRANSFER.

Strictly speaking, an "amalgamation " of two companies is no more possible than an amalgamation of two persons; but the term has, in connexion with Life assurance business, acquired a definite significance, and has been recognised in the English Act of 1870 and various Acts based thereon. This term is generally used to signify the substitution of a new company f1or two existing companies, the businesses of which have been merged on approximately equal terms into that of the new company. On the other hand, the term " transfer " is applied to the case in which one of the companies ceases to exist, its business being merged in that of the other. The provisions of the English Act with reference to and transfer are not free from objection. For instance, it has been pointed out by the eminent English Actuary, Mr. George King, that " where two companies are to be amalgamated, application has to be made to the Court by petition to sanction the proposed arrangement, and certain documents giving particulars of the transactions have to be sent to each policyholder of both companies. When, however, the business of one company is to be transferred to another, while in other respects the procedure is the same, only the policyholders to be transferred are to be favoured with the information."

Your Commissioners are of opinion that the essential difference between a11 amalgamation and a transfer is not so great as to warrant such a difference in treatment, and that in all cases full particulars should be sent to all the policy­ holders of both companies and to the Insurance Commissioner. It has l}lso been stated that under the English Act the transfer has taken place of the business of

one insolvent company to another, which had in turn to submit to a further trans­ fer. In all cases it is desirable that notice should be given to the Commissioner, and that he should be authorized to intervene if, in his discretion, such action is necessary. The Commissioner's review of all the circumstances should be taken into account by the Court in considering the application for transfer. Your Com­ missioners are further of opinion that no amalgamation or transfer of Life Assurance business should be admissible except with the approval of the Court, acting under the suggested Federal. Act, and the . Court. should be given

unfettered authority to do whatever It may consider best m the mterests of those concerned. It has been poin.ted out that "the amalgamation clauses in the Life Assurance Companies Acts of the Australian States do not enable amalgamations to be effected by companies organized under the laws of different States." (Appendix B, Question 100, Reply 4.) This is a defect which the suggested Federal Act should remedy.

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31. NON-FORFEITURE OR DEFERRED FORFEITURE.

. term ";non-forfeiture'' has been very largely used in connexion with the busmess of Life Assurance to denote the principle under which policies, h;y- means of the surrender or reserve values, are maintained in force for a certain

tiJ?e the cessation of premium payments. The term is to a certain extent as the principle involved is really that of "deferred forfeiture." It

IS unquestiOnably that in such cases this latter expression should be

used,. as the former Is apt to convey the impression that under so-called "non­ forfeiture" it impossible for a policy to lapse. ,Where the surrender

or v:;tlue 1s. apphed to the purchase of a paid-up policy the term "non­ ".IS apphcable. These principles should, your Commissioners consider,

be apphed m all cases. In order that all parties may be equitably dealt with, company should be empowered to charge compound interest at a rate not exceedmg 5 per cent: per annul? payable yearly on every premium remaining unpaid for a longer penod than thirty days from the date onwhich it became due, and to set off the amount of such premiums and interest against the reserve value of

In order that the policyholder might not be misled as to the manner

m whiCh his cessation of premium payments is affecting his policy rights, the company should be required to send to his last known address, during the second year of assurance succeeding the cessation of premium payments, a statement of what is being done and an offer to grant, if so desired, in lieu thereof, a paid-up

policy of such amount as the reserve value (less accumulated unpaid premiums) at the commencement of the succeeding yeat of assurance would purchase at the then age of the assured.

In this connexion it appears to your Commissioners that, as the policyholder is not withdrawing from the company but is still retaining a considerable interest therein, the amount with which his policy is credited should be greater than that allowed for a cash surrender, and it would appear to be not inequitable to the

company if the full reserve retained by the co111pany in respect of the policy were made the basis on which the period of deferred forfeiture or the amount of the paid-up policy were computed. ·

If this reserve had been obtained by the method known as " Sprague's method," under which the first year's premium is regarded as having been absorbed in expenses and first year's risk, and the pohcy is valued as th,ough it had been effected a year later than its actual date at an age a year older than the true age

at entry; due allowance for initial expenses would have been made. If, however, the valuation is a pure premium one, it would appear equitable that some allow­ ance from the reserve value should be made to compensate the company for the loss of that refund of initial expenses which it anticipated would be received in

the periodical premium payments. In order that policyholders may be placed in full possession of particulars concerning the possible forfeiture of their policies, all policies should contain a specification of the periods for which the reserve values allowed by the companies will maintaJ.n them in force after the cessation

of premium payments. ·

32. GUARANTEED CASH SURRENDER VALUES .. In many of the American States and also in the States of tJie

Commonwealth, legislative provision is made for .the pubhcatwn by all of values which the companies guarantee to pay m on the of theu

policies. Such a practice appears to. your CommiSSioners be undesirable on many grounds, of which the following are some of the more Important:-(i.) The Life Assurance contract is one in which two parties have undertaken to make certain payments, the one (the assured). at

specified intervals, the other (the the

of a given event. one of parties to.

such a contract at will, without pecumary loss, the other party strictly to the terms of the contract IS meqUit-able.

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(ii.) The nature of Life Assurance business is such that investments Jor long periods ron satisfactory terms become possible. To render policies payable on demand as would practically take place if cash surrender values were guaranteed, would necessi­

tate the holding of large cash reserves by the companies, thus reducing the average rate of interest earned on their funds. (jii.) With guaranteed surrender values the stability of a company might in times of financial stress be seriously endangered by a

run on the company. (iv.) The publication of guaranteed surrender values holds out an inducement to the policyholder under certain circumstances to terminate a contract which it may liave been in the best

interests of himself and those dependent on him to keep m force.

Questions relating to the principle of guaranteed surrender values were submitted to the representatives of companies transacting Life Assurance business in Australia, and their replies are given in Appendix B hereto. (See Questions 47, 48, and 49.) . The opinjons expressed vary considerably, but the majority of these representatives is opposed to the principle. In one company, however, which works under guaranteed surrender value provisions, and which has passe9 through two periods of serious financial stress, the representative stated that the guarantee of surrender values did not prove dangerous to American companies during the financial crises of 1893 and 1907. (See Appendix B, Question 48, Reply 12.)

Your Commissioners are of opinion for the reasons stated above, that the guaranteeing of cash surrender values should not be made compulsory, and that where, as has been previously suggested, the reserve values are applied to maintain premium payments or to purchase a paid-up policy, the rights of the assured have been fully conserved. ·

33. LIMITATION OF CONTBStABILITY OF POLICY.

While it is admittedly impossible to make any contract absolutely incon­ testable, since proof of fraud must render a contract void, your Commissioners feel that in such a matter as Life Assurance, there should, in all cases, be a limit to the extent to which the validity of a policy can be called

in question by the company, and more particularly so under the

present system, inasmuch as the contract is drafted by the company

and its conditions are usually seen by the assured only when the policy comes into his hands after the payment of his first premium. Your Commissioners are of opinion that the only grounds which should be considered sufficient to render the contract either vojd or voidable, should be fraud, or want of insurable interest, and that on any non-fraudulent error or om-ission being discovered subsequently to the issue of the policy, such as would have affected the amount of the premium, the sum assured should be so adjusted that the premium payable will correspond to the risk involved. They also consider that all statements made bv the assured

eitlier on the proposal in reply to the medical examiner, or -in any other way, and incorp_orated either expressly or by implication in the policy contract, should be regarded not as warranties but as representations made to the best of the belief of the assured. seriousness of the position is seen from the fact that in the case of a warr:mty it has been held by the Courts to be sufficient td avoid a policy that any one thing warranted is not true; and that the question as to how far the fact or circumstance was material does not enter into the con-" sideration. The power which is thus given to a company to practically repudiate its polices, is one which, on the whole, is probably rarely exercised, but it appears to be too great a power to confer, especially as the rights of the company

would be adequately safeguarded by treating all information furnished by the proponent as representations made to the best of his belief.

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. qommissioners are also of opinion that a limit should be placed upon the time withm which such errors or omissions as are above referred to should be available, that in all such cases except that of age, which will be referred to later; of the public and the equities of the case will be served by a

provision hmitmg the time within which any such objection can be raised by the company to the three years succeeding the date of issue of the policy.

34. COMPANY'S DEFAULT NOT TO AFFECT VALIDITY OF POLICY.

Although your Commissim.ters have suggested that it should be a punishable offence a company to carry on the business of Life Assurance in the Common­ Without complying with the provisions of the proposed Federal Act, any

pohcy Issued by a company under such conditions should be just as binding on the company as if legally issued. If this were not so, it would become possiDle for a company to benefit by its myn illegal act.

35. SUICIDE.

'With respect to death by suicide, as an answer to a claim under a policy, there are two points of view. In the first place, if at the time the assurance was 3ffected the assured contemplated suicide,- and effected the assurance with the object of securing the payment by the company o1f the policy-moneys on the occurrence of his premeditated act, the policy will clearly have been obtained fraudulently, and should oe regarded as void ab initio. If,on the other hand,

the assurance were effected with no such object, there appears to be no reason why death by suicide should not form as valid a basis of claim as death by any other means. The difficulty evidently lies in determining the intention of the assured at the date on which the policy was effected. The practical method by which

the majority of the companies transacting Life Assurance business in the monwealth have sought to overcome this difficulty has been that of regarding as forfeited only those policies which become claims through suicide within thirteen months of the date of assurance, on the ground apparently that payment of premiums in respect orf two years of assurance furnishes sufficient evidence of absence at the date of assurance of intention to commit suicide.

It is doubtful whether by this means all frauaulent suicide claims are eliminated, but it appears probable that the great majority of them will have been so, and that on the whole substantial justice is clone by this regulation. To make suicide no bar from the inception of the policy would, it appears to your Commissioners, be not only impolitic, but also unjust to the remaining

policyholders and to the shareholders: if any. On the other hand, to render a policy voidable by suicide at any time during its appears to relieve the insurers of a risk which their policv contract may be fauly regarded as contem­ plating. Under these circumstances, your Commissioners that a provi­

sion rendering a policy voidable for suicide during the first thuteen months of assurance only is one which should be universally adopted. It has been the usual practice to regard a bona fide assignment for valuable consideration as imposing a moral on the company to

policy-moneys at least to the extent of the conB_Ideratwn, even though the SUICide occurred within the prescribed time.

36. CAPITAL PUNISHMENT.

It has been stated by some authorities that to reco?nize capital punish­ ment as a valid basis for claim under a Life Assurance pohcy would be contrary to public policy. The reason for such a contention is not .as it is

impossible to suppose that a person would contemplate the commiSSion of a offence for the purpose of securing the payment of by the company on paying the penalty for his crime, and it is hardly possible that the forfeiture of his policy would in any such case act as a deterrent .. The nsk IS one

which your Commissioners think: might well be regarded as bemg covered by a life policy.

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37. ADMISSION OF AGE.

In the business of Life Assurance, as at present conducted, the age of the proponent .furnishes, next to the state of his health, the most important item to be dealt with by the company in considering his proposal. Limits of age, above or below which a policy of assurance will not be issued, are usually fixed. The amount of premium payable for any given sum under any given form of assurance under ordinary circumstan_ces, entirely upon the age of the proponent. It

IS clear, therefore, that the matter is of fundamental importance to the company. In connexion with this matter, a practice has g,rown up of notifying the policy­ holder that proof of his age is desired by the company, but of pressing for such proof only when the policy has become a claim. In some cases it appears that such proof is even then required only when the company has reason to believe that the age bas been misstated, but as above stated proof of age is usually required. While reqognising the great importance to the company of a correct statement of age, your Commissioners are of opinion that it would be in the interests of the public if the admission of age were required to be made on the 'policy at a com­ paratively early stage of the assurance.

The avoidance of a policy by reason only of a non-fraudulent misstatement of age has in certain cases been specially legislated against, as, for example, in the Victorian Companies A!ct 1900, No. 1699, but it is not so much the possibility of avoidance, as the loss, inconvenience, and annoyance to which the claimant may be subjected that cause your Commissioners to thi11-k that admission of age should

be made early. A very strong point in favour of such early admission is the fact th!at the assured himself is usually the person best able to furnish evidence of age, or to suggest sources from which such evidence may be obtained, and that to leave the proof of age until after his death is to wait until the principal witness is no longer available.

A suggestion to make the age unchallengeable after the expiration of twelve months from the payment of the first premium, and a further suggestion to render the policy void if the assured did not prove his age during the year following such payment, were investigated by the Life Assurance Inquiry Board, which sat in Melbourne in 1896. In their report the Board stated that the Life .Assurance officers examined by them . were one and all averse to both suggestions.

It was also stated that an average of 15 per cent. of the persons assured under­ stated their ages, and that the average extent of the understatement amounted to about two years. This, it may be noted, represents an average understatement of about three and a half months on all proposals. The Board recommended that "the law should render it imperative that every Life Assurance Company should, at the time of the receipt of the first premium, give a printed notice

to the person insuring, that proof of age is essential prior to payment of amount assured, and that on the paymen't of each ensuing premium until proof of age is forthcoming a similar course should be followed. Also that all policies issued by any Life Assurance Company should contain a condition that such policies shall not be invalidated by reason of any error in age, and tbat ·in. the event of age being found to be understated the following course will be adopted unless the company can show that such misstatement was wilfully made :--Payment of amount to which premiums paid entitle the insurer under the tables of the com-. parry in existence at the time the contract was entered into, when the contract

accrues." -

The questions submitted to the representatives of Life Offices con­ tained three (88, 89, and 90) relating to admission of age, and the replies furnished will be found in Appendix B hereto. The remedy above referred to, proposed by the Board, appears to your Commissioners to be insufficient to meet the case, and they are strongly of upinion that steps should be taken to secure the best available evidence of age

during the first year of assurance. To facilitate this, they would

urge that in the proposal form, in a,ddition to asking the proponent

to state his age, he should also be asked to furnish such particulars

as would enable the company, if it so desired, to test the accuracy of

his statement. The civil registration of births was introduced in Tasmania in 1839, ·in '-'r estern Australia in 1841, jn South Australia in 1842, in Victoria in 1853, and i;n New South Wales and Queensland in 1856, so that

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Australian-born proponents of the present day would appear on the birth registers of one or other of the States. If it could be arranged, therefore, with the States facilities be granted for enabling licensed companies to have access to the

registers on the payment of a merely n0;minal fee (say, ls.), there would appear to be no reason why the company, in the case of an Australian proponent, should not promptly obtain the most reliable evidence possible concerning the accuracy of the age stated in the proposal. .

As proponents born outside Australia, or Australian-born pro­ whose births had not been registered, the suggestion made above for the

mclus10n on the proposal form of an inquiry as to means available for establishing proof of age should, in most cases, place in the hands of the company readyt means of satisfying itself in this matter. Under such circumstances it appears to your Commissioners that no real hardshin would be inflicted on either the com­

pany .or the if it were stipulated that acceptance by the company of any premmm payment m respect of the second year of assurance should be regarded as admission age, and that, if reasonable proof of age were not furnished by the assured durmg the f1rst year of assurance, the cqmpany should have the option

of cancelling the policy. In the event of a contention arising between the company and the assured concerning the reasonableness of the proof of age furnished, we consider that facilities should be provided for enabling the assured to obtain a ruling on the point from the High Court or the Supreme Court.

The evidence which different companies are willing to accept as proof of age covers a fairly wide range, and includes such items as:-(i.) Certificate of registration of birth. {ii.) Certificate of baptism.

(i:ii.) Certificate of vaccination. (iv.) Certificate of confirmation. (v.) School certificate. (vi.) Military certificate. (vii.) Indentures. (viii.) Marriage certificate.

(ix.) Authenticated entry in family Bible. (x.) Statutory declaration by competent person.

It is possible, however, that certain of these or similar items of evidence might not be by the company, hut might yet be the only evidence obtain­ able by the assured. In such a case the Court, on being satisfied as to the reasonableness of the proof, should issue an order for the admission orf age. In order that every policyholder should be given adequate notice of his rights and obligations in the matter of proof of age, your Commissioners are of opinion that every policy on which the age of the assured is not admitted should, on being

issued, have attached to it a coloured slip setting forth concisely the extent of such rights and obligations. Evidently it might be a hardship to the assured to require admission of age on the issue of the policy, since the protection afforded by the policy might be required at once and the requisite proof of age might only be obtainable after the lapse of a certain amount of time.

38. PROOF OF DEATH.

In the ordinary course where claim is based upon the decease of the assured, there is little or no difficulty in esta,blishing proof ?f death, but have occa­ sionally arisen in which there is only a presumptiOn of death.' ansmg through the disappearance of the assured. It has been contended th.at. m a case the

production to the company of probate or of letters of admmistratiOn be regarded as adequate proof of death. In reply to a contentl?n, Mr.

Augustus Hendriks, an ex-president of the London Institute of Actuanes, has pointed out the injustice of such procedure, and has said :-.,' One could well imagine that to get probate for the distribution ?f property, such as shares stocks, or even land, which existed before the disappearance, was a very Just

operation, because if the man had disapJ?eared fr?m causet?r another it only right that if he kept people unadvised of his existence his repreE"r-ntatiVef,3

26

should proceed to divide his property on the assumption of his death; but when they came to a policy of insurance, where the sum assured was created or said to be created by the act of disappearance, it was very hard that the company should be called upon to assume that the man was dead upon the granting of probate."

There are several cases on record in which the presumption of death disappearance of the presumed deceased has proved to be unfounded,

and probate had been granted. Your Commissioners are, consequently: of opmwn that the production of probate or letters of administration should not per se be regarded as evidence of death. They consider, however, that the proofs required to ensure the payment of the policy-moneys should be reasonable proof, and not necessarily proof to the satisfaction of the company; and that facilities should be provided for enabling a ruling of the Court to be obtained, where neces­ sary, in any case as to the reasonableness or otherwise of the evidence advanced.

'

39. PROTECTION OF POLICY-MONEYS AGAINST CREDITORS.

The principle of securing policy-moneys .from the claims of creditors is one which has long been in force in the various States of the Commonwealth, although the amount of protection so afforded varies considerably as also do the conditions under which such protection is granted. Thus, in New South Wales and ·western Australia, the amount protected ranges from £200 to £2,000, in Victoria and Tasmania it is £1,000, in Soutn Australia £2,000, while in Queens­ land unlimited protection is afforded. In New South Wales- and Western Australia annuities to the amount of £104 per annum are also protected.

In the absence of any fraudulent intent on the part of the assured, your Commissioners consider that the provision is a desirable one, and one that should be incorporated in the legislatim1 of the Commonwealth under its constitutional powers or dealt with by arrangement with the States.

An assurance· is usually effected with the object of securing from absolute want either the dependants of the assured or his own old age, and it appears to your Commissioners undesirable that such an object should be frustrated. Where a policy has been taken out mainly for financiai purposes, this reason for protec­ tion from creditors · does not exist. Your Commissioners are consequently of opinion that all policies which are payable only in the event of death or on the attainment of the age of sixty or upwards should receive protection from creditors to an unlimited extent, but that in the event of execution or insolvency they should be subject to a charge of the amount without interest paid as premiums during the three years prior to the date of such execution or insolvency. 'the imposition of such a charge would, your Commissioners consider, be an adequate protection of the creditor against the possibility of fraud. ,

40. ASSIGNMENT OF LIFE POLICIES.

An assignment of a life policy may be either an absolute assignment, or an assignment by way of mortgage. The procedure which has been provided in Eng-land under the Policies of Assurance Act 1867, and in the Commonwealth under the Acts of the several States, has rendered the absolute assignment of a policy inexpensive and extremely simply. On the other hand, an assignment by way of mortgage usually requires to be effected by means of separate instrument, and involves legal expenses. One effect of this is that, in many cases where an assignment by way of mortgage would really best meet the requirements of the assured, an absolute assignment is given,- often, it is said, in ignorance of the nature of the difference.

For this reason, your Commissioners are of opinion that the suggested Federal Act should contain ample provision for rendering the procedure in con­ nexion with both forms of assignment as simple as possible, and that suitable forms for both classes of assignment should be included in the Act. .

Your Commissioners are of opinion also, that an assignment, whether absolute or by way of mortgage, shouid only be considered valid as against the company when the particulars relative thereto have been indorsed on the policy itself, and signed by . a representative of the company duly authorized in that behalf, as well as Jpy the assignor and the assignee. This will ensure that the office has due notice of all dealings with the policy, and that, at any given moment, it

.. . k

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knows prima facie who is entitled to receive the moneys assured under the policy. as be shown later, will greatly simplify the procedure requisite in con­

nexwn With .lost policies. A re-assignment of the policy to the assured would, of course, reqmre under this system to be indorsed on the policy by the company in precisely the Same Wa_)' that the original assignment was indorsed, SO as to main­ continuity of record of title by the company. The fact that every valid

assignment must be indorsed on the policy and must be signed by a duly authorized representative of the company should be set concisely on the face of the policy.

41. LOST POLICIES.

In several of the States lost policies have been made the subject of legisla­ tive provision. The usual tenor of such provision is that the company, on satis­ fying itself that the policy has been lost or destroyed, and on giving one month's notice by advertisement in two newspapers of its intention to issue a special

policy in lieu of that lost or destroyed, may issue a special policy in lieu of the original which thereupon becomes void. In other cases certified copies of the policies have been issued .for the satisfaction of the assured, but such a copy can have by itself no value, and on the policy becoming a claim it has been usual to

require from the beneficiary a bond of indemnity. The latter course is evidently unsatisfactory, while the former has the disadvantage of being both cumbrous and incomplete. ·what has principally to be guarded against in such a case is the assignment of the policy without notice to the company, and even a month's

advertisement in two newspapers might easily in Australia fail to give due notice to an assignee, if one existed. On the other hand, if the principle of requiring the particulars relative to every assignment to be indorsed on the policy and signed by the company's representative were _ enforced, the title to the policy could

never be in doubt, and a declaration as to the loss or destruction made by the assured himself, if the company's books contained no record of assignment, or by the las£ assignee if the policy had been assigned, should be sufficient to warrant the issue of a duplicate policy subject to the ·conditions and privileges qf the1

original policy, the latter thereupon becoming void. The cost of preparation of such a duplicate should of course be chargeable to the applicant.

42. PREMIUMS CARRYING A LIABILITY TO INCREASE.

By far the greater portion of the Life Assurance business transacted in the Commonwealth is carried out on the basis of what are known in America as "level premiums," that is; premiums which, unless reduced by the application of bonus allotments, remain constant throughout the duration of the term for which

premiums are payable. There are, however, certain other forms of assurance, though not extensively in vogue in Australia, under the premium carries a liability to increase which may be either certain or contmgent. In the former category may be placed those classes of under which the premium

payable during the first few years of assurance is to be a _fraction, usually a half, of that which is to operate for the remainder ofthe periOd.. U the second category, viz., that of policies with premiums liable to a contmgent mcrease •. D?-ay be grouped two quite distinct classes of assuran?e. of these,

what are known as discounted bonus assurances, IS practised by certam Enghsh companies, while the other known in its various. forms as or "

ment" or "stipulated premium" assurance IS largely m V?gue .m America. Under both of these the assured is liable in the event of suffiCiently unfavorable circumstances to have his premium increased. All the cl:;tsses here to ctre quite legitimate forms of assurance business, and, provided that the busmess

is honestly carried out on a sound basis and the. understands the nature of the contract which he is making., your Commissioners no why companies should not be allowed to compete for a share m the busmess of Life Assurance. They are of opinion, however, that as the form of assurance most

widely known in Australia is that involving the payment of a " level premium," there is a considerable danaer in the case of the other forms referred to that the :::,

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proponent may be under a misapprehension in making his proposal for a policy under one of them. Your Commissioners consider, therefore, that it should be compulsory in all such cases for a notification to be printed in coloured ink on the proposal forms, policies, renewal notices, and premium receipts setting forth the exact nature of liability of the assured in of increase of

premmms.

43. MARRIED WOMEN'S POLICIES.

A matter of considerable importance in connexion with Life Assurance, though not usually dealt with in Life A ssurance Acts, is that rela.ting to the rights of married women concerning policies effected on their own lives or on their behalf. In the English Married Women's Property Act 1870, provision was ma.de in section 10 for conferring on married women somewhat extensive rights in connexion with policies effected for their benefit, either on their own lives or those of their husbands. This Act was repealed by the English Married

Women's Property A ct 1882, which, in section 11, further extended the rights of married women in this respect. The main effect of these provisions is that a married woman may effect on her own life or that of her husband a policy of assurance for her separate use, also that a man may effect on his own life a policy of assurance for the benefit of his wife or children, or both, or any of them, and th.at a married woman may effect ·a similar policy on her own life for the benefit of her husband and children, such policies being protected from the claims of creditors unless proved to have been effected with intent to defraud creditors, in which case the creditors will be entitled to receive out of the money payable

under the policy a sum equal to the premiums so paid. In all the States of the Commonwealth legislative provisions of the same nature as those contained in the English Acts referred to are in force, with an extens!on in the case of Queensland applying the principle to a policy by a married woman on "any life in which she

has an insurable interest." ·

1 Your Commissioners consider that the principle, with this latter extension, should, if possible, be uniformly applied throughout the Commonwealth. A point concerning which some doubt has been expressed should, they think, be made clear in the legislation dealing with this matter. In England it has been declared by the Courts that no contract can bind a married woman unless she has some separate property at the time the contract is made, and in the light of this declara­ tion it has been suggested that a policy effected by her might therefore be void unless it was shown that the first premium at least was paid out of her separate estate.

'Your Commissioners are of opinion that the legislation of Australia should specially confer on married women the right to effect the assurances referred to, whether possessing separate estates or not. Another point which has been men­ tioned as involving some difficulty is in connexion with the death of a married woman prior to her husband on whose life she had effected a policy for her own

benefit. If, as would probably happen in many such cases, the husband had not taken out letters of administration to the wife's estate, some difficulty would arise on his decease, as to the person who couldgive a good legal discharge: A sugges­ tion, which appears worthy of adoption, has been made that in such a case it should be enacted that in the absence of proof of the policy having been dealt with by the woman during her lifetime or of provision made by will for its disposal after her death, the policy should vest absolutely in the husband.

44. MINOR.S' ASSURANCES.

In the Queensland Act provision is ma.de enabling minors above the age of sixteen to assure with all the rights of policyholders, except tlie power to assign. In view of the advantages accruing to early assurance in the shape of diminished premiums at subsequent ages, it appears desirable that a similar provision should be included in any Federal Act.

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45. PAYMENT WITHOUT PROBATE OR -LETTERS OF ADMINISTRATION.

1071

. In. ap States of the Commonwealth, except New South Wales, legisla-tive made .f

of assuring small sums, although the limit of such

exemptiOn vanes considerably in the different States. Thus, in Victoria and West Australia the amount is £200 and bonuses, in Queensland £300 and bonuses, in South Australia a total of £300, and in Tasmania a total of £250. The fact that the small sum so payable frequently represents almost the

whole estate .of the deceased, or,. at all events almost the whole of the readilv realizable to us to render some arrangement whereby

an exemptiOn of this character should be uniform throughout the Commonwealth, and also to warrant the suggestion that the sum so exempted should be £500 including bonuses. ·

46. TRANSFER FROM ONE STATE TO ANOTHER.

. . In Victoria, Queensland, and Western Australia provision is made that policies transferred to those States from the registers of other States shall for all purposes be regarded as contracts effected in the States to which t hey have been transferred. The necessity for such a provision has arisen from the view very generally held that, in the absenoe of special enactment to the contrary, a contract made in one State remains for all time a contract of that State, irrespec­

tive of subsequent dealings therewith. , Tlie expense and inconvenience involved in requiring, for example, that probate must be obtained in the State of issue, appears quite unnecessary, and your Commissioners are of opinion that provision for rendering transferred policies in all cases subject to the probate and other

laws of the State to which they have been transferred, would be in the interests alike of the companies and the persons assured. It is desirable that arrange­ ments be made with the States to deal with this aspect of the subject on uniform lines. ·

47. RELATIVE MERITS OF MUTUAL AND PROPRJETAnY COMPANIES. Broadly speaking, Life Assurance companies may be said to be divisible into two classes, viz. (a) that in which the proprietorship of the business is vested solely in the policyholders, and· (b) that in which the proprietorship is vested in a body of shareholders, whose several interests in the business are represented by the capital allotted to them. The former class is usually

known as "Mutual" and the latter as "Proprietary." The term "mixed" has also been applied to companies, which are proprietary in constitution, but which make provision for a distribution of divisible surplus between shareholders and policyholders. As, however, practically all proprietary companies do this, the

distinction is of little importance. A further distinction has been made in the case of certain proprietary companies which_ undertake to distribute amongst th.e a fixed

centage of profits, and also guarantee to run the busmess m such a manner that the expenses of management shall not exceed a percentage of the

premium income. Companies giving such an undertakmg. and guarantee have sometimes been known as " co-operative." Mutual compa:nes are also capable of subdivision, and the branches known as " assessmentism" and " fraternal assurance" have assumed considerable proportions in the United States and in

Canada, although but little known in It. has, indeed, been that,

as nearly all so-called mutual companies m. a amount

of non-participating business, that is bus mess. m _ whwh the policyholder does not participate in the profits, the lo.ses Its mutual. becomes

practically a proprietary whiCh the part101patmg policyholders

occupy the position of proprietors .entitled to all profits.

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With a view to obtaining expressions of opinion from representatives of the different classes, a question was submitted to them asking for a brief state­ ment expressing their judgment of the relative meri_ts of mutual and proprietary or mixed companies from the stand-point of the policyholder. The replies will

be found in Appendix B hereto (Question 4). As will be there seen, the question was replied to at some length by representatives of thirteen out of the seventeen companies which furnished replies, and whilst some of the witnesses expressed opinions strongly in favour of the mutual form of constitution and others were equally strong in their support of a system involving the proprietary element, certain of them held the opinion that both for;rns were equally good, and that success depended mainly upon the efficiency of the management, and the personnel of the Board of Directors. It was stated also by one witness that fraternal insurance by means of the lodge system reduces expense, and enables persons to obtain insurance at a cheaper rate.

The following is a summary of the principal points which have been advanced by the various witnesses for and against the respective systems-'(1) Points which have been advanced in favour of mutual basis of consti­ tution-

(i.) Members of mutual society share the whole of the profits in such manner as they themselves decide. (ii.) Members have the sole power of-· (a) enacting by-laws,

(b) electing directors, and (c) managing the business generally as they think fit. (iii.) In mutual companies the policyholder gets insurance at actual cost price, as any premiums he may pay in excess of cost are

returned to him in the form of bonuses. (iv.) Experience shows that a proprietary form of government, even though benevolent at first, will ultimately become an evilly­ disposed government, and that the only remedy for this

tendency is for the community to possess the power to eject the controlling interest if it becomes decadent. Even if not freely exercised, the mere existence of such a power has a salutary influence. (2) Points which have been urged against a mutual basis of con.3titution--

(i.) As the majority of mutual policyholders know little or nothing of Life Assurance business, they do not exercise the power to !check, if necessary, directors and management which their voting privileges give them. (ii.) Owing to extension of business, it becomes impossible for policy­

holders in a mutual office to exercise their governing powers. (iii.) The names and addresses of the policyholders are in the keeping of the management, and since the agents and other officials are paid and controlled by tlie management, enough proxies can

always be obtained to ensure the election of the management's nominees as directors. (iv.) The number of policyholders who actually vote is usually a very small proportion of the total eligible.

(v.) Even in mutual societies the mutual principle is not applied throughout. Exempted groups being such as-(a) Industrial policyholders, (b) Holders of non-participating ordinary policies. (vi.) In industrial insurance, an attempt to give the policyholders

power to elect directors would place the control absolutely in the hands of the agents. (vii.) In practice the government of mutual offices is not in the hands of policyholders, nor has any satisfactory method been hitherto

adopted for securing policyholders' votes; hence the so-called mutual offices are not truly mutual.

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(viii.) The c?ntention that all the p_rofits of a mutual office belong to the policyholders must be qualified by the statement that the policy­ holders get all the profits after the management has been paid. (ix.) In a mutual office, if the bonus--rate be reduced or even vanishes

the policyholders will suffer all the loss, fdr the manager o: directors will not reduce their own income in consequence. (x.) To that in a mutual office policyholders get all the profits, Without adding that they also bear all·the expenditure, is merely

to utter a pointless truis,m. (xi.) A mutual office which issues contracts, both with and without profit, is really a." mixed" office-so that there is not a strictly mutual office in Australia. (xii.) Mutual companies, as regards management, are mutual only in

name. Management as a rule is superior in proprietary

companies.

. . (3) Points which have been advanced in favour of proprietary basis of con­ ;;;titutiOn-(i.) Paid-up and uncalled capital constitute a security over and above the ordinary assurance fund.

(ii.) If proprietary companies fail to show good results for partici­ pating policyholders, they cannot give good results to their . shareholders. Thie inducement, therefore, exists to give policy­ holders big profits. (iii.) The main advantage of a subscribed or paid-up capital in the

case of a Life Assurance institution is in its early stages before any considerable sum has been accumulated out of the premiums paid by policyholders. (iv.) On the whole the interests of policyholders do not suffer in live

proprietary (mixed) companies. (v.) It is not to the aavantage of shareholders that the reputation of thE)ir company should be damaged for liberality and for equit­ able treatment of its policyholders. (vi.) Policyholders in a proprietary company possess an advantage in

the fact that the controlling interest of the shareholders implies methods which aim at securing absolute safety so as to prevent the shareholders' capital being drawn upon to avoid any possible losses. (vii.) In a "co-operative" office the expense rate is guaranteed, and if

there is no profit or a diminished profit to policyholders, the shareholders who are responsible for the management share the loss, and loss is therefore less likely to arise. ·

(viii.) Directors in a "co-operative" office are more amenable to control than in a mutual office. (ix.) A "co-operative" office does not need a large capital. The function of the capital is not so much to guarantee the policy

as to guarantee the undertaking of the shareholders with respect to expense rate.

(4) Points which have been urged against a proprietary basis of constitution­ (i.) Policyholders have no voioe whatever in management or in appointment of directors. (ii.) Shareholders may do as they and may take a greater or

less proportion of the profits which a:re earned. . . .

(iii.) A paid-up capital, in the case of a Life Assurance mstltutwn 'after its early years, is an_ unnecessary encumbra:r;tce. (iv.) Interests of policyholders and are at times antagon­

istic and at such .. ;mes the mterests of the shareholders received the 'nrst consideration at the hands of the

directors who are themselves shareholders.

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(v.) Shareholders have at times received dividends when no bonuses were allotted to policyholders. (vi.) It has been amply proved that the necessity for a buffer such as shareholders' capital to stand between policyholders' funds and

loss is not now required. (vii.) It is a bad principle which allows a stockHolder to intervene /between the policyholders and the profits which the premium fund has created. Of the nineteen companies transacting Life Assurance business in the Commonwealth, nine are what have been defined above as proprietary companies and ten are mutual companies. Of the nine proprietary companies, however, one Australian and two foreign companies have ceased the transaction of new busi­ ness, and are engaged merely in the· collection of renewal premiums, and the settlement of claims in respect of policies still on their books.

!In other countries the relative degree of development of these two systems has varied considerably, thus, in England, the great major1ty of the companies are proprietary, while in the United States almost all are mutual; and again, in Canada, it was stated by the Canadian Royal Commission on Life Insurance that, at the date of their report (22nd February, 1907), there was, properly speaking, only one mutual company.

Your Commissioners, after due consideration of all the matters before them, are of opinion that it would be unwise to introduce any legislative provision that would directly or indirectly tend to favour one system rather than the other, but that, subject to the public safeguards that they have suggested in the course of their report each should be left as free as possible to attain its due development.

48. REPRESENTATION OF P ARTIC1P ATING POLICYHOLDERS. The question of securing due representation of participating policyholders in the management of an assurance company, whether mutual or proprietary, is one which received extensive consideration by the Canadian Royal Commission on Life Insurance. With the object in ·view of securing_ such representation, the Commission recommended for adoption a lengthy series of provisions based in the main on the method of nomination and election in vogue in the State of New York. These provisions are set out on pages 164 to 166 of the Report, but after careful consideration your Commissioners are . of opinion that no useful purpose would be served by the adoption of similar pro­ visions in Australia. Your Commissioners consider that in every the fullest

opportunity should be afforded to a prospective policyholder of ascertaining the constitution of any company, and the rights and obligations attaching to those assured therein, but they do not consider that the minute regulation of the internal workings of the company is a desirable governmental function unless it can be distinctly shown that existing methods are either conducive, or may possible prove conducive, to fraud.

· The only feature in the present method of voting in connexion with

mutual companies, which appears to your Commissioners to· require regulation, is the matter of granting proxies, a system which certainly appears open to objection. In their opinion the most desirable method of ascertaining the wishes of the policyholder is by obtaining his vote either in person or by post on the question

under consideration. The policyholder who, on learning the nature of the ques­ tion and the fact that his vote may be recorded inexpensively by post, fails to avail himself of his rights does not appear to your Commissioners to deserve the provi­ sion of special legislative enactment on his behalf.

49. QUALIFICATIONS OF COMPANY'S ACTUARY. . serious defect in the English Act of 1870, and one which has only been slightly remedied in the Australian legislation based thereon, occurs in connexion with the provisions /for valuation of the and assets of company1

viz., that the qalifications to be possessed by the actuary responsible for such valuations are not specified, nor is any provision made requiring the actuary to certify to the correctness of his valuation, or the position of the company which it has. disclosed. The South Austrapan Act of 1882 reguires actu!lry to be approved by the Public Trustee, while the Queensland Act reqmres him to be

approved by the Governor in Council.

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In most of the Australian companies the responsible actuary is a Fello"\\; of the Institute of Actuaries of London, or of the Faculty of Actuaries of Edin­ and considering the high attainments in actuarial knowledge and practice

by these before admission to the class of Fellow, your Commis­

siOners are of opmwn that such a qualification would in any case be sufficient. may, however, be cases in which an actuary possesses other qualifi9ations by

and there may also be cases in which an actuary, although highly

skilled posse?sing an extensive practical experience in the :;tctuarial of busmess of Life Assurance, may yet have never presented himself for

twn. ·

To provide for such cases, your Commissioners would suggest that a certain amount of discretionary power should be allowed to the Federal officer controlling the Insuran?e Department, and that the qualification should be that of Fellowship of the Institute or of the Faculty of Actuaries, or such qualifications as will

satisfy the Federal officer that the extent of the actuarial knowledge and experi­ ence of the actuary is such as entitle him to be entrusted with the responsibility of a valuation.

50. INSURABLE INTEREST. •

The question of insurable interest is one which arose somewhat early in the history of insuranoe in England, and was provided for by an Act of George III., on 13th January, 1774. This Act, which is known as the Gambling Act, rendered " null and void, to all intents and purposes whatever " every

assurance made on any event in which the person :for whose be;nefit the assurance was made has no interest, or made " by way of gaming or wagering." In the preamble to the Act it is set out that "it hath been found by experience that the making Insurances on Lives) or other events wherein the assured shall have no

interest has introduced a mischievous kind o£ gaming," and the object of the Act was to penalize such conduct by avoiding the contract involved. The provi­ sions of this Act have received snch extensive interpretation by the Courts that it appears desirable in the suggested Federal Act that they should be incorporated

verbatim. The reason for requiring an insurable interest in all cases appears to your Commissioners to be as strong now as when the Act was passed. It would appear, however, that in the case of Industrial it is

necessary to introduce some modification of the principle, so as to prevent an injustice being done, which the original Act presumably never contemplated. In Australia, for more than twenty years past, industrial policies have been issued on the lives of children at the instance of and in the name of the children's parents,

although such parents possessed no insurable interest in the lives assured. This class of business was recognised by the Federal Legislature as satisfying a distinct requirement on the part of the community, and as meriting every encouragement. An No. 12 of 1905, was accordingly passed by giving

the a legal basis, and providing that up to a hm1ted amount P?hcy-mone)!13 on the hfe of a child might be made payable to the of the child or .to the

personal representative of the parent. A similar provisiOn made the

English Friendly Societies Act of 1875, and was re-enacted m 1896 m the Friendly Societies Act of that year . . A further difficulty in connexion with the question of insurable. interest has ansen in reference to the insurance of other dependents on whose lives the

persons effecting the assurance have no insurable interest. :nany cases, s'!ch assurances have been effected so as to provide the means reqmsite for the expenses of funeral and last illness in the case of father., mother, sister; or other relative, and it appears that such assurances also l.ack legal foundatw;n.

The . new English Assurance Companies Act of 1909 provides for such cases .m Section 36 Sub-section i. where it is stated that "Amongst the purposes for whiCh Collecting' Societies and'Industrial Assurance Companies may. issue policies {)f assurance, there shall be included insuring !lloney to be P.aid the funeral expenses oLa parent, grand-parent, grand-:-child, brother or sister.

. Your Commissioners ate of opinion that a similar extension of the principle of insur{tble 1nterest should be mooe in the suggested Federal Act. F.5332. c

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51. INDUSTRIAL ASSURANCE.

During recent years there has been in Australia, as in other parts of the world, a marked development in that class of Life Assurance business which consists in the issue of policies for small amounts paid for by means of weekly premiums, collected at the homes of the assured by servants of the Assurance company. Owing to the fact that the persons assured under such policies at the initiation of the system in England some fifty-six years ago, were drawn mainly from the industrial classes, this class of business received the name of "Industrial Assurance," a name which in English-speaking communities it has since retained. The name is ill-chosen, and is occasionally misunderstood as referring to assurance against various contingencies arising in connexion with

the employment of workmen. It has, however, now become so firmly established that such instances of misconception are probably few, and an attempt to change it would probably only result in greater confusion than that which it was intended to remedy.

The sums assured under industrial policies are in all cases small and the weekly payments range from a penny upwards. For the year 1907 the average sum assured per policy in different countries was as follows:-United Kingdom, £10; Australia, £21; Canada, £24; and United

States of America, £27.

It is clear, from the smallness of these sums, that the object which a proponent has in view is, in most cases, not identical with that of a proponent for· what is known as an "ordinary policy." In the case of an industrial policy, it is very generally considered that the object in view is mainly that of provision for death and burial expenses, and the importance which the industrial classes usually attach to a "decent burial" may possibly account in part for the rapid growth which has characterized this form of assurance since its initiation in England in 1854. At the present time there are approximately 26,000,000 industrial policies in force in the United Kingdom, 19,000,000 in the United States, 5,000,000 in

Germany, 400,000 in Canada, and 350,000 in Australia. It has been urged, and we feel that there is considerable force in the contention, that the extent to which the system has flourished in the leading business nations of the world-Great Britain, the United States, and Germany-furnishes sufficient evidence to justify a continuation of the system, arud proves that this form of assurance best to those people of the world that have the keenest business instincts." (See Appendix .B, Question 8 (b), Reply 16A (6).) While there can be little doubt that the growth of this form of assurance furnishes an indication that it supplies a distinct want felt by the community, the opinion has been expressed in various quarters that the cost of the benefit falls with undue severity upon the working classes. This phase of the question has received the careful consideration of your

Commissioners, who are of opinion that, from the nature of the case, ind_ustrial assurance must necessarily be expensive so long as the house to house collection is an essential feature of the system. That such mode of collection is essential to the successful conduct of non-compulsory Industrial Assurance is strongly held by all the companies engaged in the business, and their contention appears to

be justified, directly by the almost absolute failure of the British Government's scheme of Post Office Assurance without collectors, and indirectly by the fact that, as far as your Commissioners know, no prominent company in any of the countries named carries on industrial business without collectors. 'Vere a system practicable without collectors, the saving in expense to the company emploJing it would be so great as obviously to lead to its universal aaoption. Your Commis­ sioners are of opinion, therefore, that in transacting the business of Industrial

Assurance, the companies concerned are catering for a genuine public require­ ment, and that in carrying out that business with the assistance of house to house collectors, they are doing so in the only practical way in which, under existing circumstances, success can be assured. The fact, however, that the classes amongst which Industrial Assurances are usually effected, are not on the average, as well able as " ordinary " policyholders are to use for their protection published returns concerning the companies carrying on business, appears to warrant somewhat closer Government supervision in the case of Industrial Assurance than has been recommended in the case of Ordinary Assurance. Your Commissioners consider,

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35

that to the pr.ovisions already suggested in the case of

ordmary compames, reqmrmg the lodgmg of a deposit, the issue of a license, the of proposal and policy forms, the periodical actuarial valuation of

liabilities and assets, and the periodical publication of returns, each Industrial Company be required to submit for the approval of the Commis­

siOner Its rates of and the rates of dividend or bonus, if any, which it

proposes to pay fr?m. time to to its. shareholders or policyholders. In the event of the demdmg to withhold his approval from such rates, the

company should, 1f. 1t so desire, be entitled to appeal to the High Court or the Supreme Court, as m the case of any other decision of the Commissioner.

. Many .companies, at the present time, carry on both Industrial and 9rdmary busmess; the former class of business frequently leading to, or furnish­ mg valuable opportunities for the transaction of the latter. There is in such cases a possibility that one class of policyholders may be made \o bear part of the

expense legitimately chargeable to the other. To obviate this as far as practic­ able, your Commissioners consider it desirable that in all returns of revenue, expenditure, liabilities, and assets, the affairs of the two branches should be kept distinct, and that an apportionment of expenses common to the two branches

should be made by the company on principles to be approved in each case by the Commissioner. They also consider that in all matters relating to deposit, license, etc., between the company and the Commissioner, the Industrial and the Ordinary branches should be treated as though they were separate companies.

Regarding the suggestion above made relative to the approval by the Commissioner of the rates of dividend or bonus proposed to be distributed amongst the shareholders and policyholders from time to time, it may be noted that the business of Industrial Assurance is, in many cases, carried on by pro­

prietary companies, and it has been alleged. against such companies that small premiums are collected from poor policyholders in order to pay large dividends to rich shareholders. "\Vhere capital has been genuinely risked by shareholders to form the basis of the guarantee of benefits t9 the policyholders, your Commis­

sioners are of opinion that such shareholders are entitled to a fair rate of dividend on the amount risked by them, but consider that such dividend should not be pay­ able at an exorbitant rate, nor at all on merely nominal capital.

52. DEFERRED BONUS DISTRIBUTIONS.

Some companies, doing business in Australia, have issued policies at . various times on what is known as the "tontine" or "semi-tontine" principles. The main feature of these policies is that the bonus accrued respect of them is not distributed at the dates of the company's valuations, but is deferred until

the end of a specified "tontine" period, frequently twenty years, and is then distributed amongst .the survivors of the policyholders which had been constituted a "tontine" group. In such cases, the policy itself is usually a whole life policy, that is to say, so far as the face value of the policy is concerned it is payable only on the death of the assured. Thus the policy consists of a whole life policy with a bonus interest contingent on the assured surviving twenty years, but payable

without profits should death occur within the twenty years. In certain cases this form of policy has been unwittingly mistaken by proponents for an endow­ ment assurance, under which the full sum assured would become payable at the end of twenty years, and, in such cases, policyholders have felt aggrieved, when,

at the end of the tontine period they ha-ve been offered instead of the expected face value of the policy, merely certain options with reference only to the deferred bonus. The matter was made the subject of two of the questions submitted to the officers of Life Assurance companies, and their replies to these are contained in Appendix B hereto. (See Questions 40 and 41.) From these

replies it will be seen that the issue of " tontine " policies of assurance has been practically discontinued in Australia. In response also to their advertisement for evidence (Appendix D), your Commissioners received two communioations relative to " tontine " policies, in both of which the policy had been mistaken for

an endowment assurance.

'

'

In America, where the method of deferred bonus distribution was at ohe time largely practised, an objection urged against the principle has been, that the in the hands of the company of extensive funds unallotted to

speCific contracts, furnished undesirable opportunities for speculative financing. Such an objection has little force in reference to Australia, since the "tontine" method of distribution is one which never had much vogue in the Commonwealth, and which appears now to have been practically discontinued so far as new business is concerned. Provided the proponent fully understands the nature of contract into which he is entering, there is nothing inherently objectionable

the principle of deferred bonus, but in view of the fact that serious misconcep­

have arisen in connexion with policies, it .appears desirable that

m any _case in which such policies are issued, the company should be required to sta:te _distinctly both on the proposal form, and also on the policy itelf, that the pri!J.CipaJ. contract is one which is determined by death, and not at the expiration of the " tontine " period.

53. AUDIT.

The question of the satisfactory audit of the accounts of a Life Assurance company is one which does not appear to have received at all times from the Legislature su_ch attention as its importance deserves in connexion with company law, provisions concerning it have not infrequently been left for inclusion in the of Association regulating the business of the various companies. In the VIctonan Companies A1ct 1896, a general provision relating to "Audit and

Auditors " is included in Sections 27 to 35l but under Section 27 Life Assurance companies are specially exempted from the provisions of these sections. The obJect of a company audit is that of providing an independent check on the financial transactions of the company's executive .;and staff by some person or persons appointed for that purpose by the shareholders, or, in the case of a mutual Life Office, by the policyholders. The election of the auditors usually takes place at 11nnual meeting of the company. In some cases, it would appear that the

audit 1s of a somewhat perfunctory nature, and the amount usually payable as auditors' fees appears quite incommensurate with the labour involved in such a detailed examination of the transactions of the company as would be necessary to enable the auditor to make the proper certification, viz., that the business of the company had been carried out in strict accord with the laws of the land, and the constitution and by-laws of the company, and that the books of the company had been well and truly kept in accordance with the recognised principles of account­ ancy. In many cases, it seems probable that the last mentioned is the function to which importance is attached by the auditors, correctness in posting and accuracy in balancing being sometimes looked upon as the main requisite. It has been well said that there are three things which it is the auditor's duty to detect, if they exist, these are fraud; technical errors, and errors of principle, and it may be said that the auditor who preserves his company from these three deserves well at the hands of the members, Evidently, as the auditor is designed

to be the check upon the actions of both the executive and the staff, his appointment sho.uld not be in any ease in the hands of the executive, and consequently your Commissioners are of opinion that the person responsible for the audit of .the accounts of a Life Office should invariably be elected by the shareholders or policy­ holders, as the case may be. This, it is understood, is in Australia

in connexion with the audit of head office accounts. The auditors of branch accounts, however, are usually appointed by the directors. In the case of the audit of a State , branch of a Mutual Office, it is suggested election of

auditors by the policyholders associated wit.h that branch would be the most satisfactory. In the case of a proprietary company, where the duties of manage­ ment devolve entirely upon the shareholders, the appointment of auditors for State branches should be dealt with at the annual meeting.

· Your Commissioners are of op!ltion that the persons to be appointed as a.u.ditorS:' of Life Assurance Companies should be such ·as .are considered by the In.S1trance- Commissioner ·to possess ,the -requisite -kilawledge a.nd experience to warrant them in certifying that the accounts to which ,,they a.tta.ch their .. names represent a true and faithful statement of the position of the company's affairs.

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You! Commissioners are of opinion that every revenue account and balance­ sheet submitted annually to the Insurance Commissioner should be so certified, with the so far as the account contains reference to liabilities in respect

of existmg policies, the certification is subject to the periodical valuation made by the company's actuary. _Your Commissioners are of opinion that the responsibility for checking the valuatwn of the assets of the company should be placed upon the auditor, and that :vhere he should be authorized to call in the services of expert valuers

and' subject to the opinion of such valuers, and to the valua­

of. habihties furmshed by the actuary he should certify to the accuracy of the

perwdwal balance-sheet. . It _has been suggested that the services of an auditor to a Life Company might,. With be mad:e compulsorily intermittent, presumably in order to possible collusiOn. Your Commissioners do not consider that they have suffiment ground to warrant them in recommending such a procedure.

54. TWISTING.

One method of acquiring business to which great exception is naturally taken by the company losiug policyholders thereby, is that which is known as twisting," in other words the persuading of a policyholder to give up his policy

m one company and take out a policy in the company which the " twister " repre­ It is understood that in some States of America "twisting" is specially

_ legi.slated against, but it is not clear on what grounds such special legislation is desirable. If the "twister " really has a better article to dispose of than that which the policyholder already possesses it may be to the advantage of the policy­ holder to change from the one company to the other. If, on the other hand, he has

not a better article, but .persuades the policyholder by fraudulent misrepresentation to believe that he has, there is a remedy at law, which would not apparently be increased by special legislation. As long as free competition amongst rival com­ panies is allowed, so long will there be cases of "twisting."

55. REBATES.

Most Australian companies, in canvassing for Life Assurance business, divide the various States into agencies, which are placed in charge of regular agents, and are thus systematically canvassed. In some cases any new proponents coming direct to an office of the company will be either referred direct to the agent

for the district to which he belongs or will be credited to that agent, and the agent will receive any benefit arising from the policy in the way of commission. In other cases, it is understood that a certain amount of commission, then known as rebate, is allowed to the proponent, who thus obtains assurance for a lower initial

premium than is the c,ase with the majority of his co-assured. This form of rebate is, however, less usual, and perhaps less objectionable than that which is conceded for " twisting" purposes, that is, where the agent, as one of the inducements to a policyholder in another company, offers to give a rebate on the first year's premium.

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In other cases, an agent may offer a rebate to secure a policyholder who is · not already assured, but is difficult to persuade. In all the instances quoted, it appears that the giving of a rebate is a matter of policy for the company or the . agent, and a policY which in the long run is likely to prove unsatisfactory. If the company allows rebate to the direct applicant for assurance, it will discourage

its agents, whose work of persuasion will to some extent be unpaid for through the proponent making a direct application to the company. If, further, it becomes known that in all cases it is only necessary to ask an agent for a rebate in order to get one, there must happen one or other of three things :-(a) the commission

earned by the agent will be substantially reduced, (b) the cost of new business to the company will be increased, or (c) the premiums payable must be increased to allow for the rebate. In the end, it is probable tha;t the last will be

the result. In the absence of requiring all compames to submit their rates of premium and commission for approval, and of making it _an offence to diverge therefrom in any case whatsoever, it is not clear how rebatmg could be checked. Even with such provisions, it would probablv be by no means easy to secure a con­ viction. The matter appears to be one which, like " twisting," must be left to the companies themselves.

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56. STANDARD POLICIES.

In certain States of America, and elsewhere, provision is made for the of policies in standard by the Legislature,

or m accordance w1th certam mimmum reqmrements similarly prescribed, the P.resumable object being that of securing as far as possible a uniform interpreta­ tiOn of the terms of the several contracts, and by diminishing the variety of the forms, of familiarizing the public with their nature and contents. Your Commis­ sioJ?-ers have the question of standard policies careful consideration, and, while recogmsmg the force of the advantages of standard forms of policy, are, nevertheless, of opinion that equal benefit and greater elasticity in the development of Assurance be attained by a provision that every form of

pohcy should before Issue be submitted for the approval of the Insurance Commis­ sioner, and should be subject to his veto or suggested amendment, with a proviso that any company disagreeing with the Commissioner's ruling should have the right to appeal against it to the High Court or the Supreme Court. Your Com­ missioners are also of opinion that as the policy is a contract drafted,by the com­ pany, and rarely comes into the hands of the assured until after his first premium is paid, every proponent should have due notice of the precise terms of the contract to which he is about to become a party. This, your Commissioners consider,

could be attained by providing that no condition contained in any policy should be considered material unless it were specifically set forth in the proposal form on which the issue of the policy was based, the onus of proof that the condition in question was so set forth to rest with the company. Your Commissioners also consider that, in addition to submitting policy forms for the approval of the

Insurance Commissioner, companies should be required to similarly submit for approval all forms of proposal intended to be used in connexion therewith, such forms to be subject to amendment or veto by the Commissioner, as in the case of policies submitted for approval, and the Commissioner's ruling to ·be similarly subject to appeal by the company.

RECOMMENDATIONS.

Your Commissioners recommend-1. That in the interest alike of the Life Offices and the public, it is desir­ able that the independent legislative provisions of the several States relative to the transaction of Life Assurance business should be superseded by the enactment of a unHorm Federal law.

2. That in its main features such Federal legislation should be founded upon the general trend of the English Life Assurance Companies Acts 1870 to 1872 (comprising 33 and 34 Vic:, c. 61; 34 and 35 Vic., c. 58; and 35 and 36 Vic., c. 41), and the Assurance Companies Act of 1909 (9 Edw. VII., c. 49).

3. That such Federal legislation should proceed upon a due recognition of the fact that the Assurance and Annuity Funds of the companies transacting Life Assurance and Annuity business are essentially trust funds, and should, in the interests of the public be subject to a certain measure oif legislative control.

4. That a Federal Public Officer should be appointed to be known by some such title as the Commonwealth Insurance Commissioner, and that every com­ pany at present transacting, or which may at any time commence to transact, the business of Life Assurance in the Commonwealth should be required to effect a registration with the Insurance Commissioner.

5. That upon the fulfilment by any company of the requirements of the Commissioner with respect to its registration, a license to transact the business of Life Assurance in the Commonwealth should issue to tlie company, and remain in force until such time as it is cancelled by the Commissioner.

6. That the grounds for the cancellation of the license of any company should be--(i.) The insolvency of the company. .

(ii.) Failure on the part of the company to comply With any of the material provisions of the suggested Federal Act. (iii.) Proof of corrupt practices on the part of the compl"tny in con­ nexion with the acquisition of business, or proof of malversa­

tion of its funds.

39

. 7. That any company, continuing to carry on the business of Life Assur­ m. the Commonwealth after the date on which the suggested Federal

legislatiOn shall come into force, which shall fail to effect a registration with the Commonwealth Insurance Commissioner within a period of six months from such date, should be liable to a penalty not exceeding £2,000, and a further penalty of £500 for each day after the termination of the said six months, for which the

registration remains uneffected.

8. That any company commencing the business of Life Assurance in the Comm_onwealth, after the date on which the suggested Federal legislation shall come mto force, without effecting a registration with the Commonwealth Insur­ 9ommissioner, should be liable to a penalty not exceeding £2,000, and an

add1t10nal penalty of £500 for each day during which. the company, while remaining unregistered, continues to carry on such business.

. 9. That in making application for registration each company should furmsh to the Commissioner the following particulars:-(i.) A certificate from the Secretary to the Commonwealth Treasury or other officer responsible for the custody of Trust Funds to

the effect that the company has lodged a deposit of approved securities of the requisite amount. ·

(ii.) A copy of the Act,. Royal Charter, Deed of Settlement, Memoran­ dum, or other document constituting such company. (iii.} A copy of the Articles of Association, By-laws, &c., of such company.

(iv.) The place in which the Head Office of the company is situated. (v.) The countries in wnich Life Assurance business is transacted by the company. (vi.) The names of directors, general manager, auditors, solicitors, and

bankers of the company. (vii.) The name and qualifications of the actuary to the company, and a statement as to whether or not his services are continuously retained by the company. (viii.) A statement in detail of the company's latest valuation of

liabilities and assets, if any. (ix.) A statement in detail of the revenue and expenditure, if any, of the company for its latest financial year. (x.) A statement showing in detail the methods adopted by the company

in making its latest valuation of liabilities and assets, if any. (xi.) The rate of interest at which the funds, if any, of the company are invested. (xii.) A statement, in the case of a proprietary company, showing the

nominal, subscribed, and paid-up capital of the company, also a list of the names and addresses of shareholders, and the number of shares held by each. (xiii.) A complete statement of the various branches of business under­

taken or to be undertaken by the company. 10. That the particulars accompanying the application of any company for registration should, on the payment of a fee not exceeding 2s. 6d., be available for public inspection at the office of the Insurance Commissioner at any time during ordinary office hours.

11. That in the event of any company failing to comply with any of the provisions of the suggested Federal Ac( the Insurance Commissioner may call upon it to make good -the default, and that in the event of the company still failing to comply, it should be competent for the Commissioner to serve the company with

a notice of his intention to cancel its license, such cancellation to take effect one calendar month after the date of the notice, unless, in the meantime, the company shall have obtained from the Court an order restraining the Commissioners. That in the event of the license being cancelled, the company should forthwith cease

the transaction of Life Assurance business, or be subiect to the penalty of £500 for each day during which such business is transacted.

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40

12. That the Commissioner may refuse to register any company which, in his opinion, has not complied with the requirements of the law, and that any company dissatisfied with such refusal, or with the registration of any other company, or with any decision of the Commissioner may appeal to the High Court or to the Supreme Court against such refusal, registration or decision.

13. That every "foreign company carrying on the business of Life Assur­ ance in the Commonwealth, should nominate. a permanent resident of the Com­ monwealth as its representative in all matters between itself and the Common­ wealth Insurance Commissioner, the name and address of such representative to

be registered with the Commissioner, and to be re-registered from time to time as occasion requires. 14. That every company carrying on the business of Life Assurance in any State of the Commonwealth should nominate a permanent resident in that State to act as its representative for the purpose of suing or being sued, .on behalf of the company, and should furnish the address of the office where all

notices and other documents for the company may be left, such name and address to be registered with the Commissioner, and to be re-registered from time to time as occasion requires. 15. That any action for the recovery of penalties taken by the Government against any company transacting Life Assurance business in Australia should be taken in the Courts of that State in which the alleged offence has occurred, or, in the event of the alleged offence having occurred in two or more States, in that State in which the Head Office of the company is situated, or in which the

Australian representative of the company is registered as resident, and that such penalties should be sued for in the name of the Insurance Commissioner or any person authorized in writing by him to act in his behalf. I

16. That in any action in which a qompany is suing or being sued by any person other than the representative of the Commonwealth Government, the action should be taken in the Courts of that State in which such person is domiciled.

17. That the procedure to be adopted upon application to the Courts for orders of inspection, for rulings as to reasonableness of evidence of age or· of evidence of death, or for other matters, should be provided for in regulations framed under the provisions o£ the Act. -

18. That every company which, at present, is transacting, or which may at any time commence to transact, Life Assurance business in the Commonwealth, should be required to furnish, as a guarantee of bona .fides, a substantial deposit to be held in trust by the Commonwealth Government while any policies on the lives of citizens of the Commonwealth remain on the books of such company.

19. That in the case of companies at present transacting Life Assurance business in the Commonwealth, a deposit of approved securities to the value of £20,000 should be required during the :first year succeeding that in which the suggested Federal legislation shall come into force, and that such deposit should increase annually by £10,000 until a maximum of £100,000 has been reached. Provided that where, in the . case Of an existing company it appears to the Commissioner that the provision of such a ueposit would press unduly on its resources, the Commissioner may accept a smaller initial deposit than £20,000, but not less than 25 per cent. of th({ present assurance fund of the company, and may accept as annual increments either £10,000 or 25 per cent. of the premium income wliichever is the smaller.

20. That in the case of any foreign company proposing to commence the business of Life Assurance in the Commonwealth, a sim1lar initial deposit of £20,000, with similar annual increments of £10,000 to a maximum of £100,000 should be required.

21. That in the case of any Australian company proposing to commence the business of Life Assurance in the Commonwealth, after the passing of the suggested Federal legislation, an initial deposit of a-pproved securities to the amount of £2,000 should be required, and that such deposit should be increased

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41

each year by a sum equal to 25 per cent. of the premium income of the company in respect of that year until a maximum deposit of £100,000 has been reached; provided that, i:f in any year the amount of 25 per cent. of the premium income m respect of that year should exceed £10,000, no greater increment than £10,000

should be required. 22. That in the case of the securities deposited by any company, facilities be provided for enabling the company to substitute other approved

secuntles of a corresponding amount on giving adequate notice to the Common­ wealtJ:l responsible for the custody of the Trust Funds, but that no such should be effected without a notification being given to the Insurance

Commissioner. 23. That it should be the duty of the Commonwealth officer responsible for the custody of Trust Funds to furnish annually to the Insurance Commissioner a statement showing the nature and extent of securities held by him in respect of each of the companies registered for the transacion of Life Assurance business

in the Commonwealth. 24. That on the registration of any company with the Insurance Commis­ sioner, such company should be empowered to withdraw from the custody of the several State Governments any deposits which may have been lodged under the

provisions of the various State Acts. 25. That in the case of any final judgment obtained in Australia by a policyholder against a company in respect of any policy, the officer responsible for the custody of the Commonwealth Trust .Funds should be authorized, at the discretion of the Court, to satisfy any such judgment out of the securities held by him in respect of such company.

26. That if at any time, owing to depreciation or other causes, the approved securities lodged with the Government should, in the opinion of the officer responsible for the custody of the Trust Funds, represent a smaller value than that required from the company, it should be competent for the Insurance

missioner to require from the company additional approved securities of the requisite amount, and failure on the part of the company to comply with the Commissioner's requirements for a longer period than three montbs · should be treated in the same manner as failure to make the initial deposit.

27. That every company registered with the Insurance Commissioner should be required to furnish annual detailed statements of the revenue and expenditure in respect of its Life Assurance business for its latest financial year, and statements of the valuation of its assets and liabilities at least once in every three years. That such annual statements should be lodged with the Insurance

Commissioner not later than three months after the close. of the company's financial year, and such valuation statements not later than six months after the close of such year. That in all annual and valuation statements business trans­ acted in the Commonwealth should be shown separately from business transacted

elsewhere and that in all cases separate returns for Ordinary and Industrial ' ' business should be shown. 28. That all returns lodged with the Insurance Commissioner should be signed by the Chairman and one other of the and by the Ch.ief

Executive Officer of the company, and that all actuarial report_s and · returns should be signed by the actuary, who should. be reqmred to certify, according to a prescribed form, that the statements furn.Ished represent accurately the position of affairs as existing at the date of valuatiOn.

29. That in the case of each company. such a supply returns shou}d be lodged with the Commissioner as would admit of. one bemg made available for public inspection in the capital of each State wh1ch the company tra_nsacts the business of Life Assurance. That such copies should be lodged With an officer of the Commonwealth Public Service in each State nominated by the Com­

missioner, and a nominal fee for inspection, say ls., should be chargeable. That the returns should also be available on similar terms at the office of the Insurance Commissioner, and that, as early as possible the cl?se of each year, th_e complete returns should be printed for presentatiOn to Parliament and for puhhc

distribution.

42

30. That on the receipt by him of the annual or valuation returns lodged by any company, the Insurance Commissioner may make to the company any comments or queries which he may think desirable concerning any of the items contained in such returns, and such comments or queries, together with the replies thereto by the company, should be published annually with the returns to which they relate.

31. That in addition to revenue, expenditure, and valuation returns for publication, every company should furnish to the Insurance Commissioner confidential returns relating to the business of the company, in such form as the Governor-General in Council may from time to time prescribe.

32. That the annual returns furnished by any company should, when so desired by the Commissioner, be accompanied by particulars concBrning the new, the discontinued, and the existing business of the company in respect of the preceding financial year.

33. That legislative provision should be made that a copy of all annual and valuation returns lodged with the Insuranre Commissioner should be forwarded on application, free of charge to every shareholder and policyholder of the company.

34. That facilities should be given to any person pecuniarily interested in any way in the business of a company to obtain, through the Courts, authority to inspect the accounts and other books of the company.

35. That the accounts and other books of any company should, at any time; be open to the inspection of the Commissioner, or any person authorized in writing by him, but that any such person authorized should be bound by a declaration of secrecy concerning any information so obtained; excepting that he must disclose all information acquired to the Commissioner himself.

36. That in view of the complex character of the business of Life Assur­ ance, and the changing circumstamces during the development of a company transacting this class of business, it would be undesirable to establish any legal standard of solvency for such companies.

37. That the Insurance Commissioner may require from any company such. details concerning its business as he may consider appropriate, and may cause such inspection to be made of the accounts, books, and documents of the company as he may consider necessary to establish the reliability of such details.

38. That the Insurance Commissioner may at any time serve notice on any company of his intention to cancel its license, provided always that such license shall not be cancelled for the period of one calendar month after the service of such notice, during which time the company may apply to the Court to restrain the Commissioner. ,

39. That in a:ny case in which an amalgamation or a transfer of Life Assurance business is proposed, full particulars of the proposal, together with actuarial reports thereon, should be furnished to the Commissioner and to the shareholders and policyholders of each company, who should be entitled to oppose the application.

40. That in the event of any premium remaining unpaid for a longer period than thirty days from the date on which. in accordance with the conditions of the policy, it became due ·and payable, it should be competent for the company to charge compound interest thereon at a rate not exreeding 5 per cent. per annum payable yearly, and no policy should be considered as having lapsed until such time as the premiums due and unpaid shall have amounted, with interest, at the rate specified, to the reserve value of the policy at that time, computed on the assumption that all premiums had been duly paid.

41. That the reserve value for such purpose should be the fuJI amount reserved by the company in respect of the policy in accordance with its latest method of valuation, and should not be the amount which the company is prepared to pay in cash on surrender of the policy.

1085

. . 42. all companies should be required to specify on their policies the pe:10ds the values allowed by them for this purpose will main­

tam a policy m rorce after the cessation of premium payments. 43. That in any case in which the reserve value of a poficy is being applied the payment of premiums, it should be incumbent upon the company,

durmg the year of assurance succeeding the cessation of premium pay­ ments, to wnte to the last known address of the assured stating what is being done, and offering, in lieu thereof, if so desired, to grant such a paid up policy as the reserve value, less accumulated unpaid premiums, at the commencement of

the succeeding year of assurance would purchase at the then age of the assured. .

44. That the use of the term "non-forfeiture" should be discontinued in connexion with schemes for the maintenance in force of a policy by means of charg!ng premiums due against the surrender or reserve value, and that where practiCable the term " deferred forfeiture" should be substituted, since it appears that in certain cases policyholders imagine that under the so-called "non­

forfeiture" principle it is impossible for a policy to lapse under any circumstances whatever.

45. That apart from the question of age, and in the absence of fraud or of want of insurable interest no policy should ,be void or voidable :for any error or omission in the proposal or other document forming the basis of the contract, but that if any error or admission be discovered, such as would have affected the amount of the premium, the sum assured should be adjusted in such a manner that the premium payable will correspond to the risk involved. Further, that all

statements contained in a proposal should be regarded as representations and not as warranties. 46. That every policy remaining in force at the expiration of three years from the date of its issue should be exempt from forfeiture for all causes except

fraud and want of insurable interest, unless previously to the expiration of such three years anymisstatement, error, or omission shall have been notified in writing by the company to the person in whose name the policy stands. 47. That no failure on the part of a company to comply with the provi­

sions of the suggested Federal legislation should be taken as in any way invalidating any policy which it may have issued to any citizen of the Common­ wealth. 48. That no policy should be void or voidable on the sole ground that the

insured suffered capital punishment. 49. That no policy should be void or voidable because the insured com­ mitted suicide, unless within thirteen months of the date on which the first premium was paid, and even then that it should enure in the hands of a bona ftde

assignee for the amount advanced thereon. 50. That in the proposal forms of every company a demand should be made for such particulars as would enable the company, if it so desired, to test the reliability of the statement as to age furnished by the proponent, and it should be the duty of every proponent to supply such particulars to the best of his

know ledge and belief. 51. That by arrangement with the States facilities should be afforded to every company licensed to transact the business of Life Assurance in the Com­ monwealth to obtain from the Registrar-General of Births, DeaJths, and

Marriages in each State, on the payment of a nominal fee (say, of ls.), a certified statement of the date and place of birth of any. person whose birth has , been registered in that 1State. 52. That in the case of any policy on which the age of the assured was not admitted by the company at the date of issue of the policy, the acceptance by the company of any premium in respect of the second year of assurance should be

regarded as an admission of age on the part of the compan:y, and any com­ pany to whom reasonable proof of age has n?t been furmshe.d calendar months from the date of issue of a policy should be entitled at Its opt10r1 to cancel such policy without remission of premium.

44

53. That in the event of a company declining to accept evidence of age tendered by any policyholder, facilities should be provided for enabling the policy­ holder to obtain a ruling of the High Court or of the Supreme Court as to the reasonableness or otherwise of the evidence of age tendered by him, and by pay­ ment into Court of any premium or premiums due in respect of the second year of to secure an order preventing the cancellation of the policy until the

rulmg of the Court as to age shall have been given.

54. That in the event of the Court ruling that the evidence of age tendered to the company is reasonable, it should be co,mpulsory for the .company to admit such age on the policy, and in the further event of the age so admitted differing from that on which the issue of the policy has been based, the sum assured should be so adjusted as to correspond, in respect of the premium payable, to the admitted age.

55. '.['hat every policy, on which the age of the is not admitted,

should at its issue have attached to it a coloured slip setting forth concisely the rights and obligations of the policyholder in respect of proof of age.

56. That the p,roof of death required should be reasonable proof and not necessarily proof to the satisfaction of the company, and that in cases of pre­ sumption of death from absence of the insured the probate or letters of adminis­ tration should not per se be evidence of death.

57 That facilities should be afforded for enabling a ruling of the High Court or of the Supreme Court to be obtained as to the reasonableness or otherwise of evidence as to death, and that on a ruling that the evidence furnished is reason­ able the company should be required to pay.

58. That protection against the claims of creditors should be extended to policies, for any amount whatever, against execution or insolvency, with however a charge over the amount paid as premiums during the three years prior to the date of such execution or insolvency.

59. That the English Policies of Assurance Act 1867 (30 and 31 Vic., c. 144) should form. the basis for provisions in the suggested Federal legislation relating to assignments of Life Assurance policies, and that a stipulation should be made that no assignment whether absolute or by way of mortgage shall be valid as against the company unless due notice thereof shall have been given to the company.

60. That provision should be made for particulars concerning any assign­ ment of a policy to be indorsed by the company upon the policy-that no assign­ ment whether absolute or by way of mortgage should be valid as against the company unless such particulars- are so indorsed, and that a statement to this effect should be contained upon the face of every policy.

61. That the Assurance and Annuity Funds of companies transacting Life Assurance business should be declared to be what they really ar:e, viz., trust funds, and the securities upon which they may be invested should fie approved by the Commissioner. · It should be made an offence in the individual if any investment is made up\::m other than the approved security, or upon any security in which any director or other officer of the company is interested other than as share­ holder in a company.

62. That in the event of a policy issued by any company carrying with it a liability, either certain or contingent, to an increase of premiums, a notification to that effect should be printed in coloured ink on the face of the policy itself, and also on all renewal notices and premium receipts issued in connexion therewith. That any liability on the part of the policyholder to pay calls, levies, assessments, or other contributions of a like nature from time to time should for this purpose be treated as liability to increase of premiums.

63. That, either' under powers of the Federal Constitution or by arrange­ ment with the States, a married woman should be empowered to effect assurances on her own life or the life of her husband for her separate use and benefit, and that a policy of assurance effected by a man on his life and expressed to be for

1087

the use and benefit of his wife and children, or by a woman on her life and expressed to be for the benefit of her husband and children whether she be possessed of a separate income or not, should create a trust and 'should not form part of of the assured ... (See sec. 14, Married Women's Property Act

1890, Vtctona; and sec. 11, Married Women's Property Act 1882 England 45 and 46 Vic., c. 75.) ' . '

·64. That minors above the age of sixteen years should be empowered to effect assurances upon their own lives, and to deal with such assurances in any manner except as l'egards assignment. .

65. That in all cases in which the sum assured, including bonuses, does not exceed £500, arrangements s]fould be made with the States that the cost of or letters of administration should not be required to be incurred by the

claimant.

66. That in any case in which a policy has been granted in one State and subsequently transferred to the register of the company in another State, arrange­ ments should be made with the States that the policy should for all purposes be subject to the probate and other laws of the State to which it has been transferred.

67. That in the event of a policy being lost or destroyed, the person entitled to the moneys payable thereunder should, on payment of the expenses connected therewith, not exceeding the sum of £5, be entitled to receive in lieu thereof a duplicate policy, the original policy becoming thereupon absolutely null and void.

68. That in all mutual companies voting by means o£ general proxies should be abolished, and voting by post in lieu thereof should alone be allowed.

69. That in all cases the actuary responsible for the valuation of the liabilities and assets of the company should be either a Fellow of the Institute of Actuaries, London, a Fellow of the Faculty of Actuaries, Edinburgh, or should satisfy the Insurance Commissioner that the extent of his actuarial knowledge and experience is such as to entitle him to certify to the accuracy of the. valuation returns.

70. That the Governor-General in Council should have power to make from time to time regulations for carrying out the objects of the Act, and for defining minor matters relating to control by the Commissioner of Insurance.

71. That in view of the extent to which opportunities £or life Assura11ce have been afforded by existing companies to all classes of the public in and of the manner in which the business has been conducted by such compames, 1t does not appear that any necessity exists at the time for the intro­

duction of any system of Government Life Assurance m the Commonwealth.

72. That with reference to the question of insurable interest, the suggested Federal Act should embody the precise wording of the English Life Assurance Act 1774 (14 Geo. III., c. 48), generally known as the Act, with an

extension to cover cases of industrial policies taken out to .provide expenses of funeral and last illness of children, parents, and other relatives or dependents.

73. That a statutory form to be employed in the case of mortgages of Life Policies should be included in the suggested Federal Act.

7 4. That it would be undesirable to make the granting of a surrender value . in cash compulsory upon any company, as it is thought. such a stipulation might in time of financial stress seriously affect the stability of a company. ' That it would, however, be desirable to provide person wishing

to discontinue future premium payments should, on applicatiOn to the company, be entitled to receive a paid-up policy of such amount as would be _Purchasable with the reserve value of his policy at the due date of the next premmm payable in respect thereof.

75. That no condition contained in any policy should be treated as material unless such condition was specifically set forth in the proposal form on whicli the issue of the policy was based.

'F' '

46

76. That the onus of proof that such condition was duly set forth on the proposal form, and that the form was duly signed by the proponent, should rest with the company. 77. 'fhat any deliberate violation of the provisions of the Federal Act should be treated as an offence committed by the ofhcer responsible for such violation, and should involve such officer in a personal penalty.

78. That it should be illegal for such personal penalty or the costs arising in connexion therewith to be defrayed either wholly or in part out of the funds vt the company. 79. That, notwithstanding such personal penalty, the company should not be thereby relieved of any liability to penalty which such violation of the Act may have involved.

80. That every company before receiving a license to transact Life Assur­ ance business in Australia should be required to lodge with the Commissioner for his approval a cepy of every proposal form and every policy form on which it is proposed to transact such business, and further should be required to lodge . from time to time a copy of every new form proposed to be issued, as well as of

every proposed amendment of any existing form. 81. That the Commissioner should be empowered to veto any such proposal or policy form, or to suggest such amendment therein as, in his opinion, will render the form conformable to the intention of the Act.

B2. That any company dissenting . from the Commissioner's suggested amendment should be entitled to appeal to the High Court or the S:u-preme Court. 83. That the Court may make such order in connexion therewith as shall seem just.

84. That any company accepting a premium in respect of a proposal or policy the form of which had not been approved by the Commissioner, or on appeal by the High Court or the Supreme Court, should be deemed guilty of an offence under the Act, and should be thereby liable to have its license cancelled.

85. That every company carrying on Industrial Assurance business should be required to submit for the approval of the Commissioner its rates of premium and proposed rates of dividend or bonus, and that the Commissioner may, on refusal to comply with his suggested amendments thereto, cancel the existing

license of the company so far as relates to the Industrial business thereof, subject to a proviso similar to that in recommendation No. 38.

CONCLUSION.

In view of the fact that the details of Life Assurance are complex and that its subject-matter, considered in so many aspects by your Commissioners, is now familiar to them, it was thought that it would be desirable to outline ultimately a Bill embodying the provisions which, in your Commissioners' opinion, may be substituted for existing legislation. Whether the policy of the Government agrees with or dissents from the views expresed by the Commissioners, it is believed that such a Bill would form a convenient foundation for any necessary amendment or modification.

We have the honour to be, Your Excellency's most obedient servants,

Chas. H. Wickens, Secretary, ': The Rialto," Collins-street, Melbourne. 15th March, 1910.

J. H. HOOD. G. H. KNIBBS.

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APPENDIX A.

QUESTIONS SUBMITTED TO OFFICERS OF LIFE ASSURANCE COMPANIES.

I.-COVERING LETTER.

COMMONWEALTH OF AUSTRALIA.

ROYAL COMMISSION ON INSURANCE.

SrR,

Commonwealth Statistical Offices, The Rialto, Collins-street, Melbourne, 21st December, 1908.

I have the honour to inform you that His

Majesty, through His Excellency the Governor­ General, and on the advice of the Federal Govern­ ment, has been pleased to appoint Mr. Justice

Hood and Mr. G. H. Knibbs a Commission "to inquire into and report upon the Law relating to, . and the methods of operating, Fire, Life, Indus­ trial, and other Insurance in Australia. "

With a view to saving witnesses time and expense, and otherwise facilitating the inquiry, and with a view also to enabling all replies to be made with due deliberation, the Commissioners have addressed

to you a number of questions, hereto appended, to be replied to in your capacity as

The Commissioners will be obliged therefore if yo u will be good enough to answer these questions, seriatim, on one of the -Inquiry Forms forwarded herewith (in duplicate), and return the document so

as to reach the Commissioners at the above address, on or before 2oth January, 1909. To facilitate

verification, it is desired that you should sign each page. In replying to the questions set out, will you

please write your answers in the briefest possible manner in the proper r:lace on the Inquiry Form. Should you desire to amplify in any way such brief reply, please do so in a series of notes at the end, bearing the same number as the question to which the reply refers.

It is expected by the Commissioners that you will be prepared at the pror:er time, if deemed necessary, to confirm your replies on oath. I have the honour to be, .

Sir,

Your obedient Servant,

Secretary to the Commission.

H.-QUESTIONS.

SYNOPSIS.

!;ection.

I. Company represented II. Constitution of Company Ill. Nature of business IV. Valuation of liabilities and assets

V . Distribution of profits VI. Non-forfeiture VII. Extra premiums VIII. Commission

IX. Interest earned X. Deposits with Government XI. Details of liabilities and assets XII. Fractional premiums

No .

.I

2-4 5-IO Il-31 32 -43

44-56 57-60 6r

62-64 6s-7o 71-80 8!-84

Section. Question N O•

XIV. Admission of age XV. Government supervision XVI. Government life assurance XVII. Standard of solvencv XVIII. Amalgamation and

XIX. Winding-up XX. Protection of creditors XXI. Separation of accounts and f unds XXII. Periods for furnishing returns XXIII. Legislation, etc.

I.-COMPANY REPRESENTED.

88-90 91-96 97 98-99

100

101-103 104-105 Io6-107 108

109-I I I

r. (a) What is the name of the Company or Society which you represent? (b) Where is the head office of your Compny situated? (c) I n what countries is Life Assurance business

carried on by your Company ?

II.-CoNsTITuTioN oF CoMPANY. z. Is your Company a mutual or a proprietary (or mixed) Company? 3· (a) Is there any specified maximum as to rate

of profit which may be t aken by share­ holders? (b) Is there any specified proportion in which profit shall be shared by shareholders

and policy-holders? (c) What is the nature of the instrument in

which such maximum or proportion is specified? And what is the explicit spe­ cification (document or a cor:y thereof should be furnished) ? (d) What is the capital of the Company­

(i) Nominal, £, (ii) Subscribed, £ (iii) Paid up, £

(e) During the past five years what amount of profits has been paid to shareholders (£ ) and to policy-holders (£ )

respectively, treating as pay ments to policy-holders and setting out separately-(i) Bonuses paid in cash (£ ) ;

(ii) the cash value of reversionary

bonuses allotted (£ ) ; and

(iii) the cash value of bonuses applied to reduction of premium (£ ) ?

4· What briefly, in your judgment, are the relative merits of mutual and proprietary (or

mixed) Companies, from the stand-:(:oint of the policy-bolder?

IlL-NATURE OF BUSINESS. 5. What is the nature of the business transacted by your Company-(i) Ordinary Life Assurance;

(ii) Industrial Life Assurance ; (iii) Combined Ordinarv and Industrial Life Assurance; · (iv) Assessment Assurance; or

(v) Any other business conducted by your Company ?

•

48

6. What is the ratio for each of the past five years of the cost of collection and expenses of management to the premium income of your Company in respect of-

(i) Ordinary business; and (ii) Industrial business? 7. (a) Do you consider that, general! y, the collec­ tion charges and expenses of management

in connexion with Industrial Assurance are in excess of what they should be? (b) If so, in what way can they be reduced? 8. (a) Do you consider that the benefits which the

working classes receive from Industrial Assurance are sufficient to justify a con­ tinuation of the system? (b) What are the specific reasons for your

o_r::inion?

9· What do you consider to be the relative merits of Industrial· Assurance Companies and Friendly Societies as institutions organized to meet the requirements of the working classes? ro. Is there, in your opinion, any need in Aus­

tralia for companies transacting the busi­ ness of sickness assurance on the indus­ trial assurance method ?

IV.--VALUATION oF LIABILITIES AND AssETS.

r r. What is the date to which the latest valuation of the liabilities and assets of your Com­ pany was made? r 2. What general principles are followed by yout

Company in its valuation of-(a) Liabilities; and (b) Assets? IJ- Ln the valuation of assets what principle is fol ·

lowed in the case of debentures, stocks, shares, etc.? Are they taken for example at-( a) face value_; (b) cost price; (c) market price; (d) value based on interest yielded; or

(e) value determined on some other specified basis (which should be fully stated)? 14. Do you consider that there is a necessity for annual valuations of-

(a) Liabilities; and (b) Assets? rs. At what intervals are valuations of the liabili­ ties and assets of your Company made? r6. State your opinion concerning the relative merits

(i) Annual valuations. (ii) Triennial valuations. (iii) Quinquennial valuations. (iv) Septennial valuations. r 7. (a) Is the method of valuation of your Com­

pany fixed by the instrument constituting the Company; o1· is it Variable ? (b) If variable, is this determined by the

board of directors ?

i8. ·What tables of mortalitY are ·used in the valua­ tion of vour Company's liabilities? r 9· Do you consider that English mortality t1,bles furnish a satisfactorv basis for the valua­

tion of Australian- business-. ·: (a) for as.surance contracts ; and (b) for annuity contracts. 20. Would it be better to investigate the experi­

ence of the Austntiian Companies with a view to the construction of reliable Australian tables ? z 1. If you consi-der that such a course would be

de!drable, what means would you sug­ gest for givitlg effect thereto?

•

22. Is the English Life Table No. 3, which is

based on the mortality experience of the general population of England and

Wales for the period r8J7-5J, frequently used for the valuation of Industrial lia­ bilities in Australia? 23. 1 f so, would an experience of the population

of Australia be more in accord with

Australian conditions ? 24. What rates of interest does your Company assume in making its valuations of­ (a) Assurances;

(b) Annuities; (c) Endowments?

zs. (a) What do you considex fair rates of interest for such purposes in Australia? (b) Give reasons for your opinion. z6. (a) Do you consider such low rates of interest

as, say, z! per cent., desirable; and, if so, why? (b) Give reasons for vour opinion. 27. Is the valuation of your Company's lia­

bilities-(a) a pure net premium valuation; (b) a modified net premium valuation (Sprague's or other modifica­

tion); or

(c) is it one in which a proportion of the gross premium is valued? z8. If the last-mentioned, what proportion of the gross premium is valued, and what pro­

vision is made in valuation for the ex­ clusion of negative vaiues? 29. In connexion with the valuation of the lia­ bilities of your Company-

(a) What method (if any) of grouping policies for valuation is

adopted?

(b) How is the valuation age deter­ mined? (c) What due date is assumed . for

premiums?

(d) What age is assumed for under­ average lives? (e) (i) What rate of mottality is used in computing net valuation

premiums; and (ii) . What rate of interest is used in computing net valuation

ptemiurns?

(t) What extent of loading on singl<> and limited payment policies is reserved for future expenses and profits ? 30. Is any special reserve fund provided in your

Company for pOssible depreciation in the value of se...--urities? 31. If such is provided, what is its character?

V.-DrsTRIBUTION OF PROFITS. 32. At what intervals are distributions of profit made by your Company? 33· On what basis are the profits in your Com.

pany distributed? .

34· Is the method of distributing profits in your Company a fixed .bt variable one? 35· What is your opinion ooncerning the suit· ability to Australian conditions of the

following methods of tlistributiotl :­ (a) Simple reversionary bonus method; (b) Compound reversionary bonus method; (c) Contribt1titm method ; (d) Modified contribution method

(Sprague's or other)·?

1091

49

36. (a) Where valuation is annual, do you con­ sider that distributions of profit should be made annually? (b) State your reasons-for your opinion. 37· (a) What do you consider the most satisfac­

tory i!ntenial for the distribution of

profits?

(b) State your reasons for your opinion. 38. At the present time, is your reversionary bonus determined in any .. constant way ? .

39· (a) Does your Company indicate to policy­ holders in what wav the cash value of

the bonus is determined ? (b) In what way is such indication furnished? 40. Are what are known as the tontine or semi­

tontine methods of bonus distribution practised by your Company? 41. If so, have you heard of any complaints con­ cernin& misrepresentation by agents in

eonnexwn with policies issued subject to Slich bonuses? 42. What length of time must a participating

policy in your Company be in force be­ fore it becomes entitled to share in th., distribution of profits ? 43· What time elapses from the issue of a par­

ticipating pollcy in your Company be­ fore bonuses vast?

VI.-N ON-F ORFE!TVRE.

44· (a) Is there any provision in yom Company for rendering a policy indefeasible (except in the case of fraud) after the lapse of a

specified time ? (b) In what is this set out for the infor­

mation of policy-holders? 45· In the event of non-payment of premiums is the surrender value applied toe-(a) automatically pay ::futoce pre­

miums;

(b) provide paid-up policies; or (c) provide in some other specified wav for non-forfeiture? 46. (a) Is the surrender value in this instance de­

termined in accordance with the Com­ pany's ,practice irt the case of with­

dtiwals, or is there any special method employed? (b) If so, what is the method employed? 47. (i) Do you think that a system of guaranteed

surrender values shown on the policy wnuld be either (a) practicable; or (b) desirable? (ii) Give reasons for your opinion. 48. Would a system of guaranteed surrender values

be in danger of. proving disastrous to life assurance ootnpanies in a time of finan­ cial stress ? 49, Could such a contingency he avoided by having

two tables of surrender values, the larger value to be used only wheti the Company and the policy-holder ate both agteeabie to the surrender, and the smaHer to be

used when the policy-holder alone de­ sites it? so. How are the surrender values of your Com­ pany's policies, when withdrawn, deter­

mined?

5 r. Is the basis of detertnirtation shewn on any document-(a) obtainable by, ot (b) supplied to the policy-holder? F.5332.

52. (a) Where, under the non-forfeiture provision, a paid-up policy is granted in your Com­ pany, on what basis is, the amount of the paid-up policy determined? (b) In what way (if at all) is this brought

under the notice of the policy-holders? 53· In your opinion1 is the .policy grantedl usually the actuanal eqmvalent of the true surrender-value of the policy

allowed to lapse?

54· If an Industrial Assurance Compny reinstates a policy oh which' a premium is overdue, is this usually considered an act of grace or a policy-holder's right? 55. If merely an act of grace, is this fact stated

beforehand to the policy-holder, and, if so, on what documents? 56. Is the non-forfeiture principle applied t? any extent in Australia to Industrial Assur·

ance Policies?

VII.-ExTRA PREMIUMS.

57. Are extra premi]Jms charged in any case by your Company for foreign residence or travel? 58. Are extra premiums charged by your Company for under-average lives and ·hazardous

occupations?

59· What is the annual amount of the extra pre­ miums, if any, so collected by your <:om-pany? .

6o. Is there any basis known to you on wh1ch extra premiums can be reliahly computed?

6r. What is the rate of Commission payable by your Company in respect of-(a) Ordinary business-

D

62.

(i.) New Premiums1 (ii.) Renewal Premiums? (b) Industrial businesse­ (i.) New Premiums,

(ii.) Renewal Premiums?

EARNED.

What is the average rate of interest at which the total assurance and annuity funds of your Company are invested? What -method is adopted in your Company in

computing the rate of interest

earned?

What method do you consider furnishes the most accurate results?

X.---DEPOSITS WITH GovERNMENT.

6 5. What is vour opinion as to the desirability or otherwise of requiring a company to lodge a deposit with the Government prior to commencing life assurance busi­

ness in the Commonwealth? 66. Do you consider that the sum specified as de­ posit in the Eny)ish Life Assurance Com­ panies Act r87o, viz., £2o,ooo, is a

sufficient guarantee of bona fides? 67. (a) In your opinion is the provision of the Eng­ lish Act for the return of the deposit

when the accumulated funds amount to £4o,ooo a desirable one? (b) State vour reasons for your opinion.

68. What is your opinion concerning the desirability of a deposit being retained by the Go­ vernment so long as Commonwealth busi­ ness remains on the Company's books, and so determined as to bear a definite ratio to the liability incurred in respect of such business ? 69. Do you consider that a deposit should be re­

quired from all existing Companies (not only from those commencing business)? 'JO . Should Companies having their head offices in

Australia receive preferential treatment as regards deposits or other matters ?

XL-DETAILS OF LIABILITIES AND AssETS. 71. Should, in your opinion, the returns furnished to the Government be sufficiently com­ plete to enable an outside actuary to

make an independent valuation as regards liabilities ? 72. Should the returns furnished by Life Assurance Companies be so drafted as to show par­

ticulars of policies participating in profits, separately from those relating to policies which do not participate ? 73· Should such separation also apply to the re·

serves in connexion with :Q_articipating and non-participating business? 74· Do you think that bonus additions should in all returns be included as integral parts of

the sum assured or not? 7 5· Should, in your opinion, fui!er details be given concerning the names and amounts of all stocks and shares held by Life Assur·

ance Companies as investments, than are required under the Engli sh Act of 1870? 76. Would fuller publication diminish the risk of fraudulent manipulation of funds? 77 . Would it be desirable in the interests of policy­

holders, that a periodical review of the assets of Companies carrying on Life As­ surance business in Australia should be undertaken by duly qualified Government officers, and that the reports of such offi­ cers should be published in conjunction

with the Companies' returns? 78. In view of the fact that in their balance-sheets some Companies include as an asset " In­ terest due," but not " Interest accrued,"

while others include both, do you con­ sider it desirable that in all cases an

allowance for " Interest accrued " should be made? 79· I s it desirable to include the item " Premiums due " as an asset?

8o .. (i) Would it be-(a) practicable; and (b) desirable to show the assets of an Assurance Com­ pany in such ::1. form as to distinguish be­ tween those held in the Commonwealth and those held elsewhere? (ii.) GiYe the n:!asons for your opinion ?

5o

83. Do you know whether the practice referred td in Question 81 is very common in Aus tralia.? desirable that the practice in this matter

should be uniform, or, failing that, that the method followed should be clearh· statea on the Premium receipts? ·

XIlL-SUICIDE, CRIME, E)'C. 85. (a) Af_te r lapse time in your Company

JS a pohcy consrdered non-forfeitable on

account of suicide of the policy-holder? and (b) Has a policy in your Company ever bee1; challenged on the ground of suicide? 86. What is your opinion concerning suicide as !1.

rea.son for the forfeiture of a life

policy?

87. In the case of capital punishment, is a policy in your Company void or voidable?

OF AGE.

138. What is the practice of your Company as re­ gards admission of age on the fOlicy ? 89. In the event of understatement of age, whar. course .is pursued ? 90. Is it desirable that a.fter the lapse of a certain

number of the age given by policy­

holders should be automa;tically " :d­ mitted " by the Company?

XV.-GovERNMENT SuPERVISION. 91. (a) Is, in your opinion, Life Assurance a busi­ ness requiring Government supervision ir, the public interest?

(b) What objections, if exist from the

stand-point of your Company, to Go­ vernment supervision ? 92. Of the following methods of supervision, which do you think would be productive of the

better results:-(a) The English method, under which actuarial valuations are re.

quired to be made by the Com­ pany, and full details pub­

lished?

(b) The American method, under which valuations of the Company's liabilities and assets are made periodically by a: Government Department ? 93· Do you consider that there should be any pre··

scribed qualification to be possessed by the officer responsible for the actuarial of a Life Assurance Company's

busmess?

If so, what qualifications would you suggest? 94· As regards the publication of· details concerning a Life Assurance Company's business, is it desirable that steps should be taken

to render the particulars available as early as possible after the dates on which rhe oompany's accounts are closed?

XII.-FRACTIONAL PREMIUMS. 8r. Is it a fact that in certain cases the ouarterlv

or half-yearly payments of premiums ai'e considered as instalments of an annual payment due at the commencement of the assurance year, and that in the event of death during that assurance year the un­ paid balanceof a full year's premium is deducted from the sum assured?

95· Seeing that the various dates at which the ::c­ counts of different Companies are now closed would tend to delay the publica­ tion by the Government of the returns

for any given year, .

8z. (a) Is such the practice of your Companv? (b) If not, what is the practice ?

(a) Would it ·be :practicable for a uni form closmg date, say 3oth

June or JISt December, to ·be fixed for all Companies? (b) Would such a course be publicly advantageous ?

51

96. Are there ahy strong objections to such a COUf'>t' or difficulties in carrying it out? '

97·

XV1I.-GovERNMENT LIFE AssuRANCE. Would it, in your opinion be­ ( a) practicable, (b)

for Life Assurance to be undertaken by the Government? State. J:Olllr reasons for yonr

opm10ns fully.

XVli.-STANDARD OF S OLVENCY. 98. Is it that a standard of solvency for

L1fe Assurance Companies should be fixed by law? 99· If so, on what basis would you suggest rhat

such a standard should be fixed?

XVIII.--AMALGAMATION AND TRANSFER. 100 . Do you consider that the provisions of the English Act of I870 (sections 14 and rs) relative to the amalgamation and trans·

of Life Ass.!:lrance Companies are

su1ta:blc and sufficiently comprehensive for application to Australian conditions?

XIX.-WINDING UP.

ror. What is your opinion of sections 21. and 22 of the English Act of 1870 and sections 4 and 5 of the English Act of I872 with reference to the winding up of Life A,;­

surance Companies? !OZ. The First Schedule to the English Act or

r87z contains rules for valuing annuitie.o; and policies in connexion with the wind; ing up of a Life Assurance Company. Do you consider it desirable that such

rules should be contained in an Act or in the regulations thereof ? 103. If not, what means would you suggest for •he equitable treatment of policy-holders in

the case of a winding up ?

XX.-PROTECTION OF CREDITORS. 104. Is it, in your opinion, desirable that policies should be protected from the claims of creditors?

ros. What do you consider the maximum amour.t that should be so protected?

XXL-SEPARATION OF AccouNTS AND FuNDS. 106 . Do you consider that the separation of ac­ counts and funds is desirable, as pro· vided in the English Act of r87o, which

requires the keeping of separate accounts of the life assurance and annuity busi­ ness of any Company carrying on such business in conjunction with other forms of Assurance, such as fire, marine, etc. ? ro7. If so, do you consider that the accounts anci

funds connected with capital redemption assurances (which have no connexion with life contingencies) should also he shewn separately?

XXIL-PERIODS FOR FuRNISHING RETURNS. 108. At what intervals do you consider that re­ turns of Life Assurance Companies' business should be furnished to the Go­

vernment?

XXIII.-LEGISLATION, ETC. 109. (a) Has the English Insurance legislation or any modification thereof been adopted in any of the Commonwea lth States in

which your Company transacts business? (Furnish particulars for each State.) (b) If not, do you know of any objections to its introduction? (c) What is the nature of the modifications, if

any, referred to in (a) above ? r Jo. H ave you any suggestions to make in respect to the amending of the insurance law of any of the States of the Commonwealth,

in which your Company transacts busi- ness? ·

(In your reply please indicate, where possible, · by the corresponding number the particular sections o£ this inquiry to which such amend­ ments would relate.) I rr. (a) Forward complete copies of your proposal

and policy forms and of any other

forms which either expressly or by impli­ cation constitute part of the contract

between your Company and the person assured. (b) State which, if · any, of the conditions

thereof you consider non-essential.

APPENDIX B.

REPLIES TO QUESTIONS SUBMITTED TO OFFICERS OF LIFE ASSURANCE COMPANIES.

SECTION I.-COMPANY REPRESENTED.

Question I.

(a) What is the name of the Company or Society which you represent? (b) Where is the head office of )·our Company situated?

(c) In what countries is Life Assurance business carried on by your Company?

Replies.

r. (a) The Australian Alltance Assurance Com­ pany. (b) No. 400 and 402 Collins-street, Melbourne. (c) Australia.

DZ

z. (a) Australian Metropolitan Life Assurance Company Ltd. (b) In S vdnev. (c) In Austr:{lia only. In Kew South Wales,

Queensland, and Victoria. 3· (a) Australian :Mutual Provident Society. (b) Sydney, New South Wales. (c) Commonwealth of Australia, New Zealand,

Fiji, Great Britain, and Ireland. 4· (a) The Australian Widows Fund Life Assur­ ance Society Ltd. (b) Corner Collins and William streets, Mel­

bourne.

(c) Victoria. l\ew South Wales, Queensland, South Australia, Tasmania, New Zealand.

1093

52

5· (a) The City Mutual Life Assurance Society I7. (a) Victoria Life and General Insurance Com-Ltd. ·

(b) Sydney, New South Wales. (c) Australia.

6. (a) The Colonial Mutual Life Assurance So­ ciety Limited. (b) Melbourne. (c) Australia, Tasmania, New Zealand, Fiji,

United Kingdom of Great Britain :and Ireland, Egypt, and British Colonies in South Africa.

7. (a) The Supreme Court of the Independent Order of Foresters. (b) Toronto, Canada. (c) Canada, United States, Britain, Denmark,

Norway, India, Australia, France.

8. (a) The Liverpool and London & Globe Insur­ ance Company. (b) Liverpool, England. (c) Cannot say.

9· (a) The Mutual Life and Citizens' Assurance Company Limited. (b) Sydney. (c) The -Commonwealth of A1.1stralia, the

Dominion of New Zealand, and the

United Kingdom of Great Britain and Ireland.

ro. (a) The Mutual Life Insurance Company of New York. (b) New York, United States of America. (c) North America, Great Britain and Ireland,

portions ?f Europe, South Africa, and Australasra.

II. (a) The National Mutual Life Association of Australasia Ltd. (b) Melbourne. (c) Australasia, Great Britain, South Africa,

India, and Ceylon.

I:;!. (a) The New York Life Insurance Company.

(b) 346 Broadway, New York City, United States, America. .

(c) Nearly every civilized country in the world.

I3. (a) The People's Prudential Assurance Com­ pany Ltd. (b) Sydney, New South Wales. (c) New South Wales only.

q. (a) Provident Life Assurance Company. (b) Dunedin, New Zealand. (c) New Zealand and New South Wales.

I 5. (a) The Standard Life Association Limited.

(b) 28 Elizabeth-street, Sydney, New South • Wales.

(c) Australia.

r6. (a) The Australasian Temperance & General Mutual Life Assurance Society Limited. (b) Melbourne. (c) The Commonwealth of Australia and the

Dominion of New Zealand.

r6A. (a) The Australasian Temperance and General Mutual Life Assurance Society Limited. (b) Melbourne. (c) In all States of the Commonwealth of Aus­

tralia, and in the Dominion of New

Zealand.

pany. .

(b) 53 Market-street, Melbourne. (c) The Company is not carrying on business in any country, but merely receiving renewal premiums on a few Life Policies issued

many years ago.

SECTION H.-CONSTITUTION OF COMPANY.

Question 2.

Is your Company a Mutual or a Proprietary (or Mixed) Company?

Replies.

r. Proprietary. 2. A Proprietary Company.

3· Mutual. 4· Mutual. 5· Mutual. 6. Mutual. 7. Fraternal Insurance Company - Mutual

worked on the Friendly Society principle by means of Courts or Lodges. 8. Proprietary. 9· Mixed, if we accept the classification given in

the question, but the word " Co-opera­ tive" better describes the Company. A "mixed '' Company has a proprietary capital, and the profits are divided in a

given proportion between policy-holders and shareholders, but the M.L. C. has an additional advantage for policy­

holders inasmuch as the policy-holders bind the shareholders not to expend

more than 15 per cent. of the in­

come. Trustees elected by the policy­ holders have the right of access to all

books, and to appoint an auditor. They attend the Board Meetings of Directors, and must report to the policy-holders each year as to the position of the Com­

pany.

ro. It is a purely mutual Company, having no

shareholders or preferential policy­ holders. II. Mutual. r 2. Purely mutual. r 3· Proprietary. q. Proprietary. r 5. A mixed Company. I6. A mutual Company. r6A. Mutual. I 7. Proprietary.

Question 3·

(a) Is there anv specified maximum as to rate

of profit which may be taken by share­ holders? (h) Is there any specified proportion in which profit shall be shared by shareholders and

policy-holders?

(c) What is the nature of the instrument of which such maximum or proportion is specified? And what is the explicit specification (document or a copy thereof should be furnished) ?

( d} What is the capital of the Company ? (1) Nominal, (z) Subscribed, (3) Paid up. (e) During the past five years what amount of

profits has been paid to shareholders (£ ) and to the policy-holders

(£ ) respectively, treating as

payments to policy-holders and setting out separately-( I) Bonuses paid in cash (£ ) ;

(z) The cash value of reversionary bonuses allotted (£ ) ; and

(J) The cash value of bonuses applied to reduction of premium (£ ) ?

Replies.

1. (a) Yes.

(b) Policy -holders 7 5 per cent., shareholders 25 per cent. (c) Deed of settlement, by which the policy­ holders receive 7 5 per cent. or share­

holders zs per cent. of profits distri­ buted. (d) (I) £soo,ooo. (2) £,25o,ooo.

(3) £,1251.000. (e) £,3,024, .,C,r9,596. (1) £,Io,8J.)· (2)

(3) £ro3.

2. (a) Yes; A maximum of r2! per cent. on the shareholders' capital. (b) Yes. (c) Articles of Association. Articles 125 and

126.

(d) (r) £,1oo,ooo. (2) £,2o,ooo. (3) £n,532 ss. (e) Nil, Nil.

(I) Nil.

(2) Nil. (3) Nil.

3· (a) There are no shareholders. (b) The participating policy-holders take the whole of the profits. (c) This does not apply to a mutual Society. (d) This does not apply to a mutual Society. (e) Payments to policy-holders during the last

five years-(I) .£j,2J4,63o. (This included prospec­ tive bonuses paid on death claims and maturities.) (2) £319,224. (3) £3,2 55· 4· (e) (r) £,r 8,961 ros. 8d.

(2) £130,290 r6s. 3d. (3) Nil. 5· (e) Nil, £32,632. (1) £4,204.

(2) £1,88o. (3) Nil.

6. (b) Policy-holders under with-profit share all profits. '

(e) Nil, .£r35,98r 14s. (1) £68,742 9s. od. In addition to this, the amount of £n,7o7 8s. 4d. was paid as the cash value of reversionary bonus

additions. Portion of these reversionary bonus additions is included in the amount stated in answer to sub-section (z), while the remainder were allotted at previous

distributions of surplus. (2) £65,546 19s. (3) £,1,692 6s.

7. (a) There are no shareholders. (b) No. (d) Nil. (e) Nil.

1095

8. (d) (r) £2,ooo,ooo. (2 and.3) Members' capital (stock) £245,640. 9· (a) No percentage on capital is fixed, and it would not be economic to do so.

(b) In the proportion of So per cent .. to policy­ holders and 20 per cent. to shareholders, the sh areholders guaranteeing to the with­ profit policy-holders that the expense rate shall not exceed rs per cent. of the income. Holders of with-profit policies receive 8o per cent. of the profits of the

Ordinary Branch. Industrial Branch policies are without-profit ones. (() The Articles of Association (Article No. 121), the policy issued, and the prospec­

tus (page 8). Copies of the documents are attached. (d) (1) £2oo,ooo. (2) ;A2oo,ooo.

(3) £40,007. (e) The profits divisible in the last five years were as follows :-Year. Po1ic.v-h ,...1

£ £

1904 7)687 30,751

1905 8,268 33.070

1906 9,004 36,ors

1907 g,86o 39.441

1Q.08 1I,7JI 46·923

£46,550 £r86,2oo

Of this amount of £46,sso to which shareholders were entitled, .:f.35 ,092 IZS. zd. onlv has been paid them in cash. a legal release to the Company of

£9,894 ;:;s. 8d. having been leaving £1,.S63 zs. 2d. to the cred1t of the shareholders in the books of the Com­ pany. ro. (a) The Company has no shareholders. (See

reply to question 2.) (b) See reply to question 2. (c) See reply to question 2. (d) Nil. See reply to question z. T I. (e) (r) £29,6oz .

(2) £sn,ooo in respect of six years. 12. (a) No

(b) All profits belong to the policy-holders. (c) No shareholders. (d) No capital. (e) All . profits belong to the policy-holders

alone. During the last five years the fol­ lowing- disbursements have been made to policv-holders :-(i) Bonuses paid in cash, £4,54'l,3o.r;.

(ii) Cash value of reversionary

bonuses allotted . .(48o,8r6. (iii) Cash value of bonuses anplied to reduction of premium, £705,121. r3. (a) No.

(b) No; it is at the discretion of the directors acting upon the advi.ce of the (d) (r) £ro,ooo. (2) f.s,ooo.

(.,) .£4, 788. (e) the last three years-£7!4, £423.

(x) Nil. (z) _.{,423 . (3) Nil.

_The of this Company

bemg tnenmal, the mformation asked for as to amount divided amongst policy-holders during the last five years cannot very well be given. The infor:mation asked for is, therefore, given as applymg to _the three years ended JISt

August, 1907, bemg the date of the last trien­ nial valuation. r 4- (a) ro per cent.

(b) Yes. (c) Board minute. The following is a copy of the Board minute referred to :-Resolved that- The profits ansmg

from such branch shall be appor­ tioned· between the policy-holders entitled to participate in profits, and the Company as follows­ that is to say, not less than 90 per cent. of such profits shall be ap­ plied as bonuses on the policies so entitled to participate in profits,

and not more than I 0 per Cent.

of such profits shall be applied in such manner as may from time to time be decided for the benefit of the shareholders. After each actuaria·l valuation of the

the branch the actuary sha li re­ port to the Board his recommen­ dations as to the disposal within the limits hereinbefore mentioned of the profits, and the Board may

adopt or modify such report as

aforesaid, which decision shall be final, provided that no such modi­ fication shall in any way conflict with the limits hereby fixed by the apportionment of the profits. (d) (r) £roo,ooo.

(2) £4o,ooo. (3) £ro,ooo. (e) Nil. The only payments made have been the annual interest (by way of dividend)

to shareholders. This has been 5 per

cent. on the paid-up capital. r5. (a) Yes. See the Association's Articles of As-· sociation, clauses I I 9 and I 20. (b) Yes. See the Association's Articles of As­

ciation, clauses 119 and I2o. (c) The Association's Articles of Association. clauses II9 and 120. .

The clauses referred to are as follows :-

!20.

The holders of the " With Profit" policies in the Ordinarv Branch shall have distributed " amongst them. the whole of the surplus profits cluly declared in that

branch. The net profits of the business of the Industrial Branch shall be apportioned in the manner fol­

lowing, that is to say :-A sum shall first be set a part sufficient to p·ay interest at the rate of Io per cent. per annum upon the paid-up capital. Such interest shall be calculated upon the

capital from the respective dates of payment of the instalments upon the different shares.· :If in any year no interest, or in­

terest at a lower rate than ro per cent., is or has been paid, the

deficiency shall be a prior charge upon the profits then or subse­ quently determined and declared

i4

and such shall be set aside or

paid before any division as

hereinafter provided is made, the intention being that any policy-holder in the Indus­ trial Branch is entitled to receive any profits there be paid

upon every share ro per cent. per annum upon the amount

from time to time paid up there­ on. After setting aside such

sum, and after setting aside a sum (if any) for a contingency fund as hereinafter provided in Article 124, the amount of the remaining profits shall be divided

into five equal parts, and four of such parts shal! be appor­

tioned among the holders of such policies in the Industrial Branch as shall entitle the holders there­ of to participate in profits as a bonns upon their respective poli­ cies in all or any one or more of the modes following at the dis­ cretion of the Board ; that is to sav, by way of immediate cash payment or by applying the

same in payment of ·premiums due or to fall due, or in reduction of future premiums, or of pro­ portionate addition to the sum assured by the policy when it

shall become a claim.

(d) (r) £25o,ooo. ·

(2) ,£r2,5oo. (3) £rz,5oo. (e) Nil, .£:95 rss. 3d ..

(I) .£95 I5S. Jd. (2) £ro7. (3) Nil. r6. (a) There are no shareholders.

(b) There are no shareholders. (c) No document. (d) No capital. (e) Nil, L:r9,239·

(r) £539· (2) ,£r8,7oo. (3) Nil.

16A.(a) No shareholders. (b) No shareholders. (c) There is no instrument. (d) Nil. (e) Nil, £19,239·

(r) .£539· (2) _{r8,7oo. (3) Nil.

J 7· (a) No.

(b) No. (d) £z,ooo,ooo, _£2,ooo,ooo, _:64o,ooo (e) Nil to policy-holders.

Question 4·

What briefly, in your judgment, are the relative merits of mutual and prorrietary (or mixed) Companies, from the stand-point of the policy-holder?

Replies.

1. I should prefer a proprietary company, as its paid-U]:' capital is a security over and above the ordinary assurance fund. 2. Proprietary companies have as one object a re­

turn upon capital invested in the business, and if they fail to show good results for

participating policy-holders they cannot give

55

ing privileges, but as the great majority of them know little or nothing of the business they do not exercise the power they pos­ sess to check, if necessary, the directors

and management. 3· In a mutual society the members share the whole of the profits between themselves in such manner as they themselves decide; they

have the sole power of enacting by-laws and of electing directors, and generally of man­ aging the whole bu.sii1ess of the society as they think fit. In a proprietary company

the policy-holders have no voice whatever in the management or in the appointment·of directors, and the shareholders may prac­ tically do as they please, and, of course,

take a greater or less proportion of the rro­ fits which are earned. The only advantage, in mv judgment, of a subscribed or paid-up in the case of a life assurance insti­

runon IS m its early stages, before any con­ siderable sum has been accumulated out of the premiums paid by the policy-holders. At any subsequent period a paid-up capital is an unnecessary encumbrance. 4. In a mutual society the policy-holder partici­

pates in the whole of the divisible surplus. In a rroprietary (mixed) company a portion of the divisible surplus is taken by the share­ holders. The policy-holders have as an ad­

ditional security the paid-up and the un­ called capital of the company. In a mutual societv the directors are elected by the

policy-holders. In a proprietary company the directors are elected bv the shareholders. The interests of policy-holders and share­ holders are at times antagonistic, and when

such is the case the interests of the share­ holders have received the first consideration at the hands of directors, who are them­ selves shareholders. Shareholders have re­ ceived dividends when no bonuses were al­

loted to policy-holders. On the whole, however, the interests of policy-holders do not suffer in live proprietary (mixed) com­ panies. It is not to the advantage of share­

holders that the rerutation of their company for liberality and for equitable treatment of its policy--holders should be damaged. 6. Merits of Mutual Companies.-That thev are

subject to the control of the members as a body, and all the profits are divisible

amongst them in equitable proportions. Merits of Proprietary (or Mixed) Companies. policy-holders have the doubtful ad­

vantage of having a controlling interest whose methods, prima facie, should be, above all things to secure absolute safety. so as to prevent the shareholders' cap.ital being drawn upon to anv yossible

losses. Life assurance busmess bemg now uron a thoroughly sound basis, it has been amply proved that the necessity for a buffer, such as shareholders' capital, to stand be­ tween policy-holders' funds and loss is not now required.

In my opinion there is no doubt whatever that from the stand-point of the policy-holder a mutual society is the better.

1097

7. Fraternal insurance enables even the poorest to insure, by reason of the fact that the lodge svstem does away with the enormous ex­ pense of canvassing, and thus enables per­

sons to obtain insurance at a cheaper rate. Under this system monthly payments are the general rule. 9· In theory the advantages of the mutual offices

are-(r) That the government is in the

hands of the policy-holders; and (2) that the policy-holders get all the profits. As to the First Point:-If a mutual office confined its o:rerations to a

single district or a city it might possib!e for the policy-holders to take an mterest m its conduct. In friendly societies something like this happens. In practice a mutual office extends its business

over the whole continent, and even to other continents. It then becomes in effect impos­ sible for policy-holders to exercise their governing powers. The names. and ad?resses

of the policy-holders are in the keepmg of the management, and, since the agents and other officials are paid and controlled by the management, enough proxies can always be obtained to insure the election of the

management's nominees as directors. In the onlv Canadian Mutual Company, viz., the Life Assurance Company of

Canada, 25,ooo policy-holders were entitled to vote, but only about thirty-five attended the annual meetings. In 1891 an agent pro­ cured enough rroxies to elect himself. He

was at once required to resign either his agency or his directorship, and went off the board. The director whom he had sup­ planted was elected in his place. On ?ne other occasion a person was elected agamst the wishes of the outgoing board. The in­

truder remained in office for one year only. In the Mutual Life Insurance Company of New York between 4oo,ooo and soo,ooo were entitled to vote, but for a long period of

vears not more than 200 votes had been cast anv election. The voters who voted per­

sonally were generally employes of the com­ pany. Over 2o,ooo. proxie? were .held by the president and vrce-presrdents, m order to secure the continuity of the management

and to guard against uprising of policy­ holders. In the New York Life Insurance Company there were rrobably 8oo.ooo voters; the largest number cast at any elec­ tion since r895 was 2,328 in 19os. and the

next largest was 8og in 1904. The votes cast in person were cast by employes, the others were cast uni!er proxies running to the president and vire-presidents. Probably

8o,ooo proxies were held in the office. This is the normal state of affairs, but even under conditions most unfavorable to itself, and when the most desperate efforts were

made to oust it the management has demon­ strated its absolute power. The constituency is too wide for any possible combination of policv-holders to have any hope of success when" opposed by the management who are fighting for their own existence. Mr. Richard Teece, Mana&er of_

Australian Mutual Provrdent gwmg

evidence before a Select Commrttee of the New South Wales Legislative Council on 1 3th August, 1902, was asked, "What is the usual vote on a matter for the alteration of

by-laws " ? He replied, " It would he a

very small portion of the whole. It cer­ tain! y would not be 20 _rer cent., perhaps not ro per cent."

I n its newest branch, the Industrial the Aus­ tralian Mutual Provident Society has not provided for the mutual principle, so far as it is based on self-government. The holders of policies. of less than £roo are not en­ titled to vote, this provision disqualifying policy-holders in the Industrial ment where the maximum amount of a policy is £so. The New Zealand Government Insurance De-.

instead of being governed by

directors elected by the policy-holders, is managed by a Commissioner appointed hy the Government of the Dominion. In r884 the experiment was tried of placing the de partment as a corporate association in

charge of a body of ten directors, partly appointed by statute, partly nominated by the Government, and partly elected by the policy-holders. After a brief experience of this arrangement, which worked very un­ satisfactorily, Parliament deemed it inad­ visable to continue the institution as then constituted, and in I 886 passed an Act

abolishing the corporation and re-establish­ ing the office on the basis of a Government Department. Obviously the Government could not give the guarantee and take the

risk of the policy-holders mismanaging. In industrial insurance to attempt to give the policy-holders power to elect directors would place the control absolutely in the hands of

the agents, who, collecting each week at the homes , would be able to exercise an irre­ sistible influence in obtaining proxies or · votes, and the agents having that power would see that the directors were men who had particular regard f or agents' interests. The danger involved in allowing industrial

policy-holders to be made the catspaw of agents was so clearly recognised in Great Britain that the Collecting Societies and Industrial Assurance Companies Act of

r8q6 expressly provides that the agents of industrial companies shaii not vote at or be engaged in any way in any election . This provision does not, however, place the con­ trol in the hands of policy-holders. The onlv effect has been to vrevent the agents

taking the control out of the hands of the directors, and it is safe to assume that this was the intention of the Act, and that the directors of the severaf institutions sug­ gested the legislation. Yet any vote recorded independently of the

agents would be ineffective. It has been shown to be impracticable, if not impos­ sible, to obtain a renresentative vote of or­ dinary it would be · even

more impracticable to obtain a representa­ tive vote of industrial policv-holders if thev were left to themselves. · ·

The directors of an institution are bound to use every means to prevent undesirable per­ sons getting seats on the board. If, for

instance, a man well known to the directors to be dangerous or even mere! y unskilled or stup}d thought fit to spend money freely in a canvass of the policv-holders (and this could be done if the names and addresses of policy-holders were available to him) i:he directors would be acting in the best intereit

56

of an institution if they called upon. the agents to canvass for proxies. The dtrec­ tors could not be relied upon, nor expected, to find money from their own pockets. The danger is that all who opposed the directors in power would be thought either dangerous or stupid, and therefore so ineligible that the full force of the office organization would be brought into action in preventing their election. And the power of this or­ ganization is such that it could not success­ fully be resisted. It would, of course, be disa.strous for a mutual company if un­ scrur;ulous people, with money to spend in their canvass, could not be prevented from obtaining control. T n the recent Privy Council judgment in the case

of Campbell v. the A.M.P. Society, it was laid down that the directors are right in putting their own views to the policy-holders and in refusing to put those of their oppo­ nents, a.:1d are also right in employing the services of their officers and the funds of the society for these purposes. It has been suggested that if agents could be

prevented from canvassing for votes, and if the names and addresses of policy-holders were public :rroperty, the power of the man­ agement would be broken, but if this wert so the only result would be, I believe, to place the institution at the mercy of any one prepared to spend money on a canvass. The candidate whose motives were pure would have no incentive to spend much money, whereas the unscrupulous person with sinis­ ter designs · upon the institution's funds would be prepared to make a much more systematic and, therefore, successful can­ vass. It has been suggested that good management is

insured by the knowledge than if the

management is bad the policy-holders can change it. The complete answer to this is that, even though the management in some cases is very bad, yet it is not changed. The worse the management, the less pos­ sible does it appear in effect to be to change it. It is significant that in the case of the worst managed offices, where interference from might reasonably be ex­

pected, a contested election is virtually un­ known. In practice, therefore, the government of mutual offices is not in the hands of policy-holders,

nor has any satisfactory method been hitherto adopted for securing policy-holders' votes, hence the so-called mutual offices are not truly mutual. They are in reality the

opposite of that ; they are despotisms. And they are none the less despotisms because some of them are benevolent despotisms. As to the Second Point :-

Since the management of mutual offices has de­ spotic power the contention that all the profits belong to policy-holders must be qualified by the statement that the policy­ holders get all the profits after the manage­ ment has been paid. And as there is nc

guaranteed expense rate they will te paid .::ven if no profits are left for the policy­ holders. In a co-operative office the expense rate is

anteed, and if there is no profit or a dimin­ ished profit to policy-holder the share­ holders who are responsible for the manage­ ment suffer loss.

57

In a mutual office, if a bonus is reduced or even passed, the policy-holders suffer all the loss; the managers or directors do not reduce their own income in consequence.

In a co-operative office the directors, who are generally the largest shareholders, suffer considerable loss, that is, the people re­ sponsible for the loss are made to share it,

and loss is, therefore, less likely to arise.

Profits bear a direct relation to expenses, for it is obvious that the greater the rate of ex­ penditure in any given case the less the pro­ fits. To say, therefore, that policy­

holders get all the profits, without adding that they also bear all the expenditure, is To

merely to utter a pointless truism. The

officials of a mutual office have a vested in­ terest in the institution, and it is naturally their personal concern to maintain that in­ terest, apart altogether from the question of

profit. Moreover, they will be tempted to value their services more in proportion to the size of the office than in the excellence of the profits to policy-holders. Neither their

own money, nor that of the directors is in­ volved in the undertaking, except as in­ dividual policy-holders, and any diminution of profits can affect them, therefore, only in

a remote and altogether subordinate degree. They are thus faced with every induce­ ment to follow the line of least resistance, and that line is certainly not found in the

disagreeable task of watchful and rigid economy in the expenditure of every depart­ ment. And yet it is in just such · economy that the secret of low expense ratios is to be

found.

We, therefore, arrive at the proposition that, while in a mutual office the policy-holders do get all the profits, the conditions under which the management exists do not make

for economy, but1 on the contrary1 tend to undue expenditure, if not to actual extrava­ gance. The profits are consequently much less than they might be, or than they most certainly would be under a system which

gives the directors :ind management a direct interest in the progress and welfare of the institution.

No doubt the management is regulated to some extent by the influence of competition. With­ out that, inde€<1, the so-called mutual sys­ tem would leave the policy-holder wholly

at the mercy of the management. . It is not mutualism, thetefore1 which gives the policy­ holders such proteeticm as they do enjoy. There is nothing inherent in the mutual sys­

tem to insute good results. That is fully rroved by the fact that only one mutual

office in Australia has achieved great suc­ cess, and its success is due not to the mutual · system, btit to the fact that it has ha?

a great start mer aU other offices, that 1t has been the fashionable office, and that the mutual system has never had a trial; It

has prospered as a benevolent despotism.

As ptofits depend primarily, and almost exclu­ sivelv, upon the quality of the. it follows from what has been JUSt sa1d that there is nothing inherent in the mutual sys­

tem to produce good profits. It is obvious that it ·is no advantage to the policy-holder in a mutual office to get roo per cent. of the profit unless such profits are greater than

1099

the profits he would get in ari office organized on the co-oferative basis, and that there is a reasonable guarantee they will continue to be greater. ·

Not only is there not anything in the mutual system to produce good profits, but its ten­ dency, for the reasons already set out, is to produce poor profits. That some mutual offices yield good profits is not to be placed

to the credit of mutualism, as the majority of them yield poor profits. And even in those that now yield good profits a con­ tinuance thereof cannot be relied upon, since

it is not the systeni which is responsible for the present success. come now to a brief consideration of other systems and a comparison of them with so­

called mutualism :-A propietary office which does not contract to pay profits to policy-holders is not open to any objection on this ground. All mutual

offices issue without-profit policies, and there can be no objection to a proprietary office issuing all its contracts on this basis. A proprietary or mixed office contracting to

share profits with policy-holders is open to grave objection, on the ground that it does not give any undertaking as to expense rate. The contract is , therefore; too one-

sided. An office of this kind will run

great risk of being badly managed, and the danger becomes greater if the stock gets into the hands of a designing person, who will have control without any responsibility and

pay himself such a salary that no profits will remain. In a co,operative office the con­ tract with the assured is a definite one as to expense, rate; and proportion of profits, and,

therefore; it is an advantage to have the stock held by few people, so that the inc terest of some few individuals great in the profits. A mutual office which issues ·

both with and without profit contracts is really a "mixed'' that there is

no really mutual office in Australia. · The co-operative office which by its constitution imposes on the shareholders the obligation to work within a specified expense rate,

and which provides for proportionate profit­ sharing between the policy-holders and shareholders, thus secures identity of in­ terests. It is submitted that this is the best office from the stand-p<)int.

The guaranteed e:xpense tate does away with extravagant maiiagement by which r;erhaps more than anything else policy-holders in mutual companies suffer, while the propor­

tionate profit·sharing works for the good of policv·holders , for the shareholders who are responsible for the management will neglect no opportunitv to increase their own profit, and, therefore, incidentally the policy­ holders-that is, you have your experts de­ pending upon increased profits for any in­ crease to their own emoluments. While propietary mixed offices have been badly

managed, and while mutual offices have been badly managed, there is no instance where an office with a co-operative constitu-tion has been badly managed. ·

Recent legislation in America has been based on the assumtJtion that it is impossible for policv-holders in a mutual office to effec-tivetv control it. The law, therefore, has •

made an effort to bind down the manage­ ment as to expenses, etc., practically leaving

•

nothing for the directors to govern, in the same way that the shareholders of an office with a co-operative constitution are bound down. This is an attempt to give so-called mutual policy-holders the protection which co-operative J:Olicy-holders possess. But,

unfortunately for the mutual policy-holders, there is one difference-one inherent defect in the mutual system-which cannot be thus bridged over, the management in the mutual office has put up no capitaL You may fix penalties for exceeding the stipulated ex­ pense rate, etc., but it is the policy-holders who have to bear the burden of the misman­ agement. In the case of a co-operative office, however, if the management fail to carry out the company's guarantee the share­ holders-not the policy-holders--have to make good the loss . Moreover , while the

United States of America legislation may prevent very bad management, it offers no incentive to very good management. It holds out penalties, but it offers no rewards, and J:enalties are ineffective, as it is the policy­

holders who must pay them in the long run, for as the managers are despots, and not in­ terested in the profits, to merely limit the ex­ pense rate would be almost certain to result

either in dishonest management or in the setting up of an honest, but mediocre, man­ agement, and either way profits will suffer. The co-operative system is the only satis­ factory way of insuring very good manage­ ment. The co-operative office has some­ thing more and something better than a safe­ guard for preventing bad management. It

has that safeguard, and, in addition, it is founded on a system under which induce­ ments are held out to make the management very good. Taking the case of The

Mutual Life and Citizens' Office-for every £4 which it can save for the policy-holders it is entitled to a reward of £ r for its own efforts. Experience has demonstrated that 8o per cent.

of the J:rofits of The Mutual Life and Citi­ zens' Office-a co-operative company-is greater than roo per cent. of the profits of mutual companies, that its reserves are greater, the character of its investments

better, and the net cost of insurance less to the polic1-holders. It is true that in the co-operative office the policy­ holders have no vote, but this is of no con­

sequence, as the right to vote is, as we have already shewn, valueless in a mutual office. The co-operative office places real power in the hands of policy-holders by contracting with them that the expenses shall not exceed a fixed rate. With that guarantee in force it would obviously be absurd, and it is also unnecessary, for anyone but the shareholders to undertake the managemem. A man, after contracting to build a house :for a cer­ tain sum on specified lines, would not allow the owner to say whom he should emJ:loy, or to decide that there should be more rooms than agreed upon. Yet, if there is any virtue in the policy-holders

having so-called representation in the con­ duct of the business, The ·Mutual Life and Citizens' Office provides that the policy­ holders shall enjoy it under fts amalgama­ tion agreements. Trustees, elected by the policy-holders, have access to all books and papers; they llppoint their own auditor, and

report each year to the policy-holders as to the value of the assets and as to whether the method of distributing the profits is equit­ able or not. While this does not take from the management the conduct of the business -a conduct which it would be absolutely

impracticable to hand over, in view of the management's definite contract to do a cer­ tain thing at a certain maximum :r:rice-it affords to the policy-holders all the prac­ tical protection which mutual policy-holders

possess. And they have in addition all

the other safeguards which belong exclu­ sively to the co-operative system.

Recent amalgamations in England and Aus­ tralia have demonstrated the appreciation of policy- holders for a definite contract such as is given by a co-operative office, and which from its very natt.:re a m:1tual office cannot give.

Finally, the co-operative constitution makes for security. In a mutual office a member's interest ceases when his policy expires; in a co-operative office the interest of those in control (the shareholders) is a continuing one. Hence there is never the conflict of interest in a co-or;erative office which exists in a mutual one, For it is clear that in a

mutual office the policy-holder whose poli­ cies mature within, say, the next five years can have very little sympathy in putting by profits to strengthen the institution when from such a strengthening he can derive no advantage. The old members are inter­ ested in getting big immediate profits, while young members can afford to . wait, since such waiting affects the profits of aged mem­ bers only. Having a permanent interest in the business, the management of the co­ operative office has a perpetual incentive to do absolutely the right thing, and to hold the · balance equitably between the various conflicting interests of the policy-holders.

Moreover, the manager and directors of the mutual office have at the very most a life interest in the business. Even the amount of provision which they can make through it for their families is reduced to narrow

limits; they are thus forced to invest their savings outside the life office, and conse­ quently much of their interest and ability is expended ar;art from the life business.

In a co-operative office, on the other hand, it is possible for those who administer its affairs to make all their provisions in and through it, and accordingly give to it the whole of their interest and ability. In

the M.L.C. the managers and secretary have put their savings into the M.L.C.'s shares, and officials and members of the staff are keen buyers of shares. They buy when­ ever the opportunity occurs. In the Pru­ dential of England and the Refuge it is also well known that the same conditions pre­ vail.

Shareholders exercise a more efficient control. They are much more close] y centred in one locality; are not nearly so numerous as policy-holders (though usually they are policy-holders as well); their names and ad­ dresses are registered; they have invested capital in the undertaking, and their state

is permanent. Directors, therefore, in :1 co-o:r:erative office are more amenable to con trol than in a mutual office.

It is safe to _say that our policy-holders would not permit the shareholders to withdraw from the control of the business. The re­ of mutual offices are not sufficiently

good to tempt them into anv such error. A co-operative office does not need a large capital. The function of the capital is not so much to guarantee the policy, but to guar­

antee the undertaking of the shareholders that the expense rate will ·be within the

agreed upon limit. The assurance fund

will provide for policy claims. In the event of the shareholders failing to

the on the lines agreed upon

With the pohcy-holders their capital would be forfeited, and the j:Oiicy-holders would no doubt then have the option of taking over the business and managing it on mutual

lines, This is the worst that could happen to them. ro. In my opiriion a purely mutual company is in every way superior to a proprietary con­

cern, and I think that this fact is generally conceded. In a purely mutual company all rrofits belong to the policy-holders who corftr<;>l the company, inasmuch as they have .

the nght to choose from their own number of trustees, by whom the company

IS directly managed. Generally speaking, a stock company is owned and controlled by a limited number of shareholders who re­ ceive a portion of the profits of business.

Shares in such a company may be sold or transferred at the will· of the holder, and the of the company be changed ac­

cordmgly. I am of the opinion that it is

a bad principle which allows a stock-holder to intervene ·between the policy-holders and the profits which the premium fund has created. n. In mutual companies the policy-holder gets in­

surance at actual cost price, as any pre­ miums he may pay in excess of cost are re­ turned to him in the form of bonuses. In proprietary and mixed companies the policy­

holder has a security for the performance by the company of its contract, the share­ holders' capital, in addition to the assurance fund. Generally the amount of share­

holders' capital is insignificant compared with the amount of assurance contracts it protects, but it is doubtful if in any case

such caj:ital is of any value to the policy­ holder, as from the nature of the business, once it is established, the assurance fund provides all the capital required. In con­ sideration of the security which the share­

holders' capital is supposed to provide, the policy-holders pay a portion of the bonuses which they would otherwise receive; this, ac­ cording to my view, is a loss to the policy­ holders. r2. As there are no dividends to shareholders, a

mutual companv ought to, and does, give better returns when properly managed. In a mixed or proprietary company the in­ terests of the j:olicy-holders are not always

those of the shareholders. All things being equal, the advantage is in

favour of the proprietary companv. for the policy-holders' interests are additionally covered bv the shareholders' subscribed capital. Mutual companies, as regards man­

agement, are mutual only in name. Man­ agement, as a rule, is. superior in proprietary companies.

1101

14. I think there is litt1e to choose between them. It is simply a question of management and it could no doubt be proved that the' best managed proprietary offices show results as

superior to the average mutual office as the best managed mutual office shows to the average proprietary office. r 5. Both equally good. Deren ding mainly upon

the efficiency of the management and the personnel of the board of directors. 16. A mutual company is a co-operative institution whose object is the benefit of the people

assured. A proprietary company is a pri­ vate speculation, and the object is to make money for the proprietary and out of the assurers. It cannot be shown that the proprietary system

has a single redeeming feature. I6A. The contract of Life Insurance being a long­ dated one (often for the whole duration of life), the position of its policy-holders is

different from that of the constituent parts of any other business institution, such as a bank or. an ordinary trading company. Since the j:Ohcy-holders are committed to the in­

stitution for the whole or a considerable part of the community ought

to approximate m Its government to that form is most suitable to the genius

of nation. Experience shows that a

propnetary form of government, even though benevolent at first, will ultimatelv fall into the hands of an evilly-disposed govern­ ment, and that the only remedy for this is

for the members of the community to pos­ sess the power to eject the controlling in­ terest if it becomes decadent. Even if not freely exercised, the mere existence of such

a power has a salutary influence.

SECTION IlL-NATURE OF BusrNEss.

Question 5·

What is the nature of the business transacte

(3.) Combined Ordinary and IndustriaJ Life Assurance; (4.) Assessment Assurances; (5.) Any other business conducted by yom

Company?

Replies.

r. Ordinary Life Assurance. Annuitiesc--also Fire Marine Guarantee, and Accident. ' '

2. Ordinary and Industrial Life Assurance. Up to Jist December, 1908, some Industrial Accident business wa.s transacted, but this has since been disposed of to ar­ other Company. 3· (I). Ordinary Life Assurance.

(2). Industrial Life Assurance. 4· ( r.) Ordinary Life Assurance. (5.) Accident and Invalidity Assurance com­ bined with Ordinarv Life Assurance

Policies. -

5. (I.) Ordinary ; ( 2 )-(5), nil. 6. (r.) Yes.

(z .) No.

(.).) No. (4.) No.

(5.) Accident Insurance and Invalidity Bene­ fits are combined with Life Assurance policies in the case of many policy con­ tracts issued during the last fifteen

months. The Accident and Invaliditv portion of the business, however, is re-· msured under a special contract with a Company making a; specialty of that

particular class of business. 7· (r.) Whole life only. (4.) Yes, on the assessment principle. (5.) No. 8. (r.) Yes.

(2.) Do not think so. (5.) Fire and Accidents. 9· Ordinary and Industrial Life Assurance. 10. Ordinary Life AsSUirance and Annuities.

1 r. Ordinary Life Assurance.

rz. (r.) Yes. (2.) None. (3.) None. (4.) None. (5.) Annuities. 13 . Ordinary Life Assurance.

Industrial Life Assurance and Medic:tl Aid (Industrial Branch). 14. (1.) From rst January, 1909. (z.) Yes.

(3.) After tst January, 1909. (4.) No. (5.) The Cbmpany has a sickness branch, :md which no new business has been written

far some years. It is being worked out. 15. (r.) Ordinary Life Assurance. ( 2.) Industrial Life· Assurance. (5.) Combined Life Assurance, Sickness, and

Accident Benefits (Sickness and dent Benefits wholly reassured). r6. The Society transacts Ordinarv and Industrial Life Assurance and individual Accident

Assurance of an industrial character. r6A. Ordinary and Industrial tife Assurance ; Accident Insurance chiefly onethe Indus­ trial plan. q. See answer to question rc.

Ordinaay Life Assurance.

(5.) No. ·

Question 6.

What rs the ratio for each of the past five years

of the cost of collection and expenses of management to the prerniurn income of your Companv in respect of-( r.} Ordinary business;

(z.) Industrial business?

Replies.

r. ( r.) About 30 per cent.

(z.) No Industrial business. 1903. 1904. 1905. 1906. 1907.

2. Ordinary business 47·9 4t.6 39·7 33·5 36.6

Industrial business 94·7 9o.r 79·5 71.8 64.5

3· (r.) Ordinary business, 1903, 13.56 per cent.; 1904, 13.58 per cent.; I9d5, 13.64 per cent.; r9o6, 13.81 per cent.; r9o7,

13.89 per cent.

60

(z.) The Industrial Department has only been in existence for four years, and the ac­ cou:nts for the la.st of these have not yet been made up. The ratios to premiums collected were :-Year.

Expenses of :Manag-ement. . l'er cent.

Agents' Sal :tries. Per cent .

Collecting Commissiou. P<:r cent,

1905 174 107

1906 57 25

1 907 35 IS IJ

For the years 1905 and 1906 the col.lecting corn­ mission was not kept separate from the New Business commission. Since it is so srnall relatively, no harm will be done if it is assumed to ha;ye been 13 per cent. , and the total ratios are quoted as-Yeat·.

Ratio of cost of collections and e :-!petJSr>S of' mtl.llagement to prcnumn income. Per cent.

If Commissio.p oo the New BusineS£ and Taxes are included the ratios are:-Year.

1905 1906 1907

Jl,atf3 oi expenses to Preminm Income. Per

4· (1)-Year. cent.

1904 z8.8o

1905 28.99

1906 29.28

1907 zg.ro

1908 27-77

6. (1) The ratio,. for the five years en.ded Jist

December, 1907, of the cost of collec­ t>ion of premiums and · expenses of

management of whatever cha.racter· to the total premium income has. been as follows:-Year.

1903 1904 1905 1906 1907

(z) None.

Pe1· ..

26.7 28.1

zg.2

7. (1) As our latest publications have not yet

reached me from Canada, I cannot answer this, but I think the average is 12 per

cent.

9· (1) and (:a) Expense Rates to Premium Income. lmlnstrl&l Ordinary Branch. Excluding Including taXes. tflX:E.'S.

Year .. Per c,•nt. P.-rcent. Per cent,

1903 16.0 55·5 57· 0

1904 15.9 46·9 4S.s

1905 15·9 44-0 45·7

1906 15-4 38.6 40-7

1907 IO.O 4L7 43·6

!i. (x) rgo4, 14.8 per cent.; I905, 15.1 per cent.; r!}06, !4·4 per cent. ; 1907, 13.6 per

cent.; rgo8, 12.9 per cent. 12. (1) The ratio to total premiums is as follows:-Year. Per e<'nt.

1904 ro.s

1905 9·7

!9d6 s.s

1907 7·3

1908 7·2

6i

In

13. (1)

the cost of collection and expenses 0f

management we have n<>t included com­ missions, ta:xes,. or real estate expenses. and (2) Separate accounts not being kept, the. information can only be given as ap·

plymg to both branches. Year ended 31st Aug, Premium Income

(both branches). Expenses. Ratio. Per cent.

1904 ... .£r3,oo6 ... _£6,452 49.60

1905 13,476 6,843 50·77

1906 14,176 6,8n 48.n

1907 15,348 7,16Z 46.66

1908 17,Il8 7,855 45.88

14· (z) 1904, 29.17 per cent.; 1905, 30.25 per

cent.; 1906, 28.9 per cent.; 19o7, z8.3 per cent. I am not quite clear whether it is intended

that New Business charges should be in­ cluded. We show our expense.;; separately under New Business charges, cost of col­ lection, and expenses of . managemer:t.

The addition to be made if New Business cha.rges are to be take.n will be :-l&oh Per cent.

1905. Pet" cent.

1906. 1907.

. Per cent. Per cent.

22 .9 22.5 JO.O 29.4

present COillpany commenced

In 1904. 1903-4· Per cen t. 1904-5. 1905-6.

Per cent. Per cent.

1006· 7 0 1907 ·8.

Per cent. Per cent.

15. (r) 51.8 ... 57·3 ... 58.6 ··· 71.5 ... 85.2

(2) 64.8 ... 73·4 ... 6o.s ... 60.3 ... 73·7

16.1 Collection-1. per c.en· t., I. I. per .· cent., r per (

1 ) cent., I. 2 per cent.; I per cent.

Management-:-rt.6 per cent., per cent.,

10 per cent., 9 pe.r certt., 8.3 per cent. ( Collection-r4.7 per cent.; 13 .4 per cent., 8.9 l per cent., 9.2 per cent., II.Z per cent.

(2)<} per 8.9 per cent.,

8. 5 per cent., 8. 5 pet cent., 8. 5 l'er

· cent.

These headings do not constitute the whole of the expenditure. I6A. ·l Collection-x per cent., I.! per cent., r per (l) . . ·. . tent., r. 2 per cent., i per cent.

Man:gement-11.6 _per cent., 10.2 per cent., .. .co per cent., 9 p,er 8.3 per cent.

[ per cent., 13.4 per cent.,

f S.g per: cent., 9"·:2 per cent., 11. 2 per

(Z) rent.

\

Management-ro.t pe.r cent., 8. 9 per cent., 8. 5 per cent., per cent., 8.5 per

I. cent:

Not including "taxes" or money spent in buy· ing " fresh business. " .

Question 7·

(a) Do you consider that, generally, the collecti- ::m charges and of management in

connexion with IndustFial Assurance ;1re in. t!'X£eS& of what they should be? . (b) If so, in what way can they be reducedi?

Replies.

I. I have no experience of Industrial Assurance. 2. (a) Generally, no. The very nature of the

business with its smaJl premiums lecfed weeki y at the homes of the as­ sured must always make it expensive to work. (b)" The expense ratio is naturally . heavier ln

a company with a comparatively sm?.ll premium income than with a Compan'" which has a large premium revenue. It

3· (a)

(b)

1103

is the extension of business that sends up the expenSe ratio, but as new business becomes stable the premium revenue will increase and the ratio of expenses

decrease. General! y, no, but in this Society at pre­ sent, yes. In this · Society the ratio, expenses of

mana.gement to premiums collected, js being rapa.dly reduced, and will continue to be reduced. The same applies to

a.gents' salaries, which will be reduced to an insignificant percentage, or wiped out altogether. Collecting commission cannot be materially reduced while the

attitude of the public towards Indus­ trial Assurance remains as at present. :!'he means to he employed are-r. Simplicity of administration. Have

only as many fortns, books, re­ cords, and returns as a.re abso­ lutely necessary to safeguard the interests of those concerned.

Eliminate the unessential. 2 . . H ave . a carefully wlected and

hig]lly trained staff of clerks and agents, so that the most expen­ sive portions of the work, i.e.,

supervision and correction of

errors, may be reduced to a mini­ mum. 3· Win the public confidence. if

this can be done the agents will not have to waste valuable time re"canvassing cases to prevent lapses. 4· (a:) I am not associated with that particular

class of business, and I am therefore not in a position to express a definite opinion on the point. (b) Ditto. 5· (a) Cannot say.

6. (a) I have had no practical experience in con­ nexion with Industrial Life Assurance, and would prefer not to express an

opinion.

(b) For the reason just stated I prefer not to

express an opinion. 7· (a) Yes. (b) By some complete system of rece!Vlng boxes or pillatSi into which policy­

holders can plwe their payments. 9· (a) Jhe question may best be cons1dered from the point of view of the difference be· tween Ordinaty a(nd lndustrial Assur­

ance. Ordinary offices do not employ rugents . to collect the premiums at the homes of the policy-holders. The Industrial offices

must do .this. In fact, Industrial As-

surance rea.lly means assurance for small amounts collected every week at the houses of the assured. Agents must be paid for this work, and a commission of

15 per cent. of the premiums collected is the minimum rate for which experience shows thi!'> work can be done. These agents must be .supervised, and if we place this together with the additional clerical labour, printing, &c., involved

at 10 per cent., we have a. total of 25

per cent as the additional charge, over and above what an ordinary office would have to meet. Deduct this from the ex­ pense rate of the best Industrial offices,

and the result will compare must favor­ ably with the expense rates of most Aus­ tralian Ordinary offices. An Industrial Assurance rate of so per cent. is at least as economical as an Orriinary one of 25 per cent. Expense rates in the M.L.C. compare

favorably with those of offices in other parts of the world. 1 In other parts

of the world there are offices in whic!1 the assured pays part of the expense iu addition to his premium. Comparison with these offices would be impracticable. (b) Agents' charges for commission are not

likely to be reduced. I think they are

at a minimum now, but no doubt the ex­ pense ratios of thris office will show some reduction, but there is not much scope considering the task to be performed. No voluntary system has ever yet been, o;:

ever will 'be, devised that will insure the industrial classes without the machinery of an Industrial office. Competition will insure that any improved means will have adequate opportunities. 10. (a) As the Company which I represent con-

fines itself to Ordinary Life Assurance, I have had no actual experience in re­ gard to Industrial Assurance, and for this reason I would prefer not to giv<:

an expression of opinion. (b) See reply to previous question. II. (a) I am unable to form an opinion.

12. (a) We are not entirely familiar with the present method of conducting an industrial busi. ness in Australia, and therefore prefer not to give an opinion. (b) See above. 13. (a) The expense ratio must necessarily largely

depend upon the extent to which new business is being pushed. Generally speaking, the expense ratio of Australia compares well with England

ana America. (b) In the case of the " Prudential '' every

economy is practised, and we are not

able to suggest anything beyond. 14. (a) Yes. (b) I consider that expenses are, to a marked degree, increased by frequent lapsing

and re-entering. Much · of the lapsing is caused by the misrepresentation of or: position agents, and I should welcome an Act (similar to that passed by

American States) rendering an agent who· made a habit of " twisting " busi­ ness by this means subject to severe

penalties.

15. (a) No. 1 6. (a) I do not. To arrive at whether the ex-

penses of an Insurance Office, either Or­ dinary or Industrial, are excessive or not, it is necessary to take into considera­ tion the amount of new business traf1f>­ acted. No criticism of expenses is of

anv use unless some distinction is made between the cost of procuring new busi · ness and the expenditure on conducting the old. To merely set the gross expen­

diture against the gross and

judge an office on the result rs mislead­ ing in the extreme. Comparisons of expenses of :ts

now made are all more or less rruslead­ ing. They are generally intended for

advertising purposes made up to suit an office publishing them. For instance, a

62

ratio often adopted of total expenditure to total income, or even to premium in­ come, does noi: necessarily decide any­ thing. It is all in favour of an office

having a large renewal income. Such an office might be almost moribund, and even extravaganrtly managed, and yet show an exceedingly favorable expense rate against a better and more economi­ cal! y managed office doing a large new

business. Briefly, that system might show the most extravagant office as hav­ ing the lowest expense rate.

No comparison of expense rates is con­ vincing in any degree unless it takes

note of new business. To arrive at ihc true expense rates of an Ordinary busi­ ness I should say that 7i per cent of all the premium income might be allowed as the cost of conducting old business. The balance of expenditure is the cost of the new. For Industria l business 1

would allow 17i per cent. for the con­ duct of old ·business, the balance being the cost of the new, or for Ordina.ry

business it might be put .another way. Allow roo per cent. of the first year's

premium as a fair cost for procuring

the new business, the remaining expen­ diture is the cost of conducting the office. (See Bourne's system.) ·

r6A. (a) No, they are less than the corresponding charges in Fire Insurance Companies patronized by all classes of the public, including professional and business men of the highest menta,! acumen.

(b) The apparent expense of procuring In­ dustrial new business is abnormally in­ flated for the following reason.-When an agent obtains a new client

he collects the first week's pre­ mium, say 6d. It would be no

satisfactory remuneration to- pay him even the whole of what he

has collected. His commission necessarily exceeds the amount he has collected, and in this case it is 6s. If he fails to collect this

amount he is liable to refund the excess of what he has received over and above the amount he

has collected. When he cannot collect the second week's pre-. mium in the example cited he has ss. 6d. to refund, but rather than

refund this in one lump sum he

pays to the Society each week the premium as if it emanated from the policy-holder (and the

Society cannot tell whether it did or not) until he has covered the

period when a refund is neces­ sary. It foflows that a great deal of money is paid to the Society by agents as ·premiums, al'ld tp­ pears on one side of the a<'..counts as such, while being

charged on the other side of

the accounts as commission. It clear also tha.t it is possible fo1 agents who have canvassed likely insurers, but cannot collect any premiums from them, to take pro­

posals, and the premiums

themselves in the hopes . that they may collect these premiums from

the public later on. From thi'

cause two very large classes

of nommal new business to an In­ dustrial company, viz.:-

63

I. Business from fickle per­ sons who make a pro­

and change their

milld, sacrificing a few pence in the shape of a

week's premium but

the agent to con­

tillue to pay further

week's premiums out of his commission. This we might call " fickle "

business. 2. Business on which the

public has paid nothing at all, but where the

agent takes a propos:tl and goes on in the boDe that they will pay. might be called/ " un.

substantial '' business.

1 hese · two classes combined have a power­ ful influence on the apparent cost of

new business in Industrial Companies. I say apparent, because the collections re­ ceived on one hand are merely commis­ sions paid out on the other. They re·

no actual cash paid by the pub­

he, but they create a high expense rate out of what are really not expenses at

all. The Companies endeavour to con­ trol the unsubstantial business, but have no control over the fickle. The true

position would be much more satisfac· torily placed before the public if the

Companies were authorized to wipe 0ff both sides of their accounts (premiums on the one side, and commissions on the other) all money collected from poliCJe,,

that lapse before paying for, say, half a year. This would lead to a truer re­

presenta.t'ion of the lapse rate as well as of the expense rate ..

Question 8.

(a) Do you consider that "the benefits which the working classes receive from Industrial Assurance are sufficient to justify a con­ tinuation of the system? (b) What are the specific reasons for your opinion?

Replies.

r. (a) See reply to 7 (a).

(b) See reply to 7 (a). 2. (a) Yes.

(b) The working classes-people who are paid by the day or by the week-need Life As­ surance as· much if not more than people in the higher walks of life. But money only reaches them in small sums and there

is very little left, after the household ex­ penses have been satisfied, for Life As­ surance or any other method of saving. But provision can be made for the Indus­ trial Assurance premium for which the collector calls with the regularity of the tradesman or rent collector. The greater

portion of the premiums paid for Indus­ trial Assurance represents money that if not saved in this way would be merged in current expenses.

1105

When death occurs, the principal-·

oftentimes the only-asset is the Indus­ trial policy, the amount payable there­ under representing all that exists between the widow and want. The educational aspect of Industrial Assurance cannot be overlooked, for the inculcation of thrifty

habits must always be beneficial to the people and to the State. 3· (a) Yes.

(b) In the event of death a sum sufficient to pay funeral expenses is immediately available, the most pressing necessities are relieved, the self-respect of those who would other­

wise have to seek charity is preserved. Even where the policy is not the only

a.sset, the advantage of ready money at a time when credit is low is enormous as will be seen from a consideration of 'the rates charged by the pawnbrokers and money lenders to whom recourse would otherwise have to be had. The advantage to the State is incalcul­

able. In mendicancy as in crime, it is

the first step that costs; and the money that comes to their relief at a critical time is the mea11:s of saving many who, had they been dnven by stress of circumstances

to seek assistance from others, would have felt no shame in afterwards ooing so. The Endowment assurances have been the means of saving money for people who

would not have saved in' any other way. The. policy-holders contribute, under per­ suasiOn, sums which they would

not save Without that extraneous influence and they would dissipate at the first

temptation were the money within their reach. They receive a fair equivalent in the shape of a needed (though sometimes unappreciated) temporary assurance, and an endowment which, if it does not al­ ways give them back as much as their contril;mtions amount to, usually places

them m a ?etter position than they would have been ill had no policy been effected. 4 (a) Yes.

(b) The system made use of by those

for whom It IS mtended · and it therefore appears to suit them. '

5· (a) Would not like to say publicly. 6. (a) Yes. (b) It has .been proved that the working classes reqmre to have the benefits of Life As··

surance pressed home upon them bv the per?onal canvass of agents. It is the

busm.ess of the latter to preach the gos[Jel ?f Assurance, bringing home to the

Indmdual assurer the desirability of his making provision for the benefit of his dependents .or making provision for his own benefit ill later years. Without such personal canvass the working classes no doubt neglect to make the pro­

VISIOns referred to. The method of In­ dustrial Assurp,nce involves the collection, generally by weekly payments, of small sums of money which can generally be spared, and without the call of the col­ lector the policy-holder would not trouble to call at the office of the company and

pay his premium.

7· (a) Yes. (b/ Because although expensive, it is certain]· f

. . j

a actor m c.ausmg people to save.

8. (a) Yes. (b) Industrial system has brought Life Insur­ ance within the reach of all, and cer­

tainly encourages thrift. 9· (a) Yes. (b) The industrial office brings the benefits of assurance (both ordinary and industrial)

within the reach of a class who would remain unassured. Without its

.aid many an ordinary policy would never be effected ; in many a household the only protection in the event of death is the in­ dustriai policy. IndUs trial Assurance

adapts its methods to those of the weekly wage earner, and though the services ren­ dered by an industrial office over and above those rendered by an ordinary office

increases the cost, i.t is better they should be rendered than that the person should remain unassured.

Year.

HS37 ; 1897· 1907-

1887 . r897. 1907.

r887. r897· 1907.

Industrial Assurance is voluntary, there is no compulsion. Yet the offices are doing good business every year, and the ex­ perience of our own company is that

policy-holders "assure again in quite 90 per cent. of cases where their contracts mature. They ate persistent in their pay­ ments. After two years the lapse rate is 11ttle or no greater than in ordinary assur­ ance. It is impossible that any system could prosper so long and be so much in demand unless there was real demand for it. In the United Kingdom alone there are zs,5oo,ooo industrial policies in force assuring over £2so,ooo,ooo. The only opponents of the scheme are those who do not understand it and offer opinions with­ out rri.aking full inquiry. Officials of offices confining their attention to Ordin­ ary Life Assurance are as a rule incapable of forming a sound opinion of the sub­ ject. Tne A.M.P. Society, after so

years' experience of Ordinary . Assurance, has admitted that an Industrial Branch is a tlecessity. the great demand for industrial assur­

ance, not only in Australia, but ih the

United :kingdom, United States, Canada, and other countries, is evinced by the amount of business in force and its won­ derful rate of growth. The following figures will illustrate :-

United Kingdom. No. of Policies. Amoull t of

:[,.

9·145,844 83;434.487

rs,86o,6s4 IS2,tl75,807

25,544,045 25I,556,I07

United States. £.

z,296,oo 1 so,8zo,97 5

8,ooo,636 199,109,147

r8;563,7I3 so6,o6r,o67

Canada. ·

£.

ro,oo6 217,295

77;042 1,636,943

4II,255 9,902,100

As Industrial Assurance flourishes only in urban districts, it is interesting to com-pare its growth with that of the popula-tiOl,l.

64

Year.

I8I)O rgoo rgo6

United States,

Indusbtia.I Poli- Population. Per (;•·banPopu- Per

cies in force. Cent. Iation. Cent

31875,102 ... 63,637 1704 ... 6.1 ... 26,941,156 ··· 14·5 II,2I 5,531 ... 76,148,576 ... 14.7 ... J6,62o, r78 ··· 30.6 I f' ,84l,Jg6 ... 84,941,510 ·· ·â€¢ 21.0 ··· 43, 140,287 ··· 41.3

Canada.

r8gr ::t5,3o5 ... 4,8Jj,239 ... ·5 ... r,5J7,o98 ... r.6

1901 199,927 ... 5•37I,JI5 ... 3·7 .. . 2,02 1,799 ··· 9·9

rgo6 368,462 ... 6,ooo,ooo ... 6.2 .. . 2, 4JO,ooo ... 15.2

10. II.

!2. 1J.

(Estimated.) (Estimated.)

The above proves that there is great and grO\y­ ing demand for Industnal Assurance m those ooutltries where it has been most tried.· A sptttt for a few years might be looked tipoti as spasmodic, but continuous growth like this indicates a demand for a necessity. In Australia, Itidusttial business was started in

r884, and by 1906 had reached the fol­ lowing tlimetlsions :-Policies in force . . . 346,283

Amount assured £7 ,3or,581

Annual Premium income £389,45r

This gives about 72 policies per 1,ooo of the population. Mr. T . Mackay, in a book entitled "The

English Poor," published in r889 :-" The terms for this branch · of the

business will bear eompal:ison with those of the Orditiary company, Which sUpplies the upper ahd middle Classes. With a fatuity .·which is .ahnost irtttedible, well-meaning philanthropiSts h::tve to

disparage the Wotk of theSe socretres, becl1use, forsooth, they adapt them­ selves to the necessity of the case and collect the premiums weekl y by house to house visitation. " Insurance is an ingenioUs invention,

but placed in the hahds c.f the Post Office it temains barteh; but when manipulated and prepared for sale by commercial enterprise it supplies a

social want and confers incalculable benefits on mankind. " It is not too much to say that the

country oWes a great debt of grati­ tude to these institutions. They

have kept alive during a very dark period of working-class history, some small interest in the principles of in­ surance, wme respect for this valu­ able expedient of survival amid the dangers of civilized life." (a) and (b) See reply to Question 7 (a). (a) I am unable to form an opinion. (a) and (b) See No. 7· (a) Decidedly; (h) It has taught thousands of people the rudi­

ments of thrift. It has given them a

'start ih the right direction to self-improve­ ment, and to greater efforts in the wav of thrift through the medium of ordinary policies. But for Industrial In­

sutanl:!e there would be hundreds less or­ dinary branch policies in force, and mil­ lions of p(}ttnds les·s to the credit of work­ ing people. lt is a help in time of

trouble, and an edu-cational medium in time of ptosperity; · It is one of the bless­ ings of the a.ge, and the peculiar and

special possession of only the most civi­ lized countries in the world. It goes hand

65

in hand with prosperity, and helps to make it permanent. It is the consolation of the dying poor, and the relief of the sorrowing survivors. Thousands of people

would save nothing if they were not called upon regularly every week. 14. (a) Undoubtedly. (b) Chiefly, that the majority of persons insured

in an Industrial Office would never pay premiums unless they were collected at thP door. If a system of insurance were in· stituted by which a larger amount was m­

sured for the same premium as is now charged (and no agents were employed), many of the working classes would die uninsured. 15. (a) Yes.

(b) The popularity and success of the system in English-speaking communities, and the undoubted encouragement given to thrift which would otherwise not be practised.

An industrial policy frequently provides the means for funeral expenses that would otherwise become a claim upon the public funds. 16. (a) Yes.

(b) Almost daily instances of the appreciat!on of the system by the people who are as­ sured under it. 16A. (a) Yes.

(b) (r) A knowledge of the hardships entailed on working families where death occurs without any provision. Information as to the high (but not unjustifiably high) cost,

and the onerous (but not unnecessarily onerous) conditions of funerals on time navment, would, I think, satisfy any per­ sozi on this point. (z) The large number of working inen who have

been enabled to start in business for

themselves and become employers out of the proceeds of maturing Industrial poli­ cies. (3) The general satisfaction expressed not only

by those who are claimants on the society, but also by those who are J:olicy-holders, expecting some day to have to make a claim. (4) The excessive cost of all other channels for

the thrift of the working-classes in com­ parison with this channel. For example, the Savings Bank requires each depositor to send his or her money to the bank.

This entails a separate trip for each de­ posit, and if we reckon up the time, cost, and trouble involved we shall find that they are almost prohibitive. .. In the fir.st

place, there is the time to make the tnp to the bank and back. In many cases

there are tram fares to be paid. In most cases the trip has to be undertaken by women who have no help in the house. They are obliged to " get dressed :·

specially for the._ purpose. They reqmre to make arrangements for the care of the children and for attention to the calls of their during · their

These obstacles are fatal, and even 1f they were overcome involve a dispronor­ tionate amount of expense and trouble. In Industrial Assurance the public pavs a

special collector to make short journeys from house to house instead of each

householder making a long journey indi­ viduallv to the bank and back. It is in

in reality the most economical system for working-class thrift yet devised. F 1!332. .E

(s)

(6)

1107

The enormous success of the Industrial As­ surance system, especially the

most virile nations of the world, VIZ., the British the American, and the German, there being twenty-six million Industrial policies in force at the in

Great Britain nineteen m1lhons. m the United States: and five millions in Ger­ many (in addition to compulsory Govern­ ment insurances).

The extent to which the system flourishes in the leading business nations of the world, Great Britain, United States, and Ger· many. This proves that it apP.eals best to those peoples of the world that have the keenest business instincts.

Question 9·

What do you consider to be the relative merits of Industrial Assurance Companies and Friendly Societies as institutions or­ ganised to meet the requirements of the

working classes ?

Replies.

1. I have no experience of either.

2. I believe that if inquiry were made, it would be found that the majority of industrial policy-holders are also members of Friendly Societies. It therefore appears that both institutions fill a want in the

lives of the people.

3· The working classes have need of both Indus­ trial Assurance Companies and Friendly Societies. The two classes of institutions should work and flourish side by side. An institution in which a large member­

ship is essential to success, in which per­ manence is of n:he highest importance, or in connexion with which a fund is to be accumula•ted-especiall y if that fund

must be carefully husbanded and im­ proved at compound interest-should be a public company or corporation. An institution which relies largely on mutual assistance and good feeling, which aims

at the promotion of something not mea­ sured in pounds, shillings, and pence, and the management of which does not demand highly

Society. Thus., assurances of all . kinds (including funeral benefits an_d_ bunal al­ lowances), and deferred annUities or pen­ sions, if provided by contributions extend­ ing over a term of years, are best handled by assurance companies, but if provided by levies made at the time the benefit is to accrue, they will usually ·be more suc­ cessful in amateur hands. Medical and sickness benefits can be as well pro·

vided, and often better supervised in local institutions, and can therefore be better managed by Friendly Societies.

4· I have never intereS'ted myself in the work of Industrial Assurance Companies or of Friendly Societies, and. I _cannot therefore discuss their relative ments. .

5· Couldn't say.

6. The principal merit of the Industrial Insurance Company over a Friendly Society under ,the present conditions lies in the be1Jter management of the Industrial Insurance

Company, not only in respect to the

general business capacity of its managers in connexion with the investment of funds, but in dealing with the individual members on a uniform and definite plan as far as equity is concerned. To 1these reasons may be added the fact that the Industrial Insurance Company is more likely to maintain a solvent condition when investigated on an actuarial basis. 7. I place Friendly Societies first on account of

their more complete organisation and of their greater popularity. If the present payment made by Friendly

Societies on the death of a member could be increased considerably, much of the necessity for Industrial Insurance would not exist. 9· Friendly Societies do not employ 1to col­

lect the premiums at the houses of the as­ sured, therefore, they resemble ordinary more than industrial businesses; the or­ ganization of a Friendly Society is alto­ gether inadequate to carry out the work of an industrial office. Of course, they perform a useful service in catering for a special class. Friendly Societies are mutual in constitution, and have all the defects of mutual offices. However, the several States keep a very close supervi­ sion on these mutual Friendlv Societies, and no doubt things will work out all

right. A comparison of expense rates is worthless, as they do not do the same kind of business. ro. See reply to question 7 (a). II.

12.

IJ.

I have not specially considered this mwtter. As we do not have a thorough knowledge of Friendly Societies in Australia, we are not in a position to answer this question

satisfactorily. In times of distress or pressure, Friendly Socie-ties can only fall back upon their own re­ serves. In 1the case of Industrial Assur­

ance Companies transacting Friendly Society business, the shareholders' capital is also available. 14. I consider that there is ample room for both,

and although I understand that many of our members are insured in Friendlv Societies, I know that there are many . more who would not be reached by these means. 15. Industrial Assurance Companies possess a great

advantage in the man:ter of management. Their officers are specially trained to the work, and have a proper appreciation of the necessity of building up proper actuarial

reserves to meet future claims under their policies. This is generally not the case with 1the Friendly Societies.

&6

They render differe!llt kinds of service to the community, and at 11:he present time do not in reality enter into competition with one another. The evolution of Friendly Societies emphasises the benefits arising from self-control, and the principle of allowing men to administer their own affairs as much as possible withollit un­ due interference. There may be some loss financially now and then, but it is much more than counterbalanced by the splendid moral 1benefits permeating the working classes, and thereby giving the nation a healthy: backbone.

Question IO.

Is there, in your opinion, any need in Australia for companies 1transacting the business of sickness assurance on the industrial assurance method ?

Replies.

r. See reply to No. 9·

z. Yes. Our experience in Industrial Accident In­ surance showeq that there is a demand for a policy which will provide compensation in the event of accident or sickness, and

I am of opinion that the demand will in­ crease when this class of business is fur­ ther developed. 3· Australia being well supplied with Friendly

Societies, there is no need for companies transacting the business of sickness assur­ ance on the industrial assurance method, but experience has shown that there is scope for such companies. 4· A profitable business of the kind is, I under­

stand, transacted. There must, there­ fore, be some need for it. 5· No. 6. No.

7· Yes;

8. No.

If, however, it were possible to compile scientific tables involving a correct rate of contribution for the benefits promised in the case of each separate occupation,--a contingency very remote at the present time-there might be a fair case made out for ithe desirability of such business. until the Friendly Societies Act gives

greater powers to Friendly Societies.

9· I have no knowledge of the business of sickness assurance, but should say that if there was any demand for it, it should be encour­ aged. IO. See reply to Question 7 (a).

II. I do not think so.

rz. As we are not thoroughly familiar wilth the method of transacting sickness insurance in Australia, we are not in a position to reply. 13. They undoubtedly have their uses. The public

is the best judge of what it wants .

The accumulation of actuarial reserves is a neces­ sary result of any system of level pre­ miums or contributions. Its effect is of greater importance in connexion with mortality benefits than with sickness bene-

. I4· I am not acquainted with Australia, but I think our own sickness branch was popular. It was withdrawn owing to the objections of the British Medical Association.

fits. ·

r6. They are both beneficial, and work side by side in perfect harmony.

rs. No special need. z6. No. I6A. No; the Friendly Societies meet the require­ ments of the case admirably.

67

S!:.CTION tV.-VALUATION OF LIABILITIES AND AssETS.

Question, 11.

What Is the date to which the latest valuation of the liabilities and assets of your company was made?

Replies.

1. JISt December, 1906. z. JISt December, 1907. J· JISt December, I907. 4· JISt October, 1906. 5· JISt December, I907. 6. JIst December, 1 904. 7· 1907.

9· Assets are constantly under review. Assets and liabilities were formally valued at JISt December, 1907. 1 I. JOth September, x9o7. 1 z. JISt December, 1908. Valuations are made an-

nually by the company. .

IJ. JISt August, 1907. I4. No valuation has yet been made. 15. 3oth June, I904. I6. As at the Joth September, 1905. I6A. For publication JOth September 1905 but for

internal information and opera­

tions, Joth September, 1908. I7. JO:th June, 1905.

Question 12.

What general principles are followed by your Company in its valuation of-

I. (a)

2. (a)

(a) Liabilities, . (b) Assets?

Rep,Zies.

Extract from Valuation Report for I9o6 :­ '' The liability of the Company was ascer­ tained by taking the difference between the present value of the reversion of the sum assured, including bonus, and the presen! value of the future net premiums, ac:cordmg to the Table of Mortality used; the necessary reserves for special

nsks! early payment of claims, and to provtde for future expenses and bonuses on single and limited premium policies. Each pol.icy was valued separately." In the ordmary department whole life and

endowment assurances were valued in classes grouped according to the nearest age of the policy-holder at valuation date. Limited payment and joint assurances

were valued individually. Pure endow­ ments with return of premiums paid in event of death of policy-holder before maturity were valued in classes accord­

ing to year of maturity. Sums assured, declared bonuses, guaranteed bonuses (if any), and net premiums were discounted to val.uation date at J! per cent., except

for a few old policies for which 4 per

cent. was adopted. Rated-up lives were valued at their real ages. Negative

values excluded. In the industrial department policies were valued in classes, except joint life poli­ cies. Whole life policies averaging

years duration, endowment assurances averaging under two years' duration and pure endowmenta of one year's duration

J:S

1109

were taken as having no liability. En­ dowment assurances were grouped accord­ ing to years of maturity, an average age being determined on consideration of ·sums assured and premiums payable. No

allowance w; s made for lapses. Nega­ tive values excluded. (b) Government stocks were valued as per answer to question 13. Real estate is

taken at a figure within the value placed upon it by a public valuator. .3· (a) The liabilities are valueCl by the tables of mortality and at the rates of interest set

out in detail in the annual reports of the society, the valuation being on a strictly net premium basis. (b) These are valued on the basis of the market

value as estimated by the directors at JISt December of each year, and where the book value exceeds the market price the asset is either written down or a special reserve is made to the extent of the dif­

ference.

4· (a) . The assurances were valued individually according to the ages attained by the

lives assured on JISt October, 1906. The valuation age was determined by adding to the age at entry the nearest number of complete years for which the policy has been in force. In cases where the premiums are payable

yearly, the next payment was held to

fall due six months from the date of the and in cases where the pre­

miUms are payable half-yearly or

quarterly! the next payment was held to fall due three or one and a half months thereafter respectively. Lives assured at rates in excess of those at

which the society assures first-class risks were valued according to their real ages. The extra premiums received from lives of this class are regarded as constituting

a fund from which to meet any extra rate of mortality prevailing in it, and accord­ i?gly a reserve was made of the propor­ tion of the extra premium to the date of next renewal. The liability was determined by deducting

the present value of the future pure or net premiums from the present value of the sums assured and bonuses. (b) When loans are granted the amount lent

not exceed 6o per cent. of the valua­

tion of the security by the society 's own So long as interest is regularly

patd, and we have no reason to think

otherwise, a loan is considered well

secured. ·The general rule is to have a security inspected again before renewing the loan. After the I893 financial crisis the society

foreclosed on some securities and entered on possession of others. These were all re-valued, as far as possible on a rental basis, and the difference in value written off. Nearly all these securities have now

been realized.

5· (a) See Actuarial Report. (b) Loan investments are taken at their cost prices with unpaid interest added at com­ pound method.

Government stocks and securities are taken at the face value as at redemption. Other stocks and shares at the price paid.

6. (a) At the last valuation of the society's lia-bilities as at JISt December, 1904, each policy was separately valued according lo the nearest quarter year of duration as at JISt December, 1904. The net premiums employed were for the main portion of .the business; g1eater than the " pure " premiums derived from the mortality table and rate of interest adopted in the valuation. The addition to the pure pre­ mium w.as made with the object of cor­ rectly apportioning the loading contained in the office premiums for expenses, the loading for the first . year of the policy being greater than for its after years, when it is uniform. The net premium valued in the case of whole life policies with premiums payable during the whole of life was never greater, but sometimes less than, the pure premium for age one year older. For endowment assurance and limited premium policies the net pre­ mium in no case exceeded, but was gene­ rally less than, the pure premium for a life one year older for a term one year shorter. The pure premium only was employed for various small classes of policies. The method of valuation pre­ cluded the possibility of policies having neg_ative values. The reserve for policies of less than one year's duration was al­ ways at least sufficient to provide for the risk of death before the next premium fell due. (b) As to freehold properties in the society's

possession, the board examines each item and determines its valuation, taking into view rents and sales of adjoining pro­ perties, &c. Where there is doubt, ex­ pert opinions are sought. Properties on which loans are made are taken at valua­

tion of the most skilled and careful

valuators obtainable, and 6o per cent. of such valuation only lent. 7· (a and b) The contracts of the Order are in the nature of Renewable Term Assurances, at

term rates liable to assessments under the following clauses and provisions in the constitution and by-laws of the Society:-" Every certificate and policy issued by

the Society shall contain a promise to pay the whole amount therein mentioned out of the Mortuary Funds of the Society, and out of any moneys realised from assess­ ments to be made for that purpose ; and the Society shall be bound

forthwith and from time to time to make assessments to an amount ade· quate with its other available funds to pay all obligations created under

every such certificate or policy here­ tofore issued or hereafter to be is­ sued without deduction or abate­ ment . ." The policies are valued on the one hand as

Term Assurance where the unexpired term is taken into account, together with a full reserve on an estimated assumption that ro per cent. of surviving lives will remain in force until age 70, when the assurances are at risk without further payment of any contributions whatever; this is probably the truest available method; but, on the other hand, the contracts have been fully

68

valued on the hypothetical basis of all assurances maturing by death at rates (which cease at age 70), w1thout extra call or regard to the effects of cession and secession of business. Th1s latter course is taken in order to conform to the requirements specified in the Sche­ dules of the Act, and the present value of such contributions is ascertained, together with the present value of the full amounts assured; but, as the assumptions imported are at distinct variance with both the con­ stitution and the experience of the Order, the resulting figures convey no definable significance. All policies other than Whole Life have been valued on these latter as­ sumptions. In the case of Indian .poli­ cies the premium valued has been spec1ally reduced by £r per £roo assured: . 9· (a) Ordinary branch.-The general pnnc1ples

adopted in the valuation of the liabilities are those of a strictly " pure net pre-

mium. " valuation, the whole of the ' ' loading '' being reserved for future ex­ penses, profits contingencies. In­

dustrial branch.-Partly "pure net pre­ mium" and partly modified gross pre­ mium basis. (b) Assets are kept in our books at an amount

that we feel satisfied they will be

realizable at.

r r. (a) I don't know what information is required by this question. I send herewith copy of our last investigation report, which perhaps on p.p. ro-12 will give what is wanted. rz. (a) The principal item of liability. the re­

serve for insurances and annmties. Such a reserve is calculated upon the net pre­ mium basis. Full provision is made for every liability, including a large sum as a provision for future dividends. · (b) The Company values its assets on a con-

. servative basis, the bonds being taken at their cost value, plus or minus the amount necessary to bring them to par at ma­ turity. In order to conform to the re­ quirements of New York State, the value of bonds in our report is the aggregate market value, that precedent being fol­ lowed in our reports to the Australian colonies. The· real estate is carried at a conservative valuation, and the mortgages

are carried at their face value. 13. (a) Extract from Valuation Report, 1907 :­ I ndustrial Branch. The following classes of benefits were treated

as involving no liability, it being found in actual practice that the net premiums received therefor were insufficient, year by year, to meet the claims as they arose -(i.) Medical attendance on member and

f ami! y ; (ii.) Accident Assurance; Children's Temporary Assurance; (1v.) Compensation for certain specified causes. Compensation in cases of sickness gene­ rally was treated as requiring the accumu­ lation of reserves to meet the increasing risk. The assurance upon '' Wives " was treated as an assurance payable only in case the wives pre-deceased their husbands with premiums payable during the hus­ band's life-time; no provision was made for the death of a second wife. The

wives were considered to be of the same ages as their husbands.

69

In all cases of life assurance the policy­ holders were assumed to have assured in the middle of the calendar year of entry at the exact age corresponding to the pre­ mium paid. The policies were then

valued on a net premium basis. In the endowment assurance policies where the duration is of more importance than the age, the policies were assumed to have

been taken out in the middle of the office year of entry, and an average age being assumed, they were valued as if of dura­ tion equal to the curtate duration, plus one-half a year. iln the pure endowment policies, the valua­

tion premiums were 90 per cent. of the actual office premiums. Continuous values of annuities, reversions, and premiums were employed in all but

the pure endowment policies. The final values were checked by tables of policy values prepared beforehand where possible.

Negative values were eliminated and no policy has been considered as' an asset ·anywhere in the valuation. The premiums payable under all the poli­

cies were assumed to be annual premiums. Provision was made for the immediate pay­ ment of claims and added to the value of the sum assured and bonus.

In the Ordinary Branch the method is· gene­ rally on the same lines as three years ago. Every policv of a year's duration or more carries a Hm. 3! per cent. net reserve;

for policies under one year's duration, those under Tables II., VII., IV., V., and part of I. carry a reserve equal to the net premiums actually paid-the rest of the policies under Tables .'I. and III. issued during the last three months prin­

cipally under quarterly premiums were treated as involving no liability. (b) Except Government debentures the securi­ ties are valued by competent valuators be­

fore monev is advanced. The assets have not been ·written down, there being no necessity as interest has been fully paid. 14· (a) and (b) See answer to question 11.

15. (a) The principles upon which the valuation of 1904 was made were to ascertain the pre­ sent value of the sums assured under the ton.trM:ts where these lare payable at death, and to deduct therefrom the pre­ sent value of the future premium. In the case of endowments, where only the pre­

miums that have been paid are returned in the event of death, the principle of valuation was the accumulation at in­ terest of the premiums paid. (b) At the last valuation (1904) assets were

valued at cost price. 16. (a) We keep in touch with the movement of the sociefy's business by making :>n annual examination, but we do not publish the

result.

(b) Anv assets that there could possibly be any doubt about receive the careful attention of the board of directors before the

yea.r's accounts are finally passed. r6A. (a) For publication the liabilities are valued once in everv five years, but for private internal guiiance ·a valuation is made

annually.

(b)

I 7. (a)

(b)

The only large assets requmng much con­ sideration are the office premises, which were specially valued in 1896, and have since been retained at the figure then

placed upon them, real estate being at a low value at that time. The liabilities of the company are ascer­ tained by taking the difference between

the present value of the reversion of the sum assured, including bonus, and we present value of the future net premiums, according to the table oi mortality used. Each policy is valued separately. By the board a£ directors.

Question 13.

llll

In the· valuation of assets what principle 1s fol­ lowed in the case of debentures, stocks, shares, etc.? Are they taken, for example, at­

(a) Face value; (b) Cost price; (c) Market price; (d) Value based on interest yielded;

or

(e) Value determined on some other specified basis (which should be fully stated)?

Replies.

I. Book value. 2. In the case of Government stocks purchased at a premium the cost price is written down out of interest year by year, so

that at maturity they will stand at face value in our books. In the case of Go­ vernment stocks purchased at a discount the actual cost price is shown in our

books.

3· In the case of terminable Government or Muni­ cipal debentures or stocks purchased at either a premium or a discount the book value is adjusted t!irough the interest

each year so that the capital sum

will work out as an equivalent to the

face value at the date of maturity.

When the debenture:, or stocks are

practically interminable they are written down to what the directors in their

discretion consider is a fair value,

having in view the market quotations, or a special reserve is made at the end of the year and held against the asset. 4· The only securities of the kind held by the

Australian Widows Fund are . Government and Mnuicipal debentures a nd inscribed stocks. The valuation at which they stand is based upon cost price and upon

the rate of interest vidded by each in­ restment at such cost price. When pur­ chased at a premium a sinking fund is created bv means of which the security

is written down automatically to face value as at the date whE>n redeemable. Securities purchased at a discount remain at cost price, and are not written up as the date of redemption approaches. J· (a) For Stocks.

(b) For Shares. 7· Taken at face vaiue.

70

9· This company does not hold debentures, stOcks, shares, etc. We hold Government stocks and debentures. We follow the plan of writing down irredeemable stock, such as · consols, to the market quotation. Go­ vernment stocks or de bentures redeemable any number of years hence will hold at purchase price so long as that price is not above par. If above we write off

each year the fractional r '.rt necessary to bring it to par at maturity. When stocks, etc., are brought under par we do not write up. Market quotations in Australia are unreliable. A quotation is easily got­ for instance, I may hold all of one issue and have only to sell £IOo worth of it at any price I require from a friendly buyer. Or again, if I put a million of stock of

any kind on the market the price I would get would be very poor indeed. · In a

Government stock the security is good all the time. A rise or fall in price simply means that money has gone up or down in value. A mortgage is not quoted on the market, and therefore its value is not altered. Then why should Government stocks? II. At cost r;rice plus or minus, in case of termin­

able stocks, the amount, which is ascer­ tained annually, required to bring their book value at date of redemption to par. 12. The company carries no stocks or shan'c;, its

holdings being confined to bonds, the value of which is taken ·at cost price, plus or minus the annual adjustment necess ary to bring them,to par value at maturity. 13. Market price. 14. This has not been decided on, but the value

will no doubt be limited to the market price of the day. rs. Cost price. r6. F ace value if purchase at over par.

Cost price if purchased below par. The Society holds only Government and muni-cipal debentures. It has no stocks or

shares, etc.

r6A. Face value for those bought at a premium or at par j cost price for those bought at a discount. 17 . At market prices and on interest yielded.

Question 14.

Do you consider that there is a necessity for annual valuations of-

1. (a) No.

(b) No.

(a) Liabilities, arid (b) Assets?

Replies.

2. (a) No. The cost of annual valuations is so

heavy in the case of a small company not having an actuarial staff constantly at work, that the expense is hardly justified. (b) The assets should certainly be reviewed

annually when they include securities which may depreciate in value. But th ere is nothing gained by adjusting book values on account of fluctuations ex­ cept at a valuation periOd.

3· (a) I do not·consider that there is any absolute necessity for annual valuations of liabili­ ties, although a company of any con­ siderable size may find it desirable to so for their own information, even 1f they do not make an annual distribution of profits (b) The value of the assets, however, should be

stated as accurately as possible in the annual balance-sheet. 4· (a) No.

(b) No. There may be occasions apart from the time when surplus is distributed when a re-valuation of assets may be desirable, but generally speaking, and under ordi­ nary · conditions, an annual valuation of assets is unnecessary unless there is also an annual distribution of surplus. 5· (a) Yes.

(b) Yes. 6. (a) .No. (b) No. 7· (a) No.

(b) No. 8. (a) No. (b) On general principles, yes. 9· (a) Yes. .

(b) Yes. I do not think it necessary that pro­ fits be divided yearly, but where policy­ holders are interested in profits, I think there should oe a yearly accounting to the policy-holders and the public, because it would not be just to allow new policy· holders to join if losses were known to exist. Frankness· and cotnplete publi­ city must' be advantageous. It is not so important where policy-holders are not

interested in profits, though there would be advantage in the method even in that ca6e. 11. (a) Nl).

(b) No.

12. (a) It i" necessary with us, as an annual valua­ tion is required by every State in the

United States of America. (b) See (a). r.3. (a) No j every three years should amply meet the case.

(b) See above. 14· (a) I consider it desirable that such a valuation should be made, not necessarily for pub­ lication.

(b) Yes. 15. (a) No. (b) No. r6. (c:z) No.

(b) No. r6A.(a) No. (b) No.

Questiqn rs.

Ai what intervab are valuations · of the liabilities and assets of your company made?

Replies.

r. Every three years. 2. Five years. But the directors possess power to have valuations made at more frequent in­ tervals. 3· At yearly intervals. 4- Quinquennial.

5· Annually.

6. they have been made at quinquennial

mtervals, but rt:he Articles of Association when ·last altered in June, 1907, gave the Board of Directors power to make inves­ tigations at such other intervals as they may, from time to time, determine. It

was considered probable that the interval might now be shortened in view of the dimensions the Society has now attained. 7· Everv five vears. ·

9· Annually, in the ordinary 1branch. Quinquen-nially in the industrial branch. 12. Yearly. r 3. Triennially. 14. Liabilities are valued quinquennially, and assets

annually.

rs. Five years. r6. A complete valuation and a division of profits is made every five years, but for our own information a valuation is made annually. r6A. As to liabilities-quinquennially for publica­

cation, annually for internal information. As rt:o the few assets that are subject to fluctuation, at such time as the directors consider depreciation may have taken

place.

17. Actuarial valuation of liabilities every quinquen­ nial period. Assets every twelve months.

Question r6.

State your opinion concerning the relative merits of-( 1) Annual valuations. (2) Triennial valuations.

(3) Quinquennial valuations. (4) Septennial valuations.

. 'Replies.

1. (r) I have never had anv experience of annual valuations. ·

(2 and 3) I prefer triennial. 2. (1) Annual valuations have much to recommend them, for policy-holders like to get bonus additions yearly, but I think valuations

at less frequent intervals are preferable, for a company mighit-as a result of a financial depression-have a bad year at the end of which it would be unable to divide any profit, though the next year

might rehabilitate its position. With valuations at three, five, or seven year periods, such fluctuations would not be fel:t, and the company would thus be

given greater stability. Quinquennial valuations are, to my mind, the most desirable. 3· (r) As already indicated, annual valuations may

be desiraJble in the case of a large office, and such valuations are of great value in indicating the true condition of affairs at the end of every year. (z) Triennial valuations do not give so much

ltrouble, and would probably be somewhat less costly, though there is some objection to them in the fact that a considerable

amount of extra work is necessarilv

thrown into the valuation vear. Trierl'­ nial valuations might be suffi­

cient in the case of offices of moderate size. Similar remarks apply in the case of quin­ quential investigations. Septennial valuations are rather too far

apart to be considered satisfactory.

4· I take these four questions to mean valuations for the purpose of distributing surplus.

(I) Annual valuations of liabilities and assets are open to the objection that in any one year the claims by death may exceed the average to such an extent as to upset the figures for that year. This can be met

by carrying forward a bonus equilization fund of suitable amount. I think a more serious difficulty is associated with an an­ nual valuaition of assets. Looking back

on the events of i:893, one can see that the shrinkage in values at 1that time came suddenly, and represented more than the profits of one year. An occurrence such as this raises a number of difficulties in the valuation of asselts which are more

readily handled when the surplus funds of a longer period are in hand.

( 2) A triennial, a quinquennial, or a septennial valuation affords a better average as re­ gards claims by death. Each of these

periods is better adapted to cope with a valuation of assets in times of stress, and if a society pays a fair bonus for the

period from the previous periodical dis­ tribution up to the time when a policy be­ comes pavable, its policv-holders have reason to be satisfied. The onlv other

point seems to be that, with an' annual distribution, policv-holders who surrender their policies receive a share in the sur­ plus earned since the. previous distribu­

tion. They, however, are a small pro­ portion of the whole, and I do not think the benefit so derived by 1them is commen­ surate with the disadvantages to the

others. In tne large majority of British offices, quinquennial valuations are the rule, and my present opinion is in their favour.

1113

5· (I) You know exactly where you are each year.

6. (I) In the case of a Life Assurance Society, it has been well proved that although the payments under policies. for death claims are wonderfully steady, taking a series of

vears together, they are liable to fluctuate from one year to another, unless the in­ stitution be a very large one, in which case the risk of great fluctuation is con­

siderablv diminished. It is held to be impolitic to show great variations from vear to year in the amount of profits al­ lotted to any individual policv-further,

there is a verv considerable addittio11al ex­ pense involve'd in an annual valuation as compared with those made at less fre­ quent intervals. My opinion therefore is that for most societies an annual valua­

tion is undesirable.

(2) This I believe to be a good interval for

valuation when a societv·has attained con­ siderable dimensions. '

(3) In the case of young offices or offices which have not gathered together a large busi­ ness, a quinquennial valuation is most suitable. Probablv if it were not for the

great competition. between life offices themselves in catering for their business, ,this practice would be almost universallv adopted. '

(4) I consider this unnecessarily long.

7· (1) In a well conducted society, annual valua­ ltions are unnecessary, inasmuch as there is little or no proportional difference, and relative and proportional important fac­ tors are not revealed. (z) Similar to above, only, of course, to a lesser

extent.

(3) Quinquennial valuations give full oppor­ tunity to reveal all important factors, and are sufficiently frequent to prevent much danger occurring. (4) Too long between, and a society or company

might drift too much. 9· The annual valuation has undoubted advantages over the triennial, quinquennial, or sep­ tennial methods.

(a) It ensures frequent publicity. In five years much may be forgotten. (b) It tends to impel financial soundness. In a weak company with one quinquennial

valuation finished on a poor basis, there is no incentive to keep its actuarial posi­ tion up to the mark until towards the end of ithe current quinquennium. With an

annual valuation, the effect of every

year's management is at once manifest in the actuarial surplus brought out. (c) It is very desirable that the connexion be-. tween the accountancy side of the business

and the actuarial side should be more in­ timate than can be the case if they work in dissimilar periods of time. (d) With a properly arranged system, the cost

of an annual need be no more than is in­ curred in the case of a quinquennial

valuation, since almost every office main­ tains an actuarial staff to keep wa,tch over its actuarial position. II. The period between valuations is largely a

matter of expediency. The object is to ascertain exactly the position of a com­ pany from time to 1time; a general idea can be obtained from ,the results of the annual transactions as disclosed in the published reports. A complete valuation involves so much time

and expense that I think the advantage ot finding the posiition annually is not sufficient to justify. Our practice is to value every three years, and it is found to work well. r 2. See answer to 14 (a). 13. (r) Unnecessary and expensive.

(z) In favorur of triennial valuations. (4) Too distant an interval. (3) Too distant an interval.

14. (r) I should always make an annual valuation (if only an appmximate one) for my own satisfaction. For distribtllting surplus, I prefer the greater regularity obtained by a quinquennial valuation. ( z) I do not consider three years a sufficient

period in which to obtain good average results. (3) The surplus is less liable to violent fluctua­ tions, and I should confidently regard any

surplus shown as divisible; with an an­ nual (or even triennial) valuation I

should consider it necessary to reserve a considerable amount of the surplus to provide for contingencies. (4) The only objection I have is from the as­

sured's point of view. The interval to them appears a long one.

r 5. ( r) Annual valuations for bonus distributions are only suitable to companies of mature age whose business and assets are suffi­ ciently large to render unlikely fluctua­ Jtions in the surplus, due to varying mor­

tality and possible financial stress. (z) Triennial valuations are merely a compro­ mise between annual and quinquennial valuations. (3) Quinquennial valuations as prescribed by the

English Act of r87o are most satisfac­ tory as avoiding to a large extent the

fluctuations mentioned in ( r). The ob­ jection to length of time betweep bonus distributions can be, and is, got over by a system of interim bonuses. (4) Sep-tennial valuations are only allowed by

the English Act of r87o for companies following that practice at that date. The period is unnecessarily long. r6. (r) Where the transactions of an office are of

sufficient magnitude to obtain even results, I would adopt annual valuations. (z) Triennial valuations are a sort of naif-way house. (3) Quinquennial valuations are as long a period

as should be necessary for even the office tthat is only commencing business. They suit all offices .whose business is not large enough to assure steadiness from year to year. (4) Septennial valuations are longer than desir­

able under Australian conditions. r6A. (r) The smaller an office is, the more frequently should its valuations take place for pur­ poses of control as its affairs are subject

to greater proportionate fluctuations. In the case of large offices where business .has settled to a regular course, annual valuations are not necessary for control, but are probably valuable as an· adver­ tisement. (z) Triennial valuations are sufficient for offices

of a medium size. (3) Quinquennial publication of any large quan­ titv of material in respect to valua;tions shbuld suffice. If annual publication

takes place, a limited amount of matter is all that is required to enable the public to follow the intermediate stages between two quinquennial valuations. (4) Septennial valuations would probably not be

approved in Australia.

(a) Is

(b) If

Question 17.

the method of valuation of your company fixed .by the instrument constituting the company, or is it variable? variable, is this determined by the Board

of Directors?

Replies.

1. (a) Variable. (b) Yes. z. (a) It is variable.

(b) Yes; upon' the advice of the actuary. 3· (a) The method of valuation is not fixed by the Acts of Parliament under which rthe society is constiturted.

(b) It is determined from time to time by the board of directors on the advice of the actuary.

4· (a) Variable. (b) It is left to the discretion of the directors and actuary. 5· (a) Variable.

(b) Yes. 6. (a) Variable. (b) Yes; guided by the advice of the actuary. 7. The principles of valuation are determined by

the Executive Council of the Supreme Court at Toronto, acting under the advice of the Actuary. 9· (a) The method of valuation is not fixed ;by the

instrument constituting the tompany ; it would be unworkable Ito have it so fixed . It must be adaptable .to the varying con­ dition of the business. Some English offices have been hampered by a fixed method in their constitutions. (b) It is settled from time to time by the direc­

tors wi:th the advice of lthe actuary. 1 I. (a) No; it is variable.

(b) No.

12. (a) Variable.

13.

14·

(b) Determined by the bOard of directors on ad­ vice of officers of the company, including the actuaries. The basis partly depends upon the net basis of the premium rate

and the guarantees, and partly upon the valuation basis required by tthe Sta;te of New York. (a) Fixed by the directors in consultation with

the actuary.

(b) See above. (a) Variable. (b) Yes. Under the advice of the actuary. 15. (a) It is variable. See the Association's Ar­

ticles of Association, clause u8. (b) At the last valuation it was left entirely to the actuary's discretion. r6. (a) No ; it is variable.

(b) Yes. 16A. (a) It is variable. (b) Yes; with the advice of the actuary. 17. (a) Variable.

(b) Yes.

Question 18.

What tables of mortality are used in the valuation of your company's liabilities? .

Replies.

1. See answer to question 3 in Valuation Report for 1906 2. Ordinary department-H"' . Industrial department :

Life policies-English Life, No. 3· Pure Endowments-Peerage. 3· The tables of mortality used in the valuation were :-" The Institute of Actuaries H"'

Table '' for all assurances except contin­ gent assurances, and for contingelllt ties. " The Carlisle Table " for contm­ gent assurances, and for endowments com­

bined with contingent annuities. " The Peerage Table " for all other en?ow­ ments. The Government expenence Table (1884) for all annuities other than contingent.

1115

In the Industrial Depantment, a table based on the experience of male lives in New South Wales and Victoria, as sl:).own by the cen­ suses of 1891 and 1901, and the deaths

during the years r89o to 1902 inclusive. 4· H ", Peerage, British Government Annuity (1884) Experience. 5· H"' and Carlisle. 6. The table of mortality compiled under the aus­

pices of the Institute of Actuaries of Great Britain and Ireland, and the

Faculty of Actuaries in Scodand desig­ nated the 0" Table, was used for almost the whole of the assurance business at the last valuation of the Society's liabilities.

For the annuity business, the tables com­ piled by the same authorities, designated the o

few classes of policies, such as children's endowments, the Peerage and Carlisle Tables were more approprialte and more convenient for use. ; . For Life Assurances the Institute of Actuaries

H" Table ; for sickness assura.J)ces, the Manchester Unity Table (1866-70). 9· The H" Table of Mortalilty for Assurances; the Government experience (1883) for An­

nuities for policies in the Ordinary

Branch; and the English Life Table No. 3 Males for policies in the Industrial Branch. II.

I2.

13.

14·

I 5·

16.

At last valuation (:10.9.07) H" for Assurances British Offices Annui:ty Table, 1893. The American and Combined Experience for standard business, the sesqui-American '

for semi-tropical business apd for inter­ mediate policies, Double American for tropical business and for under-average (adjustable accumulation) policies, French

Annuity and McClintock Annuity Tables for annuity business. Institute of Actuaries' Healthy Males Tables for Ordinary Branch Assurances. English Life No. III. for Industrial Assur­

ances.

In the Industrial Branch, we shall use the

English Life Table No. 3· In the Ordinary Branch the 0" Table. Ordinary Branch.-0" . Industrial Branch.-Australian Males Table,

constructed by Messrs. E. M. Moors and W. R. Day, -Fs. I.A., and published in the Journal of the Institute of Actuaries, Volume XXXVI., .P· 151. Ordinary. 0" and Government Annuitants,

r883 . .

Industrial. English Life, No. 3· r6A. Ordmary· r883 . 0 11 and Government Annuitants,

Industrial. English Life, No. 3· I 7. The Institute of Actuaries H" T able.

Question 19.

Do you consider that English mortality tables fur­ nish a satisfactory basis for the valuation of Australian business--(a) For assurance contracts.

(b) For .a...'lnuity contracts?

Replies.

r . (a & b) I consider them the best available.

z. Yes. The variation between the table compiled by Moors and Day, which I believe is, so far, the best gauge to Australian experi­ ence, and the English Life Tables is so small that it does not seem that there

would be much difference if an Australian table was used.

recently assured lives to the total. This being so, it is doubtful whether the ex­ pense of such an investigation would be justified. 3· I do not see much advantage at the present

time in the construction of mortality tables from the experience of the Aus­ tralian companies for the purpose of being used in valuations. The experience of the British companies is much more exten­ sive, and therefore probably more reli­ ablej and, -moreover, the large mass of

(b) There is not sufficient evidence that the mor­ tality among old lives in Australia is

greater or less than in England, so I am afraid I cannot answer this query satis­ factorily. subsidiary tables in existence founded

upon British mortality renders it com­ paratively easy to make valuations on that

3· (a) Yes. (b) Yes. 4· (a) Yes.

(b) Yes. basis.

5· (a) Yes. Australian mortality being more 4· In course of time the experience of Australian companies will no doubt become sufficiently extended and matured for this purpose, but in the meantime the experience of the British offices is the best available.

favorable on the whole. (b) Yes. 6. (a) Yes. (b) Yes. 7· (a) Yes.

(b) Yes. 9· (a) Yes. (b) Yes. No mortality table can accurately reflect

the mortality which will be experienced in any given community, and it therefore simp! y serves as a measure. It becomes therefore simply a question of the best measure. II. (a) Yes.

(b) Yes. I 2. (a) We should think that either English or

American mortality tables would be a satisfactory basis for the valuation of Australian business. (b) We are not in a position to state, because we

have not seen any Australian experience of annuitants, but would consider that the recent British Offices ' Annuity Tables would be satisfactory. I3. (a) Yes.

(b) No experience of such. Opinion is, there­ fore, worthless. 14· (a) Yes. (b) Yes. IS· (a) I am advised :-For Ordinary Branch As­

surance contracts, Yes j but not for Indus­ tr-ial Branch contracts. (b) The paucity of numbers living at advanced ages in Australia precludes the giving of

any definite .opinion.

r6 (a) Yes. (b) Yes. r6A. (a) Yes, they are sufficiently satisfactory, as the general experience of Australian offices

is that their mortality is more favorable. (b) Yes.

Would

Question zo.

it be better to investigate the experience of the Australian companies with a view to the construction of reliable Australian tables?

5· It could not possibly do any harm. 6. I think not.

7. I do not think there is any necessity. 9 · I do not think an investigation into the mor­ tality of assured lives in Australia would give sufficiently reliable tables for use in

valuations of life offices. The experience available cannot be said to be of such a nature as would correctly forecast the future. The rate of lapse has been ab­ normally high in p_ ast years, and this rate has tended to keep under observation a

body of lives with a very high percentage comparatively near to selection. No doubt as time goes on, business will settle down to normal conditions j but in mv opinion it will be many years before there

will be sufficient data to form the basis of reliable tables. rr. I don't think it isnecessary. rz. We are not in a position to reply. .

I3. It is highly desirable to examine Australian ex-perience, and to investigate then its re­ liability. It is by no means certain that Australian experiences to date would give a reliable guide as regards the future. 14. It would provide an interesting comparison, but

I doubt whether the resulting tables

would be used in preference to the Eng­ lish tables. I5. I am advised that such an investigation would desirable;. but until completion

It would be drfficult to say how far it

would _be reliable. The paucity of the data at the advane

r6. Ultimately, yes j but the difference between an Australian table and those in use would probably not be very great, and it would hardly be worth to undertake so

much work for so small a result. I6A. If cost were no consideration, it would, of course, be . better j but it would probablv not be worth the expense. -

Question 2 r.

Replies.

I. Yes, I think !';0.

If you consider that such a course would be desir­ able, what means wo]lld you suggest for giving effect thereto?

z. It would certainly be interesting to know how Australian experience compares with that of English offices j but it is questionable whether such a table would be reliable. ' owing to the unduly large proportion of

j;:

Replies.

1. By the combined experience of Assurance Com­ panies. 3· See answer to Ko. 20. t_t- !'J' -- --·-....

4· When the proper time arrives, no doubt the

actuaries of the Australian offices will deal with the question on behalf of their companies. 5· Appoint a capable officer and get the data from

the various offices.

9· See answer to question 20. 12. See answer to No. 20. 13. Appoint a board consisting of: Representatives from Australian com panies, representa­

tives from the Government, representa­ tives from the Australian Actuarial Coun­ cils, and Institutes. 14. It would be necessary for the offices to combine,

and provide their experience (on cards) to a central committee. 15. Through the Life Offices' Association, assisted by Government subsidy towards the cost.

This would insure the best actuarial skill being employed for the construction. 16. Follow the same method as adopted for the tables now in use, so that a correct com­

parison could be made. 16A. The method employed for the latest English tables in each case should be adopted so that there would be a basis for a strict

comparison between the two.

Question 2 z.

Is the English Life Table No. 3, which is based on the mortality experience of the general population of England and Wales for the period 1837.-53, frequently used for the

valuation of industrial liabilities in Aus­ tralia? Replies. 1. I am not aware.

2. I believe it is.

3· Yes. 4· Yes. 5· Can't sav. 6. I have had no personal experience of industrial

. insurance business in Australia. I am not in a position to say what the practice is. 7· I do not know. 9· The Engli;;h Life Table No.. 3 is the one

usually employed in the valuation of in­ dustrial liabilities in Australia. It is, I think, the most reliable table at present

IO.

for such a purpose, See reply to question 7 (a) 12. We are not familiar with the method of valua­ tion of industrial policies in Australia. 13. Yes.

q. Yes. 15. Yes. r6. Yes. r6A. Yes.

Question 23.

If would an experience of the population of

Australia be more m accord with Aus­ tralian conditions?

Replies.

1. See reply to 21. .

2. Yes, if the Australian conditions are sufficiently settled to be a fair criterion as to the

futUre.

3· A ta:ble of mortalitv deduced from Australian experience is· more suitable for use in connexion with Industrial Life Assur­ a.nce in Australia than a table deduced

1117

from English experience would be, ·and a table deduced from Australian experi­ ence has been specially constructed for use in connexion with this Society's In­

dustrial Department. 4· Possibly, when sufficiently matured, but it is evident that great exactitude cannot be obtained when it is borne in mind that

Australia includes tropical, sub-tropical, and temperate climates. 5· Can't say. 6. Probably it would.

9· I do not think a table based on the mor­

tality experience in Australia would be at all suitable or reliable. The mortality of the general population has not yet

settled down to a normal condition, and I think it wili be many years before

there will be sufficiently reliable data for the formation of an Australian Mortalitv Table. ·

ro See reJ:ly to question 7 (a). 12. See answer to No. 22. IJ. See answer to No. 20. I4.· Not necessarily. Owing to the heavy lapse

rate, an Industrial Company's valuation can never give a very exact view of its position. The English Ufe Table No. 3 has at least the advantage of being a

Standard Table for such valuations. rs. I am advised that the rates of mortality, es­ pecially at the younger ages, shown by the English Life Table No. 3 are in ex­

cess of those shown by: the Australian Table of Messrs. Moors and Day used by this· Association, and that in consequence the policy reserves of the English Life Table are generally too low. An Aus­ tralian experience ought to exclude tropi­

cal risks to be of value. A copy of the

Australian Table of Messrs. Moors and Day is sent herewith. r6. Yes, but I doubt if there would be very much difference shown. I 6A. Yes, but there is no great necessity for in­

curring the expense.

Question 24.

What rates of interest does your company assume in making its va luations of­ ( a) Assurances, (b) Annuities, (c) Endowments?

'Replies.

r. See Investigation Report for 19o() herewith,.,. 3! per cent. 2. (a) 3! per cent.

(b) No annuities. (c) 3! per cent., except in a few old policiec;, where the total premiums received, with 4 per cent. interest, was reserved. 3· In the Ordinary Department-

(a) 3 per cent. for participating assurances JS­ sued since rst January, r903. 3! per cent. for those prior to that date. 4 per cent. for non-participating (b) 3 per cent. for all annuities except con­

tingent annuities combined with endow. ments, for which 4 per cent. is used. (c) 3 per cent. for endowments certain, 4 per cent. for Children's endowments. In tire Industrial Department, 3! per cent. for

industrial policies.

4· (a) s! per cent.

(b) per cent.

(c) 3k per cent. 5· 4 per cent.

6. (a) per cent.

(b) 3Z per cent. (c) per cent.

7. (a) 4 per cent. throughout. (b) This Society has no annuities. (c) This Society has no endowments. 9· In the Ordinary Branch at last valuation the

rate of interest assumed in the valuati·)n of all contracts was 3 per cent., with

the exception of contracts issued since rst January, 1906, when the rate as·

sumed was zi per cent. In the Indus­ trial Branch the rate of interest assumed was per cent.

II. (a) At 30.9.o7, per cent. per annum.

(b) At 30.9.07, per cent. per annum.

(c) At 30.9.07, per cent. per annum.

r;;,. (a) 3 per cent., 3! per cent., and 4 per cent.

-59 per cent. at 3 per cent., 4 per cent. at per cent., and 37 per cent. at 4

per cent.

(b) Annuities issued prior to r898 at 4 per cent., and those issued in r 898 and succeeding years.at per cent.

(c) See answer to (a). 13. (a) per cent.

(b) -

(c) 3! per cent. 14. (a) (Industrial) 3k per cent. will be used. (c) (Industrial) per cent. will De used. 15. (a) per cent., Industrial Branch.

4 per cent., Ordinary Brancl1. (b) It has no annuities. (c) 4 per cent., except for the few short dated endowments, for which 6 per cent. was

used.

r6. (a) .3 per cent.

(b) 3 per cent.

(c) 3 per cent. 1 6A. (a) Ordinary, 3 per cent. Industrial, 3 per

cent in the last published valuation j 3! per cent. in internal annual valuations, this rate having been adopted con­

tinuously for the last eight years so as to maintain uniformity in the series. (b) 3 per cent. (c) See answer to Question 24 (a). 17. (a) 3 per cent.

(b) 3 per cent.

Question 25.

(a) What do you consider fair rates on interest for such purposes in Australia ? (b) Give reasons for your opinion.

I. (a) 3k per cent.

Replies.

(b) I think it a safe rate at present. 2. (a) This depends upon the company, but I

think any rate up to 4 per cent. is allow­ able. (b) The average interest earned by Life Offices in Australia is about 4! per cent. This

rate has not varied much for some years, and there seems to be no immediate pros­ pect of it falling. 3· (a) I consider the above rates (mentioned in re­

ply to Question 24) suitable for such pur­ poses in Australia. (b) Australian Companies generally earn an average rate of about 4! per cent. on

their invested funds! and it ma.y be

16

safely assumed that an average of not less than 4 per cent. will be earned for a considerable time to come. Conse­ quently, non-participating policies may

be fairly valued on that basis. As re­

gards participating business, it is desir­ able to use a somewhat lower rate, in order that there may be a margin of

profit between the rate .realized and that assumed in the valuation. And, seeing that the general tendency of interest in the long run will probably be down­ wards, it is considered advisable to fur­ ther strengthen the reserves by putting aside all new business in the Ordinary Department on a 3 per cent. basis. In

the case of this Society, all such policies issued since rst January, 1903, have been so valued.

4· (a) per cent.

(b) In fixing the rate of interest, the first con­ sideration is to take a safe rate and one which in the meantime leaves a margin for profit. If this margin shows signs of reduction it is desirable, for business purposes, to strengthen it by fixing a lower rate of interest, thus improving the security and preserving the margin of interest for future profit. This is evi­ denced bv the recent alteration by most companies in the rate fixed, from 4 per cent. to 3! per cent. When a safe rate

has been fixed, any reduction of that rate is largely a question of expediency.

5· (a) 4 per cent.

(b) The average rate realized by the various · offices is more than r per cent. in excess of this. If an office, however, has

reason to assume that its earnings will be less than 5 per cent., it should as­

sume a lower valuation rate. 6. (a) per cent.

(b) It is desirable that the base rate used

should allow a slight margin on the side of safety, and the experience of invest­ ments in other more settled countries has induced me to form the opinion that

per cent. is the best rate to adopt,

after a careful com:.ideration of all the circumsfance!l. 7· (a) 3! per cent., for perfect safety. (b) An experience of the investments of

Friendly Societies. 9· (a) The rates we use are fair, and I think fnat it would be quite safe to assume any rate not greater than 4 per cent., of course

always assuming that the assets yield over 4 per cent., and first-class assets should yield this amount for many years in Aus­ tralia. (b) The rate of interest realized by companies

in Australia should for many years to come exceed 4 per cent., and where the premiums are fairly loaded a 4 per cent. pure premium . valuation might be looked upon as a fair standard of stability. But it is an advantage to value at a lower

rate, as the· effect is to create a reserve for future distribution of profits. Of

course, ·besides providing · for a more satisfactory distribution of profits, the lower the valuation rate the larger the reserves, and therefore the stronger the financial position of the Company.

.7.7

u. (a) per cent. per annum.

(b) There is no difficulty in obtaining sound in-. vestments that yield over 4 per cent. per annum, and, as far as I am able to

judge, this condition is likely to continue for many years. By valuing. at per

cent. an ample margin is left for fluctua­ tion!!. 12. (a) This is a question for Australian Com­

panies to answer. See answer to (a).

I3· (a) per cent.

(b) 3! per cent. or more can reasonably be looked forward to for a long time in the future; a higher rate is doubtful ; a lower rate

tends to sacrifice the interests of pre­ sent policy--holders who _die early i.n favour of those who live long, since a low rate of interest requires bigger re­ serves to be held now and involves a

smaller amount being available for pre­ sent bonuses. 14· (a) 3! per cent. is a "fair" providing

that an ordinary office earns at least per cent. An industrial office, paying no bonus, could make a valuation at the rate of interest it is earning. (b) With bonuses paying " Ordinary" offices, a

£I per cent. interest margin should :_;e maintained. With Industrial Companies such interest margin is actually unneces­ sary. I5. (a) 4 per cent. is fair for old business at lmv

rates of premium, but 3! per cent. should be used for newer contracts. (b) The general trend of the money market in Australia and the yield of Government

securities of -the States, which keeps close to 3! per cent. I 6. (a) 4 per cent. would be ample, but if some

offices go to a low rate competition forces others to follow the lead. (b) There is no difficulty in securing invest­ ments of a gilt-edged character, paying

at least 4 per cent. over a long period

of years, even from 30 to 40 years. If

municipalities find it necessary to pay such a rate, it is likely that a return of

over that sum w111 be easily obtained from private borrowers. I'6A. (a) 4 per cent. would be quite sufficient.

(a)

Lower rates are adopted merely to pro­ vide a factor of safety. (b) The rate of interest obtainable from Go­ vernment debentures should hold good

as the rate obtainable on mixed invest­ ments for many years to come. Person­ ally, I am oot in favour of valuing at

low rates of interest, but in advising the Society actuarially I am not prepared to set up my personal opinion against the general modern trend of actuarial prac­ tice, which I consider to be towards un­ necess.uy stringency.

Question

Do you consider such low rates of

. as, say, per oent., desirable;

so, why? ..

interest and, if

(b) Give reasons for your opm1on.

Replies.

I. (a) No. 1 (b) Because I think it is safe to take 32" per cent.

1119

2. (a) This depends altogether upon the rate of interest earned and likely to be earned by the company concerned. 3· (a) N o.

(b) The effect of using such a low rate of in­ terest would be to create unnecessarily large reserves, and thus to withhold

from immediate division a large amount of profit, so that present policy-holders would be to a certain extent deprived of their legitimate share of profits for the

benefit of a future generation. 4· (a) and (b) For the reasons stated in answer to Question 25, z! per cent., may, under cer­ t ain conditions, be an expedient rate.

6. (a) No.

(b) The lower the rate of interest used, the

greater will be the amount reserved, and therefore the smaller the amount dis­ tributed as profits amongst the existing policy-holders. To pile up an unneces­

sary fund is obviously inequitable so far as present policy-holders are concerned. 7· (a) No.

(b) Too great a tendency to undervalue, and the results would not be borne out by experience. 9· (a) I do not consider such a low rate as zl

per cent. desirable under prevailing con­ ditions. (b) It would, in my opinion, reserve too much profits !for the -future, . and while th;e

effect would be to make the Company exceptionally strong, it would have the effect of giving less to policy-holders f alling out in the early. future. The

same effect is produced if unnecesary re­ serves are created in the balance-sheet.

11. (a) No.

(b) See Question 25. 12. (a) Such low rates may be desirable for

British and Australian companies which use the compound reversionary bonus system, but not for American companies. (b) The .State of New York does not permit

us to use a lower rate of interest than

3 per cent.

13. (a) No.

(b) It requires unduly large reserves and unduly small bonuses at start. It sacrifices the interests of those who die soon and thereby defeats the main purpose of life assurance. 14· (a) I consider it "desirable," but not neces- .

sary.

(b) Because, other things being equal, the office valuing at a low rate will pay the larg-=r bonus, and, as it is improbable that a

fUither reduction will be necessary, no great variation should take place in the bonuses in future. IS . (a) No.

(b) I am advised that the reason for the adop­ tion of such low rates is not the actu­ ary's anticipation that such a rate is all that can be counted on for the future, but hi,; anxiety to provide for the con­

tinuance of a present high rate of bonus which a decreasing interest rate would tend to reduce. The actuary accord­ ingly sets aside a portion of the surplus he would have under a normal valuation rate to build up increased reserves, the interest on which will supply the bonus

of the future. In other words, he de­

prives preSent policy-holders of a por­ tion of the profits which have been con­ tributed by them in order to provide for a future generation who haYe contribu­ ted to the profit fund to a less extent. r6. (a) No . .

'.b) It is unreasonably low, and gives a much larger margin of safety than is neces­ sary. It benefits future policy-holders rather than the existing ones. r6A(a) Personally, I do not, because the1e is no

prospect of such becoming a prevailing rate of interest in future in Australia. (b) I hold tha:t a present over-stringent valua­ tion sacrifices the existing policy-holders

for the benefit of the future. However, the existing policy-holders get the benefit of a good advertisement and of the

power to attract fresh assurers, and to that extent it is desirable for any one

Society to go beyond its rivals in strin­ gency of valuation; but if all were kept on the same footing this feature would not arise.

Question 27.

Is the valuation of your company's liabilities­ (a) a pure net premium valuation; (b) a modified net premium valuation (Sprague's or other modification); (c) is it one in which a proportion of the gross

premium is valued?

Replies.

r. A pure premium valuation. 2 . A modified net premium valuation.

· 3· It is strictly net premium valuation m the Or­ dinary department. In the Industrial department a modified net premium valua­ tion is made, for description see answer to Question 29. 4· A pure net premium valuation. 5· Sprague's valuation for whole life cases, a

modified net premium valuation for others. 6. (a) For a very small portion of the policies of the society. . (b) Yes. The greater proportion of the policies

are valued by a modified net premium valuation, generally known as Sprague's. (c) No. 7. See rep! y to Question r 2.

9· Ordinary branch. The valuation is conducted on an absolutely pure net premium basis. Industrial branch. The basis is partly pure net premium and partly gross premium. 11. (b) Yes.

rz. The valuation is a pure net premium valuation, the mean reserve being used. We do not, however, follow the British custom of as­ certaining separately the present value of

the sum insured and the present value of the net premiums, tables having been pre­ pared showing the mean net reserve J:er thousand' of insurance. The requirement to report annually in accordance with the

British method causes us very great

labour, and does not give any information of value. 13. In Ordinary Branch Life business a pure net premium for all business one year or more

· in force, an arbitrary reserve for business Wlder one year in force is made.

14·

15·

In Industrial Branch Life business the first six months is ignored, and then every policy is supposed ·to be re-assured with the office at its then attained age, which on the average is the office age at entry. In Ordinary Branch and Industrial Branch En- .

dowment Assurance policies are grouped into five-year groups, 18, 19, 20, 21, 22 -all considered at age 20, and valua­ tion then used to nearest half-year. A valuation of the Ordinary Branch will not be

made till 1914, and although a net pre­ mium valuation will then be made, I am unable to give fuller particulars. In

the Industrial department a proportion of the gross premium will be valued. Ordinary ·Branch-Method (b). Industrial Branch-Method (c). Questions 27, z8, 29. I attach a oopy of our

returns, as lodged with the Victorian Go­ vernment, giving the information asked for., The valuation was made at 3oth Sep­ tember, 1905, upon principles by the Actuary in accordance wxth the Articles of Association, as follows :-

The policies were valued in classes. The valuation age for whole-life poli­ cies was the age at entry next birth­ day added to the nearest numb<:r of

years in the duration of the pohcy. For Endowment Assurance the poli­ cies were grouped according to unex­ pired terms, and the valuation age

for each group was obtained by ing the sum of the products of mdx­ vidual ages . and individual sums as­ sured by the total sum assured, and taking the next higher integral age. A full year's premium was assumed to

be due in each case in the Ordinary Department. In the Industrial De­ partment continuous functions were used. I .ives rated up were dealt with at their

real age. J n the Ordinary Department the OM Table of Mortality, with 3 per cent. interest, was used for valuing poli­

cies of assurance, and the Government Annuitant's Table, 1883, with 3 per cent. interest, was used for valuing the annuities. ln the Industrial Department the Eng­

lish Life Table No. 3, with 3 per

cent. interest, was used for valuing whole-life assurances, whilst endow­ ment assurances and endowments were valued by accumulating the net premmms tor a period equal to fifteen months less than the actual duration of the policies at· 3 per cent. com­ pound interest. The net premiums valued in the Ordi­

nary Department were the pure pre­ miums derived from the 0" Table 3 per cent., except for policies less than one year old, to which no lia­ bility was [n the Industrial Department the net

premiums were in every case taken as two-thirds of the office premiums. The proportion of the annual premium income reserved for future expense is

12.6 per cent. in the Ordinary De-

79

partment and 33! per cent. in the

Industrial Department. The pro­ portion of single and limited pre­ mium business is so small that no

special provision was made to adjust them in . regard to future expenses and profits. Ordinary. At the date of the last publication

in 1905 a pure net premium valuation, ex­ cept that no liability was assigned to poli­ cies of less than one year's duration, and subject to a modification explained in an­

swer to Question 29 (c). Industrial. At the date of last publication in 1905 a special form of valuation was

adopted, suited to the fact that the poli­ cies for valuation had an average dura­ tion of less than three years. The method of valuing a proportion of the gross pre­

mium was used for whole life policies and a combination of that method, with a modification similar to Sprague's, for policies containing the endowment feature.

The {:OSition of the Industrial depart­ ment of the society was gauged by the Actuary from the results of anuual valua­ tions made by him. These have con­

tinuously, for the last eight years, been made on a per cent. basis. For Whole

Life business net premiums were two­ thirds of the gross premiums, and nega­ tive values were excluded. For all poli­ cies having a date of maturity the liability

was calculated by accumulating for a period equal to one year less than the

duration of each policy that net premium which would provide the maturity value of the pohcy m a period equal to one year less than the original term of the policy.

In view of the snort average duration of the policies to be valued it was considered satisfactory if the annual valuations dis­ closed a rate of progress towards this

basis of valuation, which would enable the Industrial department to reach it by rgro. The annual valuations gave satis-factory assurance of this, and the special

valuation, as published, was framed on very simr:le lines to indicate how far pro­ gress had been made towards this result. 17. Net premium.

Question 28.

If the last-mentioned what proportion of the gross premium is and what is

made in valuation for the exclusiOn of negative values?

Replies.

3· In view of the last answer, this question does not apply to this society. 7· See reply to Question 27. 9· The Industrial branch contracts not placed

upon a pure net premium basiS were

valued with a deduction from the gross premium varying from 30 per cent. to 37! pe.r cent. All policies of the same age at entry and duration were valued together,

and all negative values then shown were excluded. A :r:ure net premium 3.! per cent. valuation will be made of In­

dustrial business at the next valuat10n.

u. See reply to Question 27 ·

1121

14. The proportion will probably be from 15 to 30 per cent., according to the nature of the table. The policies are arranged under " age attained," and ing to durations. Those durat10ns giVmg

negative values are then excluded. rs. An average of 32.3 per cent. at last valuation. Experimental calculations are made to determine whether the proport10n

selected produces negative values. If such is found to be the case the propor­ tion of loading is increased to prevent their inclusion. r6. See reply to Question 27. r6A. Special calculations for each age where nega­

tive values could arise is made, and the shortest duration at which rositive values arise for each age is determined. Policies of less duration are first omitted from the valuation. Subsequently they are valued

separate! y, and the value of the future net premiums is made equal to the value of the reversions so that upon substrac­ tion no liability and negative values

are excluded.

Question 29.

In connexion with the valuation of the liabilities l.)f your company- . . . .

(a) What method (if any) of groupmg pohcies for valuation is adopted? (b) How is the valuation age determined? (c) What due date is assumed for premiums_?

(d) What age is assumed for under-average hves? (c) (r) What rate of !s used in comput-

ing net valuatiOn premmms? (z ) What rate of interest is used in computing net valua.tion premiums? . .

(f) What extent of loading on single and hm1ted payment policies is reserved for future e" penses and profits r

RePlies.

I. (a) Each policy is valued separately. (b) Investigation made as at 31st December. Those born from rst January to soth

June taken at age next birthday-from rst July to srst December at actual age. (c) rst July.

(d) The actual age with original loading added. (e) (r) As per the Institute of Actuaries Tables. (2) 3! per rent. .

(f) A percentage of liability has been specially reserved, the amount so reserved at the rgo6 valuation being £r,503 us. rod. 2. (a) According to present age.

(b) According to nearest birthday at date of valuation. (c) Next premium is assumed to be due six

months hence. (d) The true age-extra premium being assumed to cover extra risk year by year. (e) (r) H" .

English Life Table No. 3· Peerage. (2) per cent.

(f) The whole of the loading on future pre­ miums with an additional reserve on ac­ count of past premiums. 3· (a) Ordinary whole-life policies are valued in

classes according to the ages attained at 31st December. Endowments assurances valued in classes in a similar manner,

the policies being divided into those ma.­ turing at each quinguennial, as from 25 to 7 5 inclusive.

(b) The valuation age is determined by adding to the age next birthday at which the

policy was issued, the number of years the policy has been in force ; periods of six months and less than twelve months are considered one full year, and those of less than six months are disregarded. In the

Industrial Department periods of less than twelve months are disregarded. (c) The next payments of premium are held to be due six, three, one and half months,

or half a month after the date of valua­ tion according as the premiums are pay­ able yearly, half-yearly, quarterly, or monthly. Premiums payable weekly were assumed to be payable monthly. (d) The rated-up age. (e) (r) The same as shown in the answer to

question r8. ( 2) The same as shown in the answer to

question r8.

(f) The loading in such cases is distributed equally over the whole duration of the contract, and the present value of such equalized loading, less the present value of the loading contained in the premiums

which remain to be paid, is reserved for future expenses. 4· (a) None. Valued individu.ally. 1

(b) The valuation age was determined by adding to the age at entry the nearest number of complete years for which the policy had been in force. (c) In cases where the premiums are payable

yearlJ, the next payment was held to fall due six months from the date of the

valuation, and in cases where the pre­ miums are payable half-yearly or quar­ terly the next payment was held to fall due three or one and a half months there­ after respectively. (d) Lives assured at rates in excess of those at

which the society assures first-class risks were valued according to their real ages. The extra premiirms received from lives of this class are regarded as constituting a fund from which to meet any extra rate of mortality prevailing in it, and accord­ ingly a reserve was made of the propor­ tion of the extra premium to the date of next renewal. (e) (r) 'and Peerage Tables.

(2) per cent.

(/) An additional reserve of £3,5J7 8s. was made for this purpose. The value of the loading reserved on such policies was £4,281 8s. The additional reserve was

= 8z.6 per cent. of the £4,281 8s. 5· (a) See Actuarial Report for 1907 herewith. (b) For business issued prior to 1902; from the birthday. For business issued since rst

January, 1902; by adding the duration (nearest integer method) to the age at entry. (c) In some cases six months hence, all

premiums. In oti-,er cases, premiums due January to June are assumed rst January, and due July to December are

assumed JISt December. (d) The ages to which the loading would

equivalate them. (e) (r) HM. (z) 4 per cent.

(/) An amount equal to what would have been charged on similar premium-paying policies.

80

6. (a) Each policy has in the past been valued

separately, and no, grouping of policies for the purpose of valuation was made, except for the sake of obtaining an inde­ pendent check on the grand total, and to facilitate the filling in of the values on the various returns required to be fur­ nished under the "Life Assurance Acts." (b) Seeing that the policies were valued indi­

vidually, no determination of this charac­ ter was required. (c) No assumption was required. (d) The extra premiums charged for under average lives were generally obtained by an addition to the true age. This same addition to the age was used throughout all calculations in manner similar to a policy based upon the advanced age. In special cases where a fixed extra premium was imposed, generally for a hazardous occupation, such as a mariner, six months' premium was reserved, which would more than cover the risk for the unexpired por­ tion of the risk for which the last pre­ mium had been paid-the policy being valued at the true age. (e) ( r) The same table of mortality as is used in making the valuation of the society's liabilities. (z) J! per cent. (/) This varies according to the table. In the of some tables the loading is distri­

buted equally over the whole term of the policy, and a portion of the loading re­ ceived in the past on account of limited premium policies is reserved for the period when all premiums shall have been paid up. In the case of some other

tables, it is recognised that after pre­ miums have ceased there is only a very small expense necessary in connexion with the policy, and a smaller portion of the loading than the equalized portion is re­ reserved for that period. 7- (a), (b), (c), (d), and (e) (r) See reply to

Question 12. (e) (z) 4 per cent.

(f) There are no extra premiums for life risks, as physically impaired lives are invariably rejected. 9· Ordinary Branch. (a) and (b) Lives assured

under Whole of Life policies were as­ sumed to be born on the JISt December in the year of birth, reckoned . from the rst July to 3oth June. Lives assured

under Endowment Assurances were grouped according to the age at maturity, and sub-grouped according to the year of final anniversary. The' age at valuation was then taken as the age next birthday at entry plus the difference between the valuation year and the year of final anni­ versary. This grQUping was based upon the established fact that the periods be­ tween the true age and age next birthday at entry, and between the date of entry and the end of' the year of entry, were on the average practically identical. In cases where the policies were payable at

the end of a fixed term of vears suitable adjustments were made. · The above is the method of grouping ap­ plied to the main sections of the business.

The methods were. suitably modified and applied to smaller classes w!:lere deemed advisable.

si

(c) Premiums were all assumed to fall due on rst January, and the actual balance of premium up to next renew.a.l date was added to the reserve. (d) The lives were· assumed to be of the age

next birthday at entry for which the

premiums payable were charged. (e) (r) H"' Table of mortality. (z) 3 per cent. and z! per cent.

Note. - In certain endowments mortality was excluded altogether, and the sinking fund premium a.t interest only was used. (/) The portion of loading considered necessary

was estimated and reserved. Industrial Branch. (a) Lives were assumed to be born in the middle of the year of birth and to enter in the middle of the year of

entry, and thus to be of an integral year of age at the valuation date. (b) The val.uation age is obtained by adding to the age next birthday at entry the dif­

ference between the year of entry and the valuation year. (c) Continuous functions were used, which means that premiums are assumed to be

payable momttntly, and that the sum as­ sured is payable at the instant of death. (d) The lives wete assumed to be of the age next birthday at entry for which the premiums

payable were charged. (e) (x) English Life Table No. 3, males, eKcept in joint .assurances, where the HM Table was used.

(2) per cent.

(f) portion of loa.ding considered necessary was a.nd reserved .

11. (a) Whole life and joint life policies in classes according to age near.e.st birth­ day .at time of valuation. Endowment assurances were classed according to age at valuation, which was taken to be the age nearest birthday at .entry, with the addition of the time elapsed to date of valuation. (b) See above. (c) 7i months from date of valuation. (d) Under Whole Life [lOlicies, the age corre­

sponding to premium charged. Under Endowment Assurances, the real age. (c) (1) (z) 3} per cent. .

(f) The loading in such Cil-5€S is treated as dis­ tributed equally over the whoLe t.erm. of the policy. r2. (a) Policies are grouped by years of issue, by

kind, and by age at issue. (b) The valuation age is the age at issue, plus th" number of policy years completed, ;plus a year. It is pqt in

. our method of valuation. (c) As the policies are all valued at the end of the year, it is assumed that the premiums :On the .average were due at the middle of

- the year j that is, that one-half of the

year's premium had been ·earned. (d) As already mentioned, special tables of mor­ tality are used for the valuation of

policies issued to under-average risks, with the .exception of those pqlicies issued . with an advance in age on the Annual

Dividend Plan, in ease the policy

is calr-ried as if the r.ate-up age were the true age. (e) (1 ') Our method of valuation as.sumes that the net premiums are on the valuation

ba,sis of mortality and (z) See (e) (1). (f) The entire future loadings. F .!53:J2. F

lJ. (a) See reply to Question 2J. (b) See reply to Question 27 . (c) Actual date. (d) The rated up age.

(e) (1) Ordinary branch. Heaithy males . . Industrial branch. English Life No. 3· (2) 3! per cent. _ ..

(f) In. the case of the Limited Payment pollCles in the Ordinarv branch these policies were (.at the 1907 -valuation) placed on the same footing as regards future expenses

and profits as corresponding policies of the same ages arid durations with

premiums payable for life, q. (a) Industrial policies. Whc,Je Life. See answer to No. 28. Endowment Grquped accord­

ing to year of matl).rity and average age obtained bv Manlv's method. (b) Industrial policies. - ·

An entrant is ass!Jmec! to att ain his age (n.b.d.) at entry in the 31st Dece111ber of that vear. ·

policies.

The nearest age ilt entry will be taken. (c) Continuous functi{ms will be used in the L1-dustrial branch. (d) None are accepted in the Industrial branch.

(e) (1) See answers 18 and 27. (z) See answer 24. (f) We have none of these policies in the In­ dustrial branch En?owments,

which are valped by ,accumuMwn. rs. (a) Whole of life. Ordinary branch-age nearest birthday. Industrial branch-age next birthday.

Endowment As.'>!lr;rnce. · Ordinary branch-office years of maturity. Ind,ustrial Qr,anch--<:alendai: years of maturitv. (b) E ndowment "assurances.

Ordinary branch. By the deduction of the future duration of the policies from the average · · ag: . at maturity in the group. In determm1tlg

such average age, weight £s given to the sum assured. branch.

Bv deduction of the future duration from ·t he maturity of e.M:h of the

sub-grovps into which tb.e. Qd,gi.nal groops ·ltal"e divided. (c) .Ordinanr 'branch---?ix mqptlft;. .· Industrial branch-continuous . val ues are

used.

(d) Real ag.e . (e) (r) 0" for t4e On:J,infl.).'y Not com­

puted directly for the lnd1.1strial branch. (z) 4 per cent. Ordinary branch. (f) loading is distributed equally QYeJ: the

whole duration of the contract and the present value of such loading, less the present value of the loading contained in the premiums which remain to be paid, )s reserved for future expenses and profits. r6. See reply to Question 27. r6A. (a) Ordinary.- For Whole Life Policies group­

ing: is made according to age attained. For Endowment Assurances grouping is according to unexpired term . Industrial.-For Whole Life Policies group·

ing is according to age attained. For

other policies grouping is according · to vear of issue . .(b) Ordinary.-For Whole Life Policies: B:; adding to the age next birthday at entry

the duration (on the pf

each pohcy. For Endowment Assuranr.es:

1123

By dividing the suin of the· products of each amount assured and the age attained by the sum of the amounts assured and taking the next higher integer. lndustrial.-For Whole Life Policies: By

adding to the age next birthday at entry duration (on the average) of each policy. (c) Ordinary.-The date of the valuation. This assumption produces a modification of the

pure net premium valuation. It

made to facilitate a double transition from H" per cent. valuation to 0"

.) per cent. It afforded a suitable inter­ mediate valuation, saved much work and assisted in observing readily the rate of progress towards the OM 3 per cent. pure

premium valuation without any modifica­ tion whatever, which has now been at­ tained by the Ordinary department of the society. lndustrial.-Continuous functions were used

in all cases where this question arises. (d) The r.ated-up age. (e) (I) Ordinary, 0''. (2) Ordinary.-3 per cent.

bzdustrial.-In I905 a proportion of the gross premium was used throughout. In the annual valuations a of the

gross premium is used for Whole Life Policies, but for policies having a ma­ turity date 3k per cent. is used for com­ puting net valuation premiums. (f) None, the proportion of this class being .an

insignificant fraction of the whole.

Question 30.

Is any special reserve fund provided in your Com. pany for possible depreciation in the value of securities?

I. Yes.

·Replies.

2. Any depreciation as it against revenue. anses rs written off

3· Yes. 4· When the securities were revG!Ilued in 1896 the amount of depreciation was written off each security. No special reserve fund

was then necessary, and the fund which now appears in our accounts tlepresents a portion of the recoveries made in the figures to which securities were written

down in 1896. The securities unrealised have been revalued at each succeeding distribution of surplus, but the revalua­ tions in 1896 have in the aggregate

5· No. 6. Yes. 7· Not

9· No.

II. Yes. 12·. On

I3. No. !4· No.

proved adequa.te for the purpose. t

to my knowledge. Frequent review and wntmg down keeps securities at bedrock. A reserve fund may be misleading unless the assets are strictly wn"ften down to bedrock, and if

they are, a reserve futr1d !is unnecessary. However, a. well managed life office makes all the necessary reserves actuari­ ally.

the 31st Dece1Lber, I9o8, there was a Security F luctu.ation and General Con­ tingencies Fund of 7,945,842.84 dollars.

82

IS. No. I6. No. I6A. No. I7. Yes

Question 31.

If such rs provided, what is its character? Replies. I. Suspense investment. 3· The fund in question is reserved from

distribution, and forms no part of the " surplus '' announced at any valuation date, but it is not separately invested

from the other assets of the Society. It is added to whenever it is thought that any of the assets have so depreciated as to render doubtful their ultimate realisa­ tion at their full book value, and when

any of such assets are finally realised the amount held in respect thereof dis­ appears from the " Reserve for possible depreciation of securities.'' 4· See repl):' to question 30. 6. It is the amount by which the assets are con­

sidered to be short in value of the book values placed upon them pendirrg bion. r I. It is• a fund set apart at the periodical valua­

tions to provide for unforeseen fluctua­ tions ill investments. r 2. No special secmities are laid aside for this

fund. It is surplus not distributed. r6. Nil.

r6.A. Nil. No reserve is necessary. 17. A contingency fund:

SEcn'oN V.-DrsTRIBUTION OF PROFITS.

Question 32.

At what intervals are distributions of profit made by your Company?

Replies.

I. Triennially when profits are available. 2. Quinquennial. 3· At yearly intervals. 4: Quinquennial. S· Annually. 6. Quinquennial, or every five years. 7. There are no distributions of profit. 8. Quinquennially. 9· Distributions of profits are made annua.lly. IO. A distribution of profits is made annually under

the direction of the Board of Trustee2. I I. At !intervals of i:liree years. ::I'o policies which

become claims during the !interval fur­ ther bonuses aJe allotted for each com­ pleted year of the interval. r J The profits are distributed annu.all y to those

policies entitled to share therein' All the policies at present being issued are on the Annual Dividend plan, but in past years the policies were issued on the Deferred Dividend plan, with

periods ranging from 5 to 40 years,

as well as on the Annual Dividend plan. 13. Triennially. 14 Will be made quinquennially. (See reply to Question 33.)

·sa

rs. Five years, . With _interim bonuses on beconfing cla1ms during the period. 16. Every five yea.rs. r6A. Quinquennially. 17. Half-yearly.

Question 33·

On what basis are . the profits m your Company distributed ?

Replies.

r . See reply to Question 3· 2. Simple reversionary bonus method. J: The profits be divided among the metll­

bers entitled to p articipate as follows:-(a) " 1Ey assigning to those policies that remained in force from the

last valuation the profit accrued upon the valuation reserves last held for the same, and which

arose from the excess of reafized over that at which it was assumed in the val ua,tion the\· would fructify ; all the being calculated for this purpose on a Jk per cent. interest basis. '' (b) "By apportioning the remaining

profit in proportion to the load­ ing contributed, on aJ Jk per cent. interest basis, by members in re­ spect of premiums paid during the year, the loading contributed under

the more recently issued policies being subject to a deduction to pro­ vide for the special expenses atten­ dant on the acquisition of new

business."

It has been found in actual practice that for

policies of short duration this principle is given effect to by allotting a

sionary bonus, varying aocording to the duration of the policy, but uniform for each age of entry. On the present occa­ sion all policies up to five years in force

have been thus treated. 4· The principles upon which the distr1bution C>f profits among the policy-holders is made are determined by the Directors. Un

this occasion there is allotted to policies an amount in proportion to the interest which has been realised in excess of per cent. upori the · mean of the reserve

held during the quinquennium,. and remainder of the surplus is allotted m proportion to the amount of loading con­ tributed during the quinquennium. 5· Simple reversioqary method. 6. The principle governing the distribution .

profits is that each member shall pan:lcl­ pate in the profits as nearly as poss1ble in proportion to his respective therein, the amount individually allotten being through a co.n­

sideration of the difference between tne of interest realized and that assumed

in the valuation ; a.Jld ( 2) in proportion to the loading contributed within the

quinquennium during th.ei existence after the first vear of the pohcy. 9. The profits distributed as. a on

the sum assured , varytng t o

the class of policy and dur:'Ltlon.. 11. The profits are ratably apportw!led m propor­ tion to the amount contnbuted towards such profits by holders of participating

policies.

r 2. This question evidently involves .an exp1aria­ tion of the method of distribution. Two parr:phlets are enclosed, showing the method of distribution on the Annual Dividend and on Deferred Dividend

policies.

r ,). A simple reversionary bonus of x per cent. on the sum assured for each complete year's premium paid. ·

14· The bonus will be allotted quinquennially, but will not '' vest '' until the premiums ac­ cumulated at 4 per cent. interest amount to the sum assured. The reserves for " unvested " bonuses on

claimed and lapsed policies during a quin­ quinquennium, will swell the bonus on policies .at the end. of the quin­

quenmum.

1 5· After makipg adequate reserves for all c.-on­

tingencies, the whole of the' surplus duly declared by the Directors to be . will be set a.part for distribution amongst the profit-sharing policy-holders, and may be thus applied:-

(a) To increase the sums assured. (b) To reduce the amount of future premiums; or

(c) The surrender value of the bonw; may be drawn in cash. r6. Reversionary bonuses. I6A. On the simple reversionary bonus plan. 17. On the basis of the reduction of lia:bility.

Question 34·

Is the method of distributing profits in your com­ pany a fixed or variable one?

Replies.

I . F ixed.

2. Variable. 3. The method of distributing profits is fixed by the board of directors on the advice of the Actuary, _,and may, if considered ad­

visable, be altered from time to time. 4 · Variable. 5. Variable, if desired. 6. Variable, according to the determination of the

board of directors, but in the past the

method has been uniform. 9· The method is not fixed. 11. See reply to Question 33· 12. Variable. 13. Fixed so far. 14· Fixed.

15. It could be varied by the directors if the present method were found to be inequitable owing to a change in. the basis of valua­ tion. r 6. Variable. r6A. Variable. q. Variable.

Question 35·

What is your opinion concerning the suitability to Australian conditions of the following methods of distribution : ___: (a) Simple reversionary bonus method; (b) Compound reversionary bonus method; (c) Contribution method; (d) Modified contribution method (Sprague's or

other)?

FZ

1125

Replies.

1. In my opinion the compound bonus

method is the proper method. 2. If the premium rates charged and the sources from which the profit is derived give re· suits which are equitable, I consider the

simple reversionary . bonus method the most suitable. 3· In my opinion the "modified contribution rr_ethod," as practised by this society, is

the most equitable, but there can be little objectio11 to the use of any of the other methods here named, provided the load­ ing of the premiums on the different classes of policies is such as render

them properly applicable in the case of anf particular company. 4· These methods are all more or less suitable. I r:refer the method described in reply to

Question 33·

5· I consider this is a matter where there is ample room for divergent opinions. 6. (a) Not suitable. If has not been suitable on the basis of the past history of life assur.

ance in Australia. (b) Same answer as to (a). (c) Suitable. (d) Suitable. The method recommended by the

eminent British Actuaries, Dr. Sprague and Mr. Geo. King, for the use of this society, which was the modified contribu­ tion method, has been invariably followed

in the case of this society, and is, I con­ sider, a very equitable one. 7· i have not had any experience of any Bonus systems; I do not feel competent to ex­

press a satisfactory opinion. 9· Either the simple or compound reversionary bonus method is easily comprehensible by the general public, while the contribution

method gives a bonus which is almost peculiar to the individual J:olicy, and therefore must be taken on trust by the outsider. It sometimes leads to anoma­ lies. Its justification is that it attempts

to deal out equity as between . policy­ holders, though equity in bonus distribu­ tion is an ideal which can never be at­ tained. . Rough justice is the only thing possible, and this the various systems pro­ r;erly applied, do afford. The tendency in Life Assurance practice is towards the uniform or the compound reversionarv bonus, and leans especially to the latte;. The chief difficulty in the way of .a. fixed bonus system is the varying premiums .and types of premiums which ha-Ve ob­

tained fr.om time to time, and which it is the endeavour .of the Life Assurance man­ agement to. adjust by means of .the bonus system. Which system is best for a par­ ticular office is, therefore, a matter for such office. r r. There is nothing in Australian conditions that I

know of that makes any of the methods named specially suitable. The constitu­ tion of the companies is an important mat­ ter affecting the question. I think the modified contribution method is the most equitable. r 2. As .a foreign comrany, we presume our opinion

is not desired.

r3. This question cannot be answered by any in­ dividual.

14. (a) This method leaves out of account one of the sources which have co'ntributed to the i.e., reserves held against exist­

in C" bonuses on which interest has been I should like to add that I

consider any method of distribution fair so long as-r. The public understand it. 2. No change has or will be made,

and a new entrant knows what to expect. 3· A change in the bases. of tion will not produce mequahties

that a.re not subsequently cor­ rected. (b) This method enables one to allot in a simple manner bonuses similar to those which the

contribution method would allot. It ad­ mirably meets the case of Endowment Assurances-a class with which ·the con­ tribution method fails. (c) My to this method (or any modi­

fication of it) are that it is cumbrous and difficult to apply, and as I can get equally satisfactory results from the compound reversionary system I should always use the latter in preference. 15. I am advised that any system is suitable pro­

vided that the premiums are equitably loaded. (a) This method has the advantage of sim- . plicity for office working, can be

easily understood by the Offices commencing business or startmg a new series would probably load their pre­ miums in such a way as to permrt of this being adopted. (b) Australian premiums do not seem to be suit­

ably loaded for this form of bonus. (c) and (d) These ate practically the only sys­ tems .open to .offices with old rates of pre­ mium, if it is desired to distribute equit­

ably between policies of various classes, ages, and durations. r6. The simple reversionary method is to be pre­ ferr-ed . r6A. (a)This is probably the most effective method.

(b) It is not better than the simple reversionary method, and entails more l_abow. (c) I do not consider that this method attains the results it claims to. (d) I do net believe any .advantage is to be

gained by the adoption of. thil> method.

Question 3'6 .

(a) Where valuation is annual., do yw consider that distribution of profit should be made annually? (b) State your reasons for yoor opinion.

Replies.-

I. (a) Yes. (b) An annual valuation can .only., in opinion, be made for the purpose of dis­ tributing the profits annually. z. (a) Not necessarily.

(b) If pofits are distrib,lrted a:nnuallyit is_ pos­ sible that fluctuations due to extr,aordmary causes might be 'by policy­

holders.·

1127

85

3· (a) Although it may be considered advisable, for the sake of information to ma:ke an­ nual valuations, it is not, neces­

sary to make annual distributions of

pri.>fit.

I6A. (a) No, not necessarily. · (b) The force of policy- holders' opinion would

(b) Unless an office is of considerable size the amount of profits to be distributed an­ nually. would not. be large enough to

make It worth while to go to the trouble and expense of apportioning a large num­ ber of very small items of profit, and,

moreover, the fluctuations in the total amount of surplus earned from vear to year might prove inconvenient. ' 4· (a) Not necessarily.

(b) I have already replied to this at some length in answer to Question r6. 5· (a) I see no objection. (b) If the profits are ascertained annually

nothing is to be gained by reserving them. Provision, of course, should always be made for contingencies. 6. (a) Not necessarily.

(b) It depends upon the character of the re­ sults whether I would consider a distri­ bution should be made. If the society were so small as to be subject to violent

variations in the amount of profits to be distributed I would consider that the dis­ tribution should not be made annually. 7- (a) Yes. ·

(b) Please see reply to Question 37 (b). 9- (a) and (b) Where an annual valuation is laid before the public I see no reason for with­ holding the distribution of the profits

disclosed, unless under special circum­ stances the directors deem it wiser to

either apply the profits, _ or portion of them, to strengthen the reserves, or with­ hold them tor some probable contin­ gency. r 1. (a) As a matter of expediency I should say yes;

but there is no important principle in­ volved. 12. (a) No, it would depena upon the terms of the policy.

(b) See (a). 13. If the office is a large one; so that the in­

evitable fluctuations of mortality and other profits make no sensible "imr::ression on total profits, · valuations may well be

made, and bonuses allotted annually. In a small office the fluctuations; though actually small, are relatively large, and a varying rate of bonus only disturbs the confidence of the policy-holder. A three

years' interval seems, in practice, to adjust sufficiently closely the varying effects of the bonus-earning forces. 14· (a) No.

· (b) For the reasons advanced in my answer to question 16, I do not, unless a consider­ able proportion of the surplus is retained to prevent fluctuation. 15. (a) Not unless there is ample safeguard against

fluctuation, but interim bonuses can be made use of. (b) See replies to question 16. 16. (a) Yes.

(b) l do not think a company should publish an annual valuation until it has attained to such a size as to make sure of getting

fairly average results. In such case there could be no objection to an annual dis-. tribution of profits.

probably necessitate an annual distribu­ tion, if there is a r;ublished annual valua· tion ; but theoretically there · is not any necessary connexion between the two.

Question 37.

(a) What do you consider the most satisfaCtury interval for the distribution. of profit;? (b) State your reasons for your opinion.

Replies.

r. (a) In my expel'i.ence triennially. (b) I think annual too short and quinquennial too long. 2. (a) Quinquennial.

(b) :J'his depends upon individual companieg, but in the case of a small company the expense of an annual valuation is ton heavy to such a course. With

quinquennial distributiOn of . profits in­ terim bonuses can be given, which place policy-holders .practically in the same position as if profits were distributed

yearly.

3· (a) This depends very much on the size of the company, and on the total amount of surplus a,ccming for divisiOn. (b) In a company where a large amount of

profit accrues every year it may be co:n­ sidered advisable to incur the trouble attrl expense of an ·annual distribution, hut in the case of most Australian offices a

triennial distribution will probably be . foWld sufficiently frequent. ·

4· For reasons already stated in answer to question 16 I prefer quinquennial distributions. 5· (a) Annually. (b) All financial institutions have yearly stock­

takings and distributions. 6. (a) Three or five years, according to the charaC­ ter of the society concerned. (b) They are practically the same as those given

under Question 16. 7· (a) Annually. (b) In order to show the exact net financial posi­ tion of the society yearly. 9· The most satisfactory interval to the policy­

is, without doubt, one year, but

m a very young company, or a very small one, the distribution of the whole of the surplus disclosed would! be injudicious, because of the irregularity of the results of consecutive years, due to the lack of

reliable averaging in a small or ne\v

business.

1 1. (a) Three years, with intermediate botmse<;.

(b) See reply to Question r6. 12. (a) We believe that companies shoufd be given considerable ·freedom of choice in this respect.

(b) (a).

13. (a) Three years. (b) See reply to Question 36. 14. (a) Quinquennial. (b) See answer to Question r6. 15. (a) In my opinion, five years.

(b) See replies to Question 16 .

16. (a) It depends on the size of the company. (b) For a small company short intervals 0f

distriqution might be detrimental, as re­ sults might vary, but, where results cot.ild be relied on, I would favour annual dis­ tributions as being a good advertiseme'Jt for the society. I6A. (a) Quinquennially for small societies, and

for large ones also, if they so desire.-(b) A longer period gives a better oppor­

tunity for a small society to aJttain a

satisfactory average. The larger the

society the shorter the period can be, with due steadiness i)1 the results.

Question 38.

At the present time is your reversionary bonus de· termined in any constant wal)' ?

Replies.

I. The cash bonus is converted at the respective ages of the policy-holders. 2. No.

3· The reversionary bonus in our case is derived from the cash bonus, determined as

shown in the answer to question 33, and is liable to variation from year to year, according as the amount of profit earned in the year varies. 4· Yes. It is the equivalent on the valuation basis

as to mortality, and interest of the cash bonus allofted to each policy as described in reply to question 33· S· Yes. 6. It is not a uniform reversionary bonus, irre.

· spective of age, but varies according to the age and table. 7· None. 9·. The reversionary bonus is based on the H·

· Mortality · Table, combined! with the valuation rate of interest. r2. Our profits are not distributed by the rever­ sionary bonus system. 13. Don't understand the question.

r4. We have not yet made a valuation in the

" Ordinarv " Branch. I 5. It is determined as a percen'ta;ge on the sum

assured according to years in foree since last distribution. t6A. The relation between the cash for distribution and the corresponding reversionary bonus

is fixed on the same basis as that of the as a whole.

r 7. Fixed scale of guaranteed! bOnuses.

Question 39·

(a) Does your company indicate to policy-holders in what way the cash value of the bonus is determined ? (b) In what way is such indication furnished?

Replies.

I.. Total cash surplus is shown in published state­ ment, , which is furnished to policy­

holders.

2. (a) No.

3· (a) Yes. (b) With each bonus certificate there is en­ closed a circular giving a table of the

cash equivalents at various ages in r1= spect of each £ro of reversion undP.r the principal assilrance tables.

86

4· (a) Yes.

(b) By ·tables supplied showing specrmens of the values of reversionary bonuses of £ro each, or by individual quotations when required. 5· (a) Yes.

(b) By printed actuarial report every three

years.

6>. (a) Their attention is not specially drawn to

this question, as the society endeavours to induce policy-holders to preserve their bonuses in the f orm of additions to lhe · sum assured. ,

(b) The valuation report that is sent every

member on the books at the time of dis­ tribution contains in .schedule form the cash value of the reversiona,ry bonuses for particular ages and durations of

policies. In that way an approxima,tion to the relative cash value can be ob­

tained.

7· (a) None. 8. (a) No.

9· (a) Yes.

(b) The company's prospectus contains a table for approximating cash values, and the returns made to the various State Go­ vernments contain examples. II. A table of cash values at various ages, ana

under different tables, is sent to policy­ holders. Specimens are also given in investigation reports, whkh are sent to policy-holders. rz. (a) Complete statement of our methods 1re

filed with several Governments, and policy:holders are always given an ex­ planation when they desire it. (b) See (a). 13. (a) No cash bonuses paid. 14. (a) It probably will not do so directly.

(b) The information will be obtwinable in such a publication as Stone an1' Cox's Ta:bieo, if the edition is extended- to Austraha. rs. (a) No.

r6. (a) No.

(b) We furnish policy-holders with a copy of the Actuarial Investigation ·Report. T6A. (a) NOt: in anv general manner. (b) By furnishing the information to all in­

quirers without charge.

Question 40.

Are what are know11 as the Tontine or Semi-tontine methods of bonus distribution practised by your company?

Replies.

r. Not now, as Tontine or Semi-Tontine Assurances are not 'b,eing carried on. 2 . No.

3· No.

4· Yes. 5· Yes. 6. The society at one . time issued policies with Tontine and modified Tontine methods of

bonus distribution, but ceased to do so about ten years ago. '7· No.

8. No. .

9· No, with the one exception of one class of policy -" The Accumulation Gold Bond "--of which there are 6oo on our books. Under this class all the profits allotted in any year among the particular division of the

10. For

II. No.

class are reserved until maturity of . that division and divided among the survivors. The company now guarantees on all such policies it issues that the rate · of profits allotted at each distribution shall be not

less than that allotted at the same dis­ tribution to ordinary Endowment Assur­ ance policies.

87

a number of years prior to 1st J anuafy, 1907, this company issued deferred divi­ dend policies, providing for a bonus dis­ tribution at the end of five, ten, fifteen, or years, according to the reriod

selected by the insured. Since that date, however, a standard form of policy has been adopted, providing for a bonus dis­ tribution at the end of each policy year.

I2. We do not have any Tontine policies on our books. Prior to 1907 we granted poli­ cies under which dividends were deferred for a period of years. Since I st January,

1907 , all policies are issued on the annual dividend plan. I:) . No.

t 4. The company has adopted what is known as the

" Scottish Provident Scheme" in its en­ tiretv, and will defer all bonuses until the premiums accumulated at 4 per cent. amount to the sum assured. 15. An experiment in this direction was made with

one table of Double Endowments. It was not particularly successful, and has been discontinued. · . There are onlv about I so policies under it on the books.· r6. No.

I6A·. No.

Question 41.

If so, have you heard of any complaints concern­ ing misrepresentation by <);gents in con­ nexion with policies issued sub ject to such bonuses?

Replies.

r. Some complaints have been made by policy­ holders regarding all classes of policies. Does not require answer.

4. There have at times been complaints concerning alleged misrepresentations by agents not only in connexion with policies issued sub­ ject to such bonuses, but in connexion with other policies. I have personally investi­ gated some of such complaints, and have generally found them to be based upon an erroneous recollection on the part of

the policy-holder. I have no recollec­ tion of any such alleged misrepresentations referring to the question oi deferred

bonuses.

S· Misrepesentations. 6. Yes. 8. No.

9· No. ro. There have been complaints regarding such mis-. representations, but agents is not confined to pohc1es of th:s

description, as every has expen­

ences of this nature w1th unscrupulous agents, rz. Yes, but manv of the cases are not the fault of the hut of the forgetfulness or

mi sunderstanding of the insured. 13. No.

14. I do not anticipate any. Our policy is ex-

15. None.

tremely clear on the subject, and we now have a complete system of inspection.

r6. See reply to Question 40. r6A. See reply to Question 40.

Que stion 42.

What length of time must a participating policy in your company he in force before it be­ comes entitled to share in the distribution of profits?

Replies.

r. All participating policies in force at the date of valuation share in the profits declared. 2. Every participating policy in force at date of valuation, irrespective of its duration, is

entitled to share in profits. 3· In the Ordinary department it has a bonus al­ lotted to it at the end of the year of issue. In the Industrial department no policy is

entitled to a share in the profits until it has been five vears in force. 4· Policies participate from their date of issue. 5· Immediately. 6. Two years.

7 . No such policy in this society. 8. Various, according to Table under which insqr­ ance is effected. 9· Policies participate from the commencement of

the contract.

IO. See rerly to Question 40. 1 I. Twelve months. 12. Since rst January, 1907, all policies by

the company are on the annual dividend plan. This company attaches a notice to all policies issued, as follows :-"Notice to Policy-holders Regarding

Diviaends. The Insurance Law of New York requires that the

company shall annually ascertain and distribute the surplus appor­ tioned to all policies issued on and after rst January, 1907 . To pre­ vent misunderstandings, the offi­ cers of this company think it pro"

per to state that as policies do not earn any surplus in the first year · year of their existence there will probably be no dividend paid upon a policy taking effect on and after

in until the anniversary

of the policy."

13. From issue of policy. 14. See reply to Question 40. (Till the premiums accumulated at 4 per cent. amount to the sum assured.)

1.5. From the commencement in the Ordinary branch. In fifteen years in the Industrial branch. r6. One year. r6A. One year for the most part.

Question 43·

What time elapses from the issue of a participating policy in your company before bonuses vest? Replies. r. All policies comj:leted and in force on the date

of investigation participate. 2. Three years. 3· Two years in the Ordinary department.

1129

4· Unless otherwise stipulated in the policy

bonuses vest on payment of the premium for the second year. 5. Three years. 6. At least two years. 9· Bonuses vest "imme-diately in case of death, but

have a cash or surrender value after

policy has been three years in force. ro. Under deferred dividend policies the bonuses vest at .the end of the selected period, but under the Standard Form of Policies is­

sued subsequent to rst January, 1907, bonuses are declared and vest one year from date of issue and annually there­ after. r I. Two years. u. See reply to Question 42. IJ. One year. 14. See replies to Questions 40 and 42 ,

I 5. Threce yecars.

r6. Bonuses. vest immediately the bonus certificate is granted. r6A. 1' he bonus vests immediately on the issue of the certificate. 'r7. When the company was carrying on business

policies with bonuses had additions made at the decennial periods of ten, twenty, thirty, and forty years.

SEcT!ON ON"FonErtuRE.

Question 44,

(a) Is there any provision in your company for rendering a policy indefeasible (except in the case of fraud) after the lapse of a specified time? (b) In what way is this set out fot the information

· of policy-holders.

t. (a) No.

2, (a) No.

3• (a) Yes.

Repties.

(b) By-law No. 8 of the s()(!iety provides:-

4 · (a) No.

'' Every policy how effected or here­ after t<> be effected with the societv (provided the age of the assured shall have been admitted) shall, upon the e:ltpiration of five years

from tfie date of the assurance, and upon the assured having at­ tairted thirty years of age, be ex­ empt from forfeiture in all cases excer:t fraud, unless previously to

the expiration of such five years any misstatement, error, mistake, omission, or suppression shall be ascertained by the society, and notified in writing to the person in whose name such policy shall

stand." ·

5· (a) This society's policies are indefeasible when issued. (b) It is stated in the policy. 6. (a) Such a provision exists as from the date of

issue of the policy. Suicide within thir­ teen months only excepted. Of course, the whole contract is subject to the con­ tinued payment of premiums. (b) It is stated in all the prospectuses of the

society, the following wording appearing therein:-" All policies are unconditional, un­ challengeable, and indefeasible on

any ground whatever (fraud and

88

7· (a) No.

suicide within thirteen months from date Of policy alone excepted), and persons once assured may change their residence or occupation, and may voyage to ot travel in any part of the world WithOut the necessity Of notice to the offiCe, or payment of any extra pre.tiiium. (In par ticular cases, where a specific

extra tisk is involved from the out­ set, special cot1diti0ns may be im­ posed.)"

3. (a) 1 think so.

(b) I presume in ptosj::ectus. 9· (a) No.

(b) Policies in our company are considered in­ dfrfeasible, unless for fraud, once they are issued, with the exception that we do not admit liability it death of assured under an Ordinary branch policy result from suicide within thirteen months of date of

issue. We have not found it necessary to have a provision te suicide in the In­ dustrial branch policies. ro. (a) Yes.

(b) The following clause is contained in our policy contract:- .

" Inoontestability .-This policy shall be incontestable, except for non­ payment of premiums, provided two years shall have elapsed from its date. This policy and the ar­ plication herefor, copy of which is indorsed hereon and attached

hereto, constitute the entire con­ tract between the parties hereto. All statements made by the insured shall, in the absence of fraud, be deemed representations and not warranties, and no such statement of the insured shall avoid or be

be used in defence to a claim

under this policy, unless contained in the written application herefor, copy of which is indorsed hereon or attached hereto. ' ' I 1 . (a) Our policies are indefeasible from the date

of issue, except on the ground of fraud . or suicide within thirteen months of

issue.

(b) The terms of the policy are simply stated, but they contain no special statement re­ garding indefeasibility. There is such a statement in our prospectus. 12. (a) Yes, for many years policies were issued

incontestable from date of issue, but we have commenced to make them contestable one vear froth issue. (b) As..a part of the policy contract itself. IJ. (a) No.

(b) The policies are drawn clearly and concisely . r4. (a) Yes. They are immediately indefeasible (except in the case of fraud and suicide). (b) In the prospectus, and condition 6 em the

policy as to suicide. r5. (a) Yes. After a policv has been three years

in force, should the policy-holder be un­ able to pay his premiums when due, it will not be allowed to lapse so long as the surrender value of the policy is suffi­ cient to pav the overdue premium. (b) See Ordinary. Branch prospectus, page :; .

and clause 5 of terms and conditions of Ordinary Branch policy.

16. (a) The policy is indefeasible from 1ts date. (b) By leaflet and table of rates. I6A. (a) 'the policy is indefeasible (except in the case of fraud) from the d ate of issue.

(b) The fad is set forth in the sociefy ' s tables of rates and leaflets issued to new in.

surers..

I7. (a) " Should no misstatement or untrue aver­ ment on the part of the assured be dis­ covered by the directors within seven years from the date of the r;olicy, they

will , in their discretion! on application at the assured, by special indorsemeni on the · policy, declare it indisputable and indefeasible.'' (b) Indorsed on each policy.

Question 45•

In the event of non-payment of premiums IS the surrender. value applied t0--'-' (a) Automatically pay future premiums ; (b) Provide paid-up policies; or

(c) Provide in some other specified way for non­ forfeiture.

Replies.

I. (a) Yes.

(b) No. (c) :No. 2, In the OrdiMry Department. Automaticll}lY pay future prettiiums.

In the 1Industnal Department.

3· (a)

(b)

Policy-holders may obtain a paid-up policy after fire yeats. We have 1 however, re­ recently introduced into our prospectus a table urtdet which paid-up policies will

automatically be granted. In the Ordinary Department it is applied to automatically pay future premiums. On the membet' s appliCation it may be used

to provide a 'pa1d· u'p policv in place of being applied as above. In the Indus­ trial Department it will on1y be applied i!). this way. (c) Does not require answer. 4·. (a) Yes, in some instances.

(b) Yes, in some l.nstances. (c) Yes, in some instances. 5· (a) If any surrender value exist, Yes. (b) and (c) Only when requested by members. 6. (a) Yes.

(b) Only by the request of the policyholder. (c) No, unless a loan on a pollcy to enable the assured to pay premium, be considered a feature under this heading. 7. This society has no surrender values whatever. 9 · Ordinary Eranch.

(a-) Speaking generally, the ordinary premiums are automatically advanced . (c) In some instances the contract is converted into a term assurance for the full sum as­

. sured as clear! y indorsed on the policy. Industrial Branch. After a policy has fi:'e years. in force a

fully paid-up pohcy IS obtamable; or should it be desired to fully reinstate a lapsed policy, this may be done at any time up to two years from Lapse on pay­ ment of overdue premiums without in­

terest or fine of any kind provided the assured be in good health and of good habits.

1131

:ro. U nder the Standatd F orm of policy now being issued by this company, it is prov ided that in the event of lapse after the policy shall have been in force for three f ull years, the insurance shall be continued in force for a certain stated period as term insur­ ance from the date of such default, with­ out future participation, and without the

right to lq.p.ns or cash va lue, for an

amount equal to the face value of the

policy, or The policy-holder may elect to purchase non­ participating insurance, payable at the same time and on the same conditions as

the original policy for an amount which is stated in the T able . of Guaranteed

Values incorporated. in each contract. I r. To pay premiums as they fall due.

I 2. See sample copies of the policy contract

attached hereto. The policies provide for automatic extended or continued insur­ ance, or for optional paid-up insuranee, cash or loan values. IJ. No special provision made.

Policies that have been allowed to lapse through oversight, pressure of circum­ stances, or other causes, may be revived at any time within twelve months from the

date when the premium became due, on production of evidence satisfactory to the , board of directors that the assured con­ tinues. to be in good health, and upon

payment of interest at the rate of 5 per cent. upon the amount overdue. 14 . Automatically paJ future premiums. r 5. Automatically p ay future premiums.

16. (a) Yes. (b) Yes, if specially requested. I6A.(a) Yes. (b) Yes, if so requested. 17. No .

..

Question 46.

(a) I s the surrender value in this instance deter­ mined in accordance with the company's practice in the case of withdrawals, or is there any special method employed ? (b) If so, what is the method employed ?

Replies.

r. (a) The company's usual practice is followed . (b) T wo-thirds of the net reserve value. 2 , (a) I n accordance with usual practice in case of

withdrawals.

3· (a) The value is the same as in the case of with­ drawals. 4· (a) When the surrender value is applied auto­ matically to pny the premiums it is deter ­

mined in accordance with the company' s practice in the case of withdrawals. 5· (a) Yes. In accordance with the company's - practice in the case of withdrawals gene­

rally.

6. (a) Yes.

9 . '!'he ordinary methods of ascertaining surrender value are used in non-forfeiture calcula­ tions. Each premium advanced under the scheme helps to increaSe the surrender value in the same way as if it had been paid by policy-holders. The usual rever­ sionar y bonus is allotted to the policy and becomes imrnediatelv available to a lso in­ crease the surrender-value. II. (a) Yes .

12. (a) It is provided in the policy contract. (b) See reply to Question 45-I4- (a) The surrender value is determined by . the ordinary tables of such values.

(b) H" 4Z per cent., less the· first year's dura­ tion. r5. (a) In accordance with tne company's practice in the case of withdrawals. r6. (a) Yes. There is no special method employed. r6A. (a) Yes, no special method is employed.

QuestiQn 4 7.

( r) Do you think that a system of guaranteed

surrender values shown on the policy would be either (a) Practicable, or (b) Desirable? ( :z) reasons for your opinion.

r. (r) (a) No.

(b) No.

Replies.

BeGause to guarantee a surrender value

might have the same effect as a '' run '' upon a bank. 2. (I) (a) I understand that some of the largest

offices show guaranteed surrender values on their policies, and therefore the svstem seems practicable. (b) No. (:z) I think the system would encourage sur­

renders.

3· (r) (a) and (b) Such a system would be practic­ . able, but not in my opinion desirable. (2) I think the surrender value should be

fixed from time to time as may be deemed most advisable, and that an office should not be bv a hard and fast scale re­

gardless of what the future may bring forth. Owing to the great expense of condl{cting Industrial Assurance (as compared with

Ordinary Assurance), and to the expense falling mainly in the early part of the policy's it would be impossible

for any mutual office, acting upon equit­ able principles, to give a surrender value to any policy until it had been several -years in force. The surrender value,

90

5· (1) (a) Yes. (b) With the reservation that it might be awkward for a company in panic times, Yes. (2) Every policy-holder would know at a

glance exactly how much his policy was worth. 6. (r) (a) Yes. (b) No.

( 2) One of the strongest financial features of a Life Assurance Society is the fact that no run can be made upon its funds as in the case of a bank with deposits at call. In

this way not only is the solvency of the Society more fiee ""from doubt, but it is possible for its management to invest the funds in securities of a longer dated

character, as distinguished from liquid securities, and under which a higher rate of interest is obtained for the benefit of its policy-holders. 7· (r) (a) Yes.

(b) No.

(2) Same as printed in Question 48, viz. : That in a time of financial stress guaranteed surrender values might prove disastrous to . Life Assurance companies. 9· (r) (a) Surrender values are practicable, and

competition will no doubt continue to make them necessary, and the guaranteed sur­ render value is also practicable. (b) I am not sure that surrender values are

desirable--paid-up policies would lbe more advantageous to ·the policy-holders, who often surrender their policies at the first pinch, and therefore defeat the objects of the assurance; but if surrender values are to continue it is desirable that some

guarantee of the value obtainable be given. (a) and (b) In the Industrial branch I do not think that any surrender values other than

free or paid-up J:Olicies are either prac­ ticable or desirable. [ndustrial assurance is costly to obtain, and the granting of surrender values offers

great opportunity to agents in rival offices to "twist" the business. If surrender values were granted, it is safe to s.ay that the cost of business would increase greatly, and thus re-act on · the policy· holders by compelling the companies to charge higher premiums. Free policies

meet the essential requirements of indus­ trial policy-holders fully. l<'ree policies are at least the equivalent of surrender values. A company issuing pure Endowment can

hardly refuse to allow an equitable cash surrender value.

if any, that could be given in Australia is to some extent an unknown quantity. If a scale of surrender values extending over the whole currency of the policy were to be guaranteed at its initiation, such scale would have to be kept well within the margin of safety, thereby perhaps treating with scant justioe ·policy-holders who elected to surrender. IO. (r) (a) Yes.

4- (r) (a) Yes, practicable. (b) Under certain conditions (2) There is nothing on record (so far as I

am aware) to show that general financial conditions have ever compelled a company to refuse to pay surrender values. If the special circumstances of ,a company make

it insolvent, that affects all kinds of pay­ ments alike. Everything is desirable which equitably sim­ plifies the contract and makes a life policy

more adapted to the requirements of the policy-holder.

(b) Yes. (2) The Mutual Life of New York was the first company to insert in its contracts definite surrender values. Since January rst,

1899, we have printed in our contracts a table of guaranteed values relating to sur­ render values, loan values, automatic paid-up non-participating insurance, and extended insurance. It is far more satis­ factory for a policy-holder to be able to turn to his policy and see exactlv how he can dea'l with it in any year after his in­ surance has been in force for three fnll

years, rather than be obliged to apply to the company for the necessary informa­ tion. Then, again, in one case he has a

definite guarantee; while, on the other hand he simply receives a promise re­ garding values which may be altered at the will of the directors. 1 r. (1) (a) Yes.

(b) No. (z) If' surrender values were guaranteed, pru­ dence would compel companies to hold a large portion of their assets in liquid form

to meet any sudden demand such as a

panic might cause ; this would

mean that the return from investments would be reduced probabiy to a consider­ able extent. The present practice of

offices works well'. I have never known a surrender value to be refused. rz. (I) (a) Has been carried out by th1s company for years.

(b) Yes. (z) The success of policy forms containing the . above provision attest both to . its prac­ ticability and desirability. 13. (1) (a) Practicable. '

(b) Undesirable. (z) Have strong opinion against givmg policy­ holder anv inducement to surrender his policy. ·

14. (I) (a) Certainly. (b) No. (z) An office would, rightly, fix these values low as possible, in view of such eventuali­

ties as mentioned in Question 48, and the assured would suffer. If an office reduce · its valuation rate, it should increase its table of surrender values. If these were

guaranteed it is unlikely they would be augmented. rs. (I) (a) Yes.

(b) No.

(z) Assurance contracts are for a specific pur­ pose, and the assured not be given

an incentive to break them simply because he is tired of it. These tables are used

by rivals, agents largely, . for twisting purposes, and for canvassmg purposes an office might be tempted to offer more than it can safely afford. r6. (1) (a) Yes. '

(b) :Not at all desirable. (z) It would encourage surrendering, and any system of guaranteed fair surrender values would be undesirable unless carefully re­

stricted to a proportion of a society's busi­ ness. r6A. (r) (a) Yes. (b) Not greatly. . . .

(z) I .am opposed to It

is a common expenence that pohc1es . are surrendered -sufficient justification, and the permanent benefits are. thrown aWilY for trifling temporary. gams, fre­

quently to the regret of the person who surrenders, or rather of his Of course, this is a matter for deCI­

sion but it is probably not desuable to

the temptation too much in front of

him.

Would

. Question 48.

a system of guaranteed.

be in danger of provmg dtsastrous to

life assurance companies in 'a time of financial stress ?

Replils.

1. Very much so.

1133

z. It People usually run to a Life Office

and surrender or borrow on their policies directly their finances are in a straitened condition, and if values are guaranteed the strain on a company might become

serious.

3· It 1s possible that such a system might prove very inconvenient, if not even dangerous, in a. time of financial stress ; for if

public confidence in companies generally, or in a particular company, became im­ paired, a run upon the office might set in which it may be unable to meet

unless it were able to borrow for the

purpose of tiding over the difficulty. 4· There is nothing on record (so far as .I am

aware) to show that Life Assurance

Companies have ever found themselves unable to continue to pay surrender

values in times of financial stress. Pro­ vided surrender values are not on too liberal a scale, and a company has a

safe proportion of liquid assets, I do

not anticipate that a system of guaran- · teed surrender values is likely to prove disastrous to the companies. 5· Possiblv. 6. Yes. '

7. I think so.

9· On the whole I do not think so.

ro. There would be no such danger in our case, as this Company has weathered many such storms; in fact, we have recently had a financial crisis in America which has emphasised this. During this panic

we found that policy-holders availed themselves of the Loan Values un!der their policies, in preference to surrender­ ing them for cash. In this case the ex­

perience of the Company proved that the system of guaranteed values . did not operate against it in a time of financial stress, and I am of the opinion that,

provided such values are calculated on a conservative basis, there would be no danger of a well-managed company suf­ fering loss through making such guaran­

tees.

I 1 . I think so.

12. During the periods of great financial stress in this country, 1893 and 1907, it did not prove dangerous to Americ

press no opinion without full considera­ tion. r 4. Yes; theoretically it would; for if a serious financial depression oocurred an .office

might prove to be insolvent through hold­ ing reserves less than the guaranteed sur­ render values. The same office might successfully pass the test of a valuation

for insolvency but for these guaranteed surrender values. 15. Yes, quite conceivably. r6. Yes, a considerable risk, unless the guarantees

applied to only a portion of the business. I6A. Yes, there is a risk.

Question 49·

Could such a contingency be avoided by having two tables of surrender values, the larger value to be used only when the Company

.• )'i'll>

' ,L;, ..

and· the policy-holders are both .agreeable to the surrender, and the !lmaller to he used when the policy-holder alone desires it?

Replies.

r. I think a of surrender value danger­

ous m every respect. 2. It seems to me that if this was done the J::Olicy­ holder would fose every time. A company should never be agreeable to losing

its business in this way. · 3· This expedient might reduce the danger of such a contingency, but could not al­ together avoid it.

For a company to avail itself of the lower

?Cale would be to precipitate the panic It sought to avert, and to bring about a loss of prestige from which it would

probably never recover. 4· I do not think that would be a good arrange­ ment. As a rule, no company wishes its policies to be surrendered, attd 1t would

mean that the smaller cash value would always -be paid. 5. No; this would be impracticable. 6. Seeing that properly managed life assurance

societies always discourage the surrender of policies, I cannot see any practical benefit in having two scales of surrender values. It is obvious that the lower scale referred to would alwavs be the one

used. ·

7. Yes ; but I think the present method better. 9· I do not think this practicable, ·but there could be no great objection if the contract set the matter out in clear language.

Whether it would accomplish the object in view is doubtful, because it would still mean an outgo of money, even if at a less rapid rate: . .

ro. I do not think such a scheme would be prac­ ticable. r r. I don't think this would be a sufficient protec­ tion. 12. See reply to Question 48.

IJ. Such a course would lead to grave dissatisfac­ tion in time of stress, and the public

panic would be intensified. 14. Yes ; but this would appear to necessitate medical examination on the life. An office is not usualy .agreeable to a sur-\

render, because the life withdrawing is supposed to be of the highest class. r 5. It miglit ; but the question might fairly be

asked whether a company would ever h'O' agreeable to a surrender, seeing the

trouble and expense it is put to in !"e­

placing the life.

r6. I do not think it would be wise to adopt two

scales of surrender.

r6A. It could, of course, be done, but would be very likely to ultimately prove 1noperative, as the lower scale would look unpopular, and would probably, in the long run, tend to be discarded.

Question 50.

How are _surrender values of your companv's pohcies, when withdr<1wn , determined?

Replies.

r. Two-thirds of the net reserve value. 2. At the di,

92

3· The Institute of Actuaries' HM Table with per cent. interest is used for frndin:>

-the surrender value of assurance policies"' A deduction of 25 per cent. from

calculated value by that table determines the. surrender values allowed for partid­ patmg assurance policies two years and over three years in force, a deduc­

tion of ro per cenil:. for policies over

three, and _not. over five years in force, . a dea'uction of 5 per cent. for

pobcies over five years in force. The

full value by the Peerage Table with

5 per cent. interest, is allowed the

surrender of children's endowments three years in force and upwards, 90 per cent. of such values for/policies two years and under three years in force; subject in every case to a maximum. equal to the

amount of premiums paid. The full cash value by the E' 4! per cent.

table of all bonus additions allowed

in addition to those values in the case of jJOilcies which have been in force for two years and upwa.rds. · 4· The society's Articles of Association provide

that the Board of Directors shall fix the rates of payment which may be made bv the societv f?r _the surrender of of descnptron, and may time

to time alter or vary such rates. According to the scale at present fixed by the · Board of Directors, the surrender values of policies (exclusive of bonus additions)

for the whole term of life, and for en­ dowments a1lid endowment assurances, except policies issued under the society's ta:b_Ies numbered I IN., IIIA., and IIIB.,

which are hereinafter provided for are Uipon __ the society's last

mal actuanal valuation report, dated rqth December, 1906. lfhe percentage allowed of the full reserve value varie'l according to the duration of the and is as follows:-- ·

Duration of Policy. Three years and not exceeding five years. equal 6o per cent. Exceedmg five years and not exceedi:1g

ten vears equal 67k per cent. Exceeding ten years and not exceed­ ing fifteen years equal 7 2 per cent. Exceeding fifteen years and not ex ·

ceeding twenty years equa.l 7 5 per cent. Exceeding twenty years and not ex­ ceeding 25 years equal 77 per cent. Exceeding 25 years equal per

cent. .

In the case of fullv paid up policies :the sur­ render value is qo per cent. of the full reserve value. Policies issued under [he society's tables IIA.. HIA., and I liB., have oo surrender value. In lieu there(Jf they provide for fully paid-up assurance far reduced amounts. These fully paid-up policies may thereafter

be exchanged for their surrender values. The cash value of vested' bonuses is allowed it; Where any premium

on a pohcy IS m or where anv

advances have been mad'e against a the Surrender · Value of that policy is at by deducting from . the amount

which would have been the surren

nad ' there been no advance and no pre­ mium in arrear, the amooots of a;ll pre­ in arrear an4 interest thereon, and

of all advances against or charges upon the policy and thereon. ·

No surrender value is allowed unless three full years' premiums hil.ve been paid on the policy. 5· By taking a percentage of the reserve values

(such reserve values being on the same basis o,s that employed in the valuation). 6. The amounts of surrender values of policies have been in force for a.t least

three- years, and upon which the pre­ miums for upwards of three years have been paid are determined from time to time by the Board of Directors by resolu­

tion recorded in the Minutes of the pro-ceedings of the Board. ·

7· None. 9· They are determined m accordance with a method which is jncorporated i:n the· sent policy form itself as an integral

part thereof. Speaking generally, the method arrives first at the free policy (which is guaranteed), and this free

policy is then discounted by t:h.e

.Table of Mortality, with 4k per cent. .interest. This surrender value is 'I

guaranteed minimum. 11. By the office value of the policy, from which a percentage varying according to the dura­ tion of tl;le policy from 33 per cent. to

10 per cent. is deducted, rz. Every policy gives a compleoo: statement of tne cash, loan, paid-up, and extended in­ surance values; the method of calculat­

ing them is as follows determining

the cash values under · our present

policies the 3 per cent. reserve

is aJlowed, but, con:mJeru;mg at the end of the third year, a. charge is

made as follows :-Third year, Is.oo d'ollars ver I,ooo dollars. F ou,rth year, ;r 7. so dollcars per 1, ooo

dollars. Fifth and sixth IO .•

per I,ooo dollar,s. Seventh year, 7 ·SO doUaxs per I,ooo dollars. Eighth year, s.oo dollars per 1,ooo

dollars. Ninth year, :z.so dollars per r,.ooo

dollaiJ. T hereafter, no surrender charge. The paid-up and automatic insurance

are obtained by applying the cash value_s in purchasing on the net Amen­

can 3 per cent. bas-is. No s_urrender

value, etc., prior to the end of th1rd year. 13. 33 per cent. of premiums paid as. minimum, up to 45 'jiler cent. , a.ll the policies af­

fected being so far ' of very short dura· tion. 1 '1· Whole life. H" 4! per cent. less the first

vear' s duration-IS· As a {>ercentage of .the reserve values.. In tlw case of polic1es years m force

approJcixuately three-fourths .of the re­ serve is allowed', and ip the case of

policies unaer y.ears in force, :tp­

proximatel:>: two-thi.rds of _the reserve. 1 6, By adding the nl,l,IJ,lber of ye

Department. By adding two-thirds of

1135 •

the premium after the first two

yejars upder !'we Tables.

One-half where a life risk is involve

n years, 62 pllll> n ·per cent. of the JiM per cent. reserve, with a sliding scale

for · p olicies approaching maturity to make the amount of value ap­

proach .a terminal value eql.!al to the maturity value of the policy without dis­ continuity. Bonu.ses are val!1ed at the HM 5 per cent. :

paid, exchiaing the fi,rst tw!) years for pure endowments, 4nd half of the pre· miums, excluding the fifst two far

maturing policies with a death risk at­ tached to them. For whote life only paid-up can 1:)6 obtained in

exchange for current policies. I 7. On the basis of the amount 'of

and the expectation of life.

Questzon 51.

I .s the l;>asis of _spown oP any docu­

ment_:_

1. Yes. z. No.

(a) obta,inaJble by; or (b) SUipplied to the pohGyrholder?

RepUH.

See Triennial Report for 19.0(i.

3· (a) The above description (given in reply to Question so) is quoted from the usual triennial returns made to the various State Governments, a copy of which is sent to every member when issued. 4· (a) and (b) Yes. It is to be found in the

valuation reums deposited with the State Governments. Copies of these returns are sent to policy-holders. 5· Yes. 6. No.

, 7· None. q. The present form"s of .policy contain in each case a statement of methods appli­

cable ,to the particular elass to which the policy belongs. r r. No; except the .statement contained in the In­ vestigation Report schedules, with which

specimens of surrender values are given. · A copy is. sent to each member. 12. In the policy contract. 13. No. 14. (a) and (b) No. I do not think it would con­

vey any information to the assured if it were stated. 15. No. r6. We .quote individually.

r6A. Examples are furnished in the Government returns, and individual quotations are given upon· request. 17· No.

Questipn 52.

(a) Where, under the non-forfeiture provlSlon, a paid-up policy is granted in your com­ pany, on what basis is the amount 0f

-the paid-up policy determined P (b) In what way (if at al.l) -is this brought under the notice of the policy-holders?

•

Replies.

r. (a) If a paid-up policy were granted it would be for the amount which the surrender value woula purcha.se. (b) Not at all, as the company does not

guarantee the issue of paid'-up policies in this CO!l1Ilexion. 2. (a) In whole life policies the paid-up assur­ ance allowed is the difference between

the premiums at present age, and at age two years after entry, divided by the

pr:erruum at present age. When pre­ mmms are limited in number the paid­ up policy bears the same proportion tc the original sum assured as the number of premiums paid (less one or two years

according to table) bears to the number stipulaJted for. (b) This is not brought under the notice cf

policy-holders.

S· (a) In the Ordinary Department paid-up

policies are not issued under the non­ forfeiture provision. Industrial' Department.-(a) In the case of an endowment assurance over five

years tin force the benefit under the paid- . up policy bears the same relation to the benefit under the original policy as the number of complete years' premiums paid bears to the number of years pre­ miums originally payable. :The scale of paid-up policies for whole life assur­ ances has not yet been determined. 1-io policies have yet been long enough ;n force to become entitled to paid-up

policies.

(b) When a policy over five years in force

lapses, notice will be sent to the policy­ holder urging him to apply either for reinstatement of the policy, or a paid-up policy, in lieu, and it is to the agent's

interest to see that the policy-holder does one or other of these things. The

method of determining the amount of the paid-up policy is not advertised, but ;, freely stated and explained to any one inquiring. 4· (a) The amount of a paid-up policy in respect

of an Ordinary whole of life policy is determined by making one-half of the deductions from the reserve value of ::he policy (on the basis of the last Actuarial Valuation), which would have been made (in terms of my answer to question so)

94

The society now issues policies which guarantee_:_ (r) Specified surrender values; (2) · Spec1fied loans;

(3) Specified paid-up policies. (4) EXJtended assurance for the on· gina! sum assured, without debt or interest, for specified terms .. (5) Specified amounts payable under

endowment assurances at the ex­ piry_ of the original term, when extended assu:rance has . been availed of, and has been granted for the balance of the original

term.

The amounts guaranteed 1 are indorsed on each policy. (b) It is set out in our Prospectus, and exact figures are quoted on application. 5· (a) Within certain limitat_ions by granting a

fully paid policy of the same amount as the premiums that have been paid to the .society by the member. (b) Stated in the Prospectus, and embodied in

the policy.

6. (a) Under the society 's absolute assurance class of policies, which embraces en­ dowment assurances and whole life policies, w.lth a limited number of pre­ miums, 5, ro, IS, 2o, and 25, on non­

payment qf premium the policy becomes automatically paid up for that portion of the amount assured which the number of premiums actually paid bears to the

full number originally contemplated to be paid. That class, however, embraces only .a compar.a.tivctly small proportion of the pohcies issued. In the case of policies issued under other

classes should a policy-holder desire a paid-up policy in lieu of his exi5ting one, the society is always prepared :o grant him one on favorable terms, on :! basis more favorable to him than can Le obtained by any outsider, for an amow;t. equivalent to the cash surrender value of the policy. (b) In prospectuses and correspondence in con

nexion with a memrer desiring to sm render his policy. 7. (a) There are none. 9· See answer to Question 45·

(a) See reply to 45· to arrive at the amount of the sur- I 1. render value. The amount so arrived at 1 2. is treated as the single premium to pur-It is specified in the policy contract. Tht:

chase a. non-participating policy payable at the death of the life assured. Any

vested reversionary bonuses are added to the paid-up policy. When premiums are payable for a l•imited number of years (under whole life or e•J-

dowment assurance policies) a non-par­ ticipating paid-up policy is granted for r.;. (a) an a.znount which bears the san1e pro

cash value is applied m purchasing

paid-up. on the net Amenc:m

3 per cent. basis on all the policies at

present being issued by the company, at the domestic or northern scale of pre­ mium (i.t., the charged in the

United States, Bntam, Canada, Aus· tralia., No non-forfeiture provisions in company';, practice.

portion to the original sum assured as I

4 .

the number of premiums actually paid bears to the .total number of premiums payable under the policy. Any vested rs. reversionarv bonuses are added to the r6. paid-up pO'licy. This rule applies when at least three annual premiums, or under Tables liA. and IliA., wqeo not less

than one-fifth of the total number of preD:u,um.s payable under the policy have been paid.

(a) Our non-forfeiture regulations do not pro­ vide for the issue of paid-up policies. See answer to question 45· (a) On the basis of an amount equal to that

proportion of the sum assured that has been paid for; for instance, on a twenty­ year endowment a.ssw:ance, upon which seven annual payments have been made, seven-twentieths would be paid up. (b) By lea.fiets and tables of rates.

95

x6A. (a) the bulk of existing poli­

cie<;, including aJl those now being is­ sued, whole life policies taken out at

those ages, not over 40 years at entry,

receive paid-up policies for an amount equal to the total premiums paid, plus the existing reversionary bonuses. En· dowment assuraii1Ces obtain paid-up poli­

cies, arrived at by calculating that

fraction of the sum assured, which has . the number of years' premiums paid for its numerator, and the total number of years in the full term of the existing

policy for its denominator, and adding the existing reversionary bonuses. Industrial.-For whole life policies., the amounts of paid-up policies are derived

from the English Prudential's published table of equivalent paid-up policies in its Industrial Department. For double endowments the paid-up policy is 77

cent. of the premiums paid, whilst fur pure endowments and endowment assur­ ances the paid-up policy is that fraction, of the original sum assured which has the integral num·ber of years' duration of the policy for its numerator, and the

total number of years in the . tenn of the policy for its denominator. (b) Ordinary.-The fact is set forth in the

society's tables of rules and leaflets,

issued to new insurers. lndusttrial.-The agents of the society are instructed, they being the usual avenue of communication with Industrial policy­

holders.

In your

Question 53·

opinion, is the paid-up policy granted usually the actuarial equivalent of the true surrender value of the policy al­

lowed to lapse r

Replies.

I. See answer to Question 52. :<:. In the usual acceptation of the word, a paid­

up policy, cannot lapse. Sometlm.es a paid-up policy might be surrendered. 3· As regards paid-up policies in the Ordinary department applied for by the assured

in lieu Of sun·ender, these are always, in the case of this Society larger than the actuarial equivalent of the true sur­ render value, being based on the full

reserve held in respect of the original policy. I am not aware what the prac­

tice of other Australian companies is in this respect. Making a rough allowance ·for selection

against the office, the extra expense OCCB;­ sioned by the change and the loss of anti­ cipated contribution to initial expenses (already incurred), the meth;od adopted

in the Industrial department IS as nearly equitable as a convenient working for­ mula can be. 4· So far as I am aware, the paid-up policy is

either the actuarial equivalent or more. than the actuarial equivalent of the true surrender value of the original policy. 5· Yes. .

6. The practice of this Society is to. grant a paid­ up policy in value greater than the cash surrendei value of the surrendered

policy.

7. I do not quite understand this question. 9 · In the M.L.C. it is.

ro. Yes. II. I do not know. 12. It is in our case.

13. Yes.

1137

14. I do not know of any company that issues a

paid-up_ policy not actuarially the lent of the surrender value of the pohey alowed to lapse . 15. See the answer to question 45. r6. It is more, but it is less than the reserve value. r6A. I believe it is common to allow paid-up

policies, which are actually worth more in cash on any reasonable actuarial basis of conversion than the cash sunender value itself. This is the case with this

Society.

Question 54·

If an Industrial Assurance Company reinstates a policy on which a premium is overdue, is this usually considered an ac t of grace; or a policy-holder's right?

Replies.

I. Have no experience of industrial assurance. 2. We consider that if a policy"holder applies for reinstatement, and fulfils the conditions requiring a declaration that his health

good, and pays the arrears of premium, with interest (if any), that he has a right to have his policy reinstated within twelve months of date of lapse. 3· This Society being purely mutual, policy­

holders are entitled to every considera­ tion that can be given them without pre­ judicing the rights or injuring the inter­ ests of other policy-holders. There are· certain conditions regarding the state of

health of the life asured, and the time that the policy has been overdue, and if these are fulfilled .and the amount owing is paid, the policy is. reinstated. It is

not regarded in any way as a favour or act of grace. 4· I am not aware.

6. I prefer not to express an opinion on the prac­ tice of industrial insurance companies. 7. I cannot say with regard to an industrial office, but in the Independent · Order of For­

esters a policy-holder has the right to reinstate within 90 days. 9· In the M.L.C., if application be made within two years of lapse it is considered a

policy-holder's right, if his state of health is satisfactory. ro. See reply to question 7 (a). ,

rr. I do not know. 12. We are not in a position to reply. r 3. An act of grace. J4. An act of grace. rs. Policy-holders' right.

Clause 5 in terms and conditions of our In­ dustrial policy reads:-" If this J:Olicy be lapsed for non-payment of premiums, it may be revived, if not more than 52 weeks' premiums are due, upon such terms and such evidence of the health of the life assured as the directors of

the Association may think fit." r6. It is not a right, but it is this Society's prac­

tice, although an act of grace. I6A. It is usually an act of grace.

96

Question 55·

If merely an act of grace, is this fact stated be­ forehand to the policy-holder, and, if so, on what documents?

9· The of paid-up or poli.cies is of

Gonsiderable extent in this Company. were 1 r,S91 in force at JISt De­

cember, I 907.

Replies.

r. See reply to Question 54· z. The premium receipt book supplied to policy­ holders draws attention to the fact that policies may b(l reinst!).ted, while the fact

is further by the lapse no­

tice and special fac;!ilities for revival by lien. J· See answer to Qui3&tion 54, The lapse notice states :-"Lapsed policies

may be revived without a fine at any

time during thirteen weRk& from the due date of the first payment then in arrear on production and acceptance of evidence of good health, and payment of arrears.'' 4· I am not aware.

7· I do not know.

9· See answer to question 54· ro. See reply to question 7 (q). II. I do not know. 12. See answer to Question 54· IJ. Not stated; the conditions of .the policy merely

provide that it shall continue in force so long as premiums are regularly con­ tinued. I4. It IS usually clearly stated on the policy and

premium book that the assured must be in good health. 16. Many instances of policies having been rein­ stated have been published, and !10

doubt the agents make good use of such when canvassing. No undertaking to reinstate is given. r6A. In the case of this Society the policy definitely

states that in the event of default it be­ comes void, and the policy-holder under­ stands thereby that his rights have ter­ mina,ted. When the policy has so beoome void, the possioility of reinstatement is commonly brought to the policy-holder's attention by the collector.

Question s6.

Is the non-forfeiture principle applied to any ex­ tent in Australia to Industrial Policies?

Replies.

r. Not aware.

,o. S13e reply. to Question 7 (a). r I . I do not think so.

I z. See to Question 54·

IJ. Do not think so, or in any part of the world

either.

14. I do not think so.

rs. Not to my knowledge. r6. Not in the same way as Ordinary business. The practice of this Society is to rein­ sta:te the policy by taking a lien over it

for the amount of 12remiums in arrear. r6A •. No. The work would be prohibitive, but this Society's method of reinstatement by lien (in which a charge by way of lien

is taken over Industrial Insurance

policies for the amount of overdue pre­ miums insteap of requiring payment of arrears in cash) effects much the same

SECTION VIL-EXTRA :PREMIUMS.

Question 57.

Are extra premiums charged in any case by vour comp,alfy for foreign residence or travel?

Replies.

r. Yes. 2. No fixed rule governs this matter. If it ap­

pears to our chief medical officer that resi­ dence in a foreign country would add to the risk, an extra premium would be

charged.

3· No. .

4· Not unless the paying 9f an extr;;t premium was rnade a cqru:litiPIJ. precedent tp the issue of the 5· No. 6. Yes, but only when the extra risk is known at

the time the policy is taken out. 7· No. 8. Yes. 9· Our policy contains no condition as to travelling

or place of residence, for policy-holders may travel over the world or reside in any part of it without giving t.he company notice, or without being to pay

an extra 13remium.

I I. Yes, if the risk is known at the date of issue

of policy.

r2. For residence in tropical and semi-tropical countries., unless the insured had no inten· tion of taking up such residence when the poHcy was issued. 13. Generally speaking, No. I4. Only if the assured states in the proposal that

he is likely to live in Oi" proceed to un­ healthy districts (Ordinary branch).

2. I believe all companies grant paid-up policies after a policy has been five years in

force. This encourages the re­

vival of policies which have been more than twelve months in force by allowing the arrears of premium to be treated as a lien upon the policy, provided tht

assured undertakes to pay premiums regularly in future, ,

3· Yes. Most, if not all the lndustrial Assurance Companies doing business in Australia apply the n0n-forfeitl;lre principle. In. this and most Qther Qffices it is done bv granting paid-J1P for a reduced

amo:tH)t, bl!lt in at least one office the prep1i1!11}8 owing ll1.'i-Y · charged as a debt the policy.

rs. Policies of the association (once issued) are free from all restrictions as to travel, resi­ dence, and occupation. (See Ordinary Branch Prospectus, page .5.) If known, beforehand, such knowledge would be a factor in

4- I am not (l.Warf. 7. I do not know.

r6. No,

·r6A. No.

Jj.&.

Are ,e¥tra pte!lliums charged by·,your company for und&-average lives and hazardous occupa­ tions?

Replies.

r. Yes.

z. Yes, but no standard is fixed. Eyery case is

dealt with on its merits. 3· Under-average lives are charged an extra pre­ mium by. rating them up to .a. higher -age than the1r real one. All publicans are

placed in this category, also lead miners and jockeys; but with these exception& all occupations are accepted at ordinary rates. 4: Yes. 5· Yes . 6. Yes.

7. Yes, for hazardous occupations. 8. Presume so. g. Yes. r r. Yes, but only in exceptional cases.

97

r2. An advance in age is made to cover the addi­ tional hazard on under-average lives and for haz.a.rdous occupations. t.) . Yes. 14. For under-average lives, publicans, and those

connected with liquor traffic j otherwise, no extra premiums are charged. 15. Yes. r6. Very seldom. We load by Contingent Debt as

a rule.

1 6A. Rarely ; the usual method being to place a

Contingent Debt upon such policies.

Question 59 ·

What is the annual amount of the extra premiums, if any, so collected by your company?

Replies.

I. £21 ros., as per report for 1906. z. We keep no record of these. The information could only be obtained by a complete classification of the whole of our business,

and a re-calculation of the premiums effected. We have not found it necessary to separate extra premiums f rom the premiums at

tabular rates.

3· It is impossible for us to state the annual

amount of the extra premiums included in the premiums payable by under-average lives, as they are not distinguished in any of our returns. 4 · £z,z6o appro:x;imately. S· Depends on risk. 6. T he information required under the various Life

Assurance Acts does not require this to be scheduled separatelv, and it is not pos­ siole to answer this question without an enormous amount of clerical labour. i . Cannot say. I do know, however, that it is in­

finitesimal.

8. Cannot say. 9· This has never been tabulated since it has neYer been required for returns to Government. rr. About £r,6oo at tl:e time.

rz. We cannot determme w1thout great labour, as these are "not considered as extra pre­ miums, but advances in age, the insured · being treated in .a ll respects as to sur­

render va lues, dividends, &c. , as of the advanced age. r .). Very little.

1139

'

!4· No extra premiums are charged in the Industrial branch, and no Ordinary policies involv­ ing such charge have yet been written.

I 5. No means of determining without reference to

every individual case on our policy re­ gister. The amount would be incon­

siderable.

r6. Approximately £zoo. I6A . . About £200.

Question 6o.

[s there any basis known to you on wh ich extra

premiums can be reliably computed?

Replies.

r . f a m not aware of any.

z. No.

.3· No,

4· The

5· Yes.

it must be largely a matter of opinion in each individual case or class of cases. methods now generally in use yield verv satisfactory results. When medical re­

ports indicate that a life is for personal or f amily history reasons not quite up to the average, it is customary to charge the premium for an age three or five years

older than the actual a.ge. When unsatis­ factory risks are entirely excluded this rule has been found to work well. In

some other in::>tances where the occupation is hazardous the mortality experience of the particular occupation has been investi­ g.ated and a suitable extra premium fixed.

6. Experience and individual quired throughout. judgment are re-7· No.

9· In our present state of knowledge these must always be merely a matter of judgment. I I. For residence in tropical countries the published experience is sufficiently reliable; for

hazardous occupations the risk varies in different localities, and I know of no re­ liable basis. 1 z. Yes, the experience of our own company.

We have over $zso,ooo,ooo of insurance in force on under-average lives. 1.3. No; must be a matter of esti­

mate.

r 4· Only the publicans' experience. I believe that, theoretically:, a reliable basis can only be obtained by investigating an experience of a sufficient body of lives exposed to the

risks for which the extra premiums will be imposed. 15. I am advised that there is no known mortality table by which extra premiums for sub­

standard lives can be calculated. The variety of causes for loading renders such a table practically out of the question . I6. No. Our classifications are onl y roughlv ar-

rived at. -

r6A. No. The only methods of which I am awa re are practically rough rule-of-thumb me­ thods, although in some instances an ap­ pearance of exactitude has been given by elaborate calculations. The insufficiencv

of the d.a.ta and the complexitv of problem constitutes" in my OQinion, a bar to any very scientific accuracy.

G

SECTION VIII.-CoMMrssroN.

Question 6r.

What is the rate of commission payable by your company in respect of-(a) Ordinary business: (i.) New premiums,

(ii.) Renewal Premiums? (b) Industrial business: (i.) New premiums, (ii.) Renewal Premiums?

Replies.

I. (a) (i.) No new business now transacted. (ii.) 2 per cent. and 5 per cent.

(b) (i.) No.

(ii.) No.

This Company's schedule of remuneration is as

follows:--(a) New

(1) Industrial Department-On each complete and accepted proposal persona !I y intro­ duced by the agent under-Tables ·I, 2, 3, 5, 9, ro, and I I, so per

cent. of the first 3o weeks' premium will be paid. (z) ?1lonthly Section.-Tables H and J, so per cent. of the

first six months' premiums will be paid.

(3) Ordinary Department.-Table A, Iss. per cent. on sum assured. Tables B and F, where the duration of policy is ro years or less, 25 per

cent. on first year's premium; where the duration of policy is 19 years

or less, 35 per cent. on first year's

premium; where the duration of

policy is 20 years or over, 40 per

cent. on first year's premim. Table C, 6o per cent. on first year's

premium. Table D, 40 per cen·t. on first year's premium. Table Er5, 35 per cent. on first year's

premium. Table E2o, 40 per cent, on first years' premium. Table G, 45 per cent. on first year's

premium. Table L, I per cent. on sum assured. Table M, 25 per cent. on first year's

premium.

All these commissions are payable pro rata as the premiums are paid by the assured to the company, and only upon the accept­ ance of the proposals by the company. !\o new bu)>iness fees will be payable upon pro-

(r)

posals re-entered. .

(b) Renewals.

Industrial Department.-For the collection of renewal premiums under all tables ex­ cept 7 and 8, 20 per cent. commission will be paid after the first 20 weeks' premiums

have been paid to the company.

98

For the collection of renewal premiums under Tables 7 and 8 ro per cent. com­ mission will be paid, but in the case of

Table 7, only after ro weeks' premiums have been paid to the company, and in the case of Table 8, only after 20 weeks' premiums have been paid to the company.

(z) Monthly Section.-ro per cent. commission will be paid for 1 he collection of pre­ miums after the first· six months' pre­ miums have been paid.

(3) Ordinary Department.-5 per cent. commis­ sion will be paid for the collection of pre­ miums after premiums have been paid for one year.

A salary of £ s. d. per week will be

paid the agent, provided he introduces new proposals yielding in the aggregate a weekly revenue of not less than This salary may be discontinued without previous notice should the quality or quan­ titv of the business introduced be unsatis­ or the conduct of the agent give

cause for complaint.

The above commissions, etc., are payable sub­ ject to the following conditions:-(r) Proposals on the life of any em­ ploye or agent of the company, or

proposals on the life of any of the family of any such persons will not be paid for until 12 weeks' premiums have been paid on the busi­ ness to the company.

( z) The agent will not be allowed re­ muneration set forth in Clause A on cases transferred from one table to another, or on cases of additional as­ surance when the original assurance is lapsed within 26 weeks from date of the original assurance.

(3) All proposals declined, rejected, or not completed, or policies on which the premiums are in arrears (even if within the days of grace) must be lapsed by the agent immediately on receiving intimation from the com­ pany to do so; and if in any case he shall have received remuneration in respect of any business which shall ultimately be rejected by the com­ pany, he will return and repay to the company the amount of such re­ muneration.

(4) In addition to the foregoing terms of remuneration, the company may pay to the agent, by way of allow­ ance on new business introduced by him, or in respect of his special con­ ditions or circumstances, such sum or sums for such times as may be de­ termined by the General Manager of the company.

(5) All salary, of whatever nature, or commission, or bonus to be paid to the agent by the company, shall

cease to be or become payable imme­ diately on the agreement being ter­ minated by any cause whatsoever.

99

.3 · (a) Whole-life Assurances and Endowment As­

surances : Ordinary Department-The standard rate of commission paid by this society is 2 SS·. per cent. of the sum as­ sured, payable pro rata with the instal­ ments of the f1rst year's premium. In

some instances .)OS. per cent. is paid. If obtained bv an industrial agent the rate is 20s. per cent. The rate of commission on monthly premium business is also 2os.

per cent. Half endowments : The rates of commission referred to above calcu­ lated on the sum payable at maturity. Children's deferred assurances and en­

dowment assurances : ros. per cent. of the sum assured. Pure endowments, deferred annuities, reversionary annuities, and annuities other than immediate: ro per

cent. of the first year's premium; or if paid bv single premium, I per cent. on such single premium. Immediate annui­ ties (purchased by single p'remium) : r per cent. of purchase money. Children's combined endowment and contingent an­

nuity: 2os. per cent. on sum assured. Contingent assurances : ss. per cent. on the sum assured. In no case does the

canvasser have ,a,1v interest in renewals, his remuneration is completed as soon as premium for first year has been paid. Monthly premium policies : s per cent. of the amount collected is paid to the agent collecting same. • In some few cases where

the society is represented by a local agent. (not an officer of the society). per cent. is paid on premiums actually collected.

(b) Industrial Department.-(i.) The agent is allowed a commission equal to fifteen (rs) times the amount of the "net weekly in­ crease '' in his renewal debit in respect of business under tables other than table F,

and five (5) times the amount of the "net wee"kly increase ' ' in respect of business under table F. The agent is .allowed a deferred commission, payable thirteen weeks later than the commission referred

to in the previous section, equal to nine (g) times the amount of the "net weekly increase '' in his renewal debit in respect of business under tables other than table

F, provided that such renewal debit sha ll show an increase at the end of the thirteen weeks over the corresponding amount at the beginmng of that period (transfers

and premiums void by death of the as­ ;;ured being left out of account), and

provided further that at the date when the deferred commission shall become pay­ able, the agent's weekly account shall show a net credit balance of premiums

paid in advance over premiums in arrear. Six (6) times instead of nine (9) times as in the foregoing sub-section if the net debit balance shown by the agent's weekly account shall not exceed the total renewal debit ; or three (3) times instead of nine (9) times if the net debit balance shall exceed the total renewal debit. (ii.) The

agent is allowed collecting commission at the following rates on all premiums col­ lected and accounted for by him : Fifteen cent. on premiums .exclusive of those

rela_tinll: to table F business, and five per cent. ·on table F business.

4· (a) (i.) From lf ,per cent. to 75 per cent. of

the premitim:,ll,ecording to circumstances .

(ii.) From z! per cent. to 10 per cent. of

the ,annual premium according to circum stances.

1141

5 (a) (i.) so per cent.

(ii.) 5 per cent. 6. (a) (i.) This varies according to the table, sum assured, and a number of other contin­ gencies referring to the expenses of the

agent borne by the society. (ii.) This varies according to the special ar­ with the agent, but it is gene­

rally per cent., .and never exceeds 7Z cent .

7· (a) (i.) ISS. on £roo, 2os. on £zoo, and .'is.

for every subsequent £zoo. (ii.) Nil. (b) No industrial business. 8. Cannot say, not doing new business in the Com-

. monwealth.

9· R ate varies according to class of policy and proposed duration of contract. Agents (termed general agents) who are ,authorized to transact Industrial as well as Ordiuarv business, are paid in accordance with

following schedule. It is not custonwry to divide Industrial premiums into new and renewal premiums, as. a commissi0n is not paid on new premiums., but is l1ased

on the increase of new business and re­ vivals over lapses on the agency in order to give agents a pecuniary in re­

ducing Industrial lapses to a mia:raum. The schedule of general agents' remuneration is as follows :-

(3)

Industrial Branc·h.

Salary.-Fifteen per cent. on all premiums which shall be actually collected by the agent under authority from the secretary on policies under Tables A; B, C, D 1 E,

F, G, H, J, K, L, M, N, 0, P, R, S,T.

Special salary.-Fifteen times the amount of the permanent increase in the week! y col­ lectible debit, payment not to exceed £2 in amount in any one week.

Note.-If the weeklv collectible debit should decrease at " any time through lapses, and the agent should subsequently claim special salary on any future increase

of business, it will only be payable upon the increase calculated from the last date the special salary was allowed. The term "permanent increase in the weekly

collectible debit '' signifies the amount by which the debit is increased from time to time by the excess of the weekly premiums on new proposals introduced, together

with the weekly premiums on reviv,als of policies (with the lapse of which the agent was charged) over and above the weekly premiums on all lapses except lapses occasioned: (r) by death of the assured, provided that death does not occur within sixteen weeks from the date of the policy, and that at least sixteen

weeks' premiums have been paid by the assured ; ( z) bv the maturity of policies ; (3) by the surrender of policies for cash or free policies, provided no new business

in the Industrial or Ordinary branch re,. suits from such surrender.

... r: ·- __ ::- }: .... - : .. :

G!

100

Ordi1utry Bra-nch. COMMISSION ON NEW PROPOSALS.

!<'or Policies Issued to and I A<:cepted by I l:;te.

under-

I

I

I

{'ayable as and

when the Pre·

1nium is received and accepted by the Company

dudng the life­ time of Assured for the- ·

-- --- ----· --- ·- -- ---- ----- ----- -------------

(4) Tables AI, 2, 3, 4, / £1 per £100 of the First year of

5, 6, 7, Bl,_2,3, I sum assured when assurance 4, 5, 6, 7, 8, Dl, that IS under £500; 2, when matur- £1 5s. per £100 of

ing age is less the sum assured

than 45 when that is £500

(5) Tables El,2, 3,and term assurances (6) Tables Dl, :2,

when maturing age is 45 or more (7) Tables U1, 2 ...

or over lOs. per £100 of the sum assured 40 per cent. of the

first year's premium

40 per cent. of the

first year's premium 15 per cent. of the

i

year 's pre­

mmm 5 per cent of the

third year's pre­ mium

(8) Tables F, I, 2, 3 £1 per £100 of the

purchase money

First year of

assurance First year of assurance

First year of

assurance Second year of assurance

Third year of assurance

,9) When a single premium is paid for a policy under any table groups E .and F,

the case will rank for commission equally with a policy under annual premiums, and an additional commission calculated at the rate of r! per cent. of the single

premium paid will be allowed. (ro) Commission for the coiiection by the agent of renewal premiums which he has received written instructions from the secretary to

Two and a half per cent. on

amount collected by agent.

1 o. (a) The following rates of commission are ai­

Iowed to duly appointed agents of the company upon completed business secured in accordance with its rules, and this is the only remuneration to which they are

Kiud of Policy.

LIFE, CONTINUOUS INsTALMENT With continuous Premiums , 30 years' , ,

" 25 ., .,

" 20 "

" 15 "

,; 10 1l

ENDOWMENTS : With 30 years' Pr!lmiums H 25

" 20 "

:

With 15 years' Premiums :

" JO '' "

LIFE: . With 5 years' Premiums

TERM AND YEARJ,y TERM:

'Yith 10 to 20 years' Premiums

5

Term CJJmbined, less than l -year

SINGLE. PRBMHTM PoLrcncl!, Life or endowment .. .

ANNI' ll'IES: Single E'ayment lor 2 lives

Deferred Payment ...

:

Commission.

First Renewa.J.

50 per cent. I 45 "

I 45 " 45 " 40 9 years o " 35 ,, 35 p.,r cent. 30 " 30 " ) -- -----lUi per cettt. }9 years of 5 20 , per cent. J5 per cent. 4 years of 5 per cent. 40 per <:!ent. 9 vears of 5 per cent. 40 ,, 4 years of 20 ., per cent 5 No renewal ----CO!OUSSIO!'. ii per cent. of amount pa.id cmnp;tny 3l per cent. of amount paid comp11ny 30 per cent, of first year's premium (b) This company does not transact Industrial business. I 1. (a) (i.) It -varies according to the _ nature of the business from 1 5s. per cent. on the sum assured to 8o per rent. of the premiums from which the medical fee is deducted. (ii.) z! per cent. to S per cent. rz. (a) (i.) In Australia from IS per cent. to so per cent. of the first year's premiums de­pending on the form of the lowest being p,aid on short term en­dowments, and the highest on Ordinary life insurance. (ii.) The largest renewal commission paid by us is 5 pee cent. of the annual premium for Jline years, except on endow­ment insurances for less than twenty years, when 3k per cent. is the maximum. {b) This el)inpany does not do Industrial busi­ne$s . Ordinary Branch. Agents who are restricted to the transac­tion of Ordinary business only, are, as a rule, paid 40 per cent. of the first year's premium except under Pure Endowments, some Children's Endowments, and Term Assurances, under which the rate is 1os. per £100 of the sum assured. For an­nuities the rate is £1 pe;r _£1-oo of .the purchase money. Cpmmission is subject to the following provision:-" When a single premium is paid for a policy under any class except Endowments and Term Assurances, and Children's Deferred En­dowment Assur.ances when maturing age is 45 or more, the proposal if accepted will rank for commission equally with one for a po1icv under annual premiums, and an additional commission ca:Iculated at the r2te of 1! per cent. of the single prerr i paid will be allowed. When premiums on an Assurance or Endowment Assurance contract are payable for a tem1 of less than twenty years, commission payable shall not be more than wou1d have been pa.yable had the contract Leen for a twenty years' term. Whole of Life policies issued on risks accepted at rates for ages above so next birthday carry commission calculated on the tabular pre­mium rate for age so next birthday." Ordin.ary branch --agents who complete on the average £soo a month receive a bonus of £4 per month ; for larger amounts the bonus is in proportion. I.). (a) Commission at the rate of so per cent. of the year's premium, as and when paid by the under Tables I. , IL, III., IV., V., and VII-., and in respect of premiums ' collected by the ,agent after _ the first year's premium or premiums shall have bee.n p.aid, the com­mission shall be at the rate of s per cent . •

101

(b) Industrial 1Branclt.

A,B,L,M,R A sum equal the entrance fee and

the first two weekly premiums as and when collected.

C, D, F, anr!G A sum equal to the first two weekly

premiums as and when collected, and a further sum equal to six weekly

premiums as soon as twelve weekly

premiums have been paid by the

policy-holder.

K and P A sum equal to the first two weekly

premiums as and when collected, and a further sum equal to four weekly

premiums as soon as ten weekly pre­ miums have been paid by the policy­ holder.

For the collection of premiums commis­ sion shall be payable by the company, if such premiums be collected by the agent, at the rate of 15 per cent. under Table B.

and at the rate of zo per cent. under all

other tables under the Industrial branch. 14. (a) (i.) zss. per £roo.

(ii.) per cent.

(b) (i.) ros. salary for 2s. new weekly pre­

miums, five times the net increase, and So per cent. of collections for twelve

weeks . . (ii.) Life and Endowments Assurances, 20 per cent. j Pure Endowments, 5 per cent.

I 5· (a) Ordinary Branclt.

New business. under Tables I., III., IX., XIII., XV., XVI., XVII., XVIII..

XIX., XX., XXI., XXII., and

XXIII.-First year's rate, 6o per cent. Second year's rate, ro per cent. Third year's rate, 5 per cent. The first year's commission is limited not to

exceed £2 ros. per £roo on the sum as­ sured in each individual policy issued. Advances are against the foregoing

terms from time to time, as deemed ad­ visable by the management. Commission rates for Annuities, Single Pre­ miums, or any Tables (new or old) not

stated above will be fixed by special ar­ rangement with the General Manager. (b) Industrial Branclt. (1) New Business.-On each completed and ac­

cepted new proposal personally intro­ duced after the date of this agreement on which a policv shall have been issued, the association will pav (subject to the deduc­

tion of any previous cash advance) 'lS under:-Ordinary Branch-(Ali Tables),procuration fees at rate of

40 per cent. of the first year's pre­ mium. Such procuration fees not to exceed £2 per cent. on the sum as­ sured, and is payable when a Policv Acknowledgment Form has been dulY

signed by the assured and receiverl bv the association. Branch-

Weeklv Life Tables, procuration fees at rate. of so per cent. of the first rwenty weeks' premium. Monthlv Life Tables, procuration fees

at r;te of so rer cent. of the first

six months' nrf'mium.•

1143

Weekly Endowment Table "N,'' pro­ curation fees at rate of roo per cent. of the ftrst four weeks' premium. Payable pro raid as and when the instalments

of premium are paid to the association. N. B.-No new business fees will be allowed on re-entered business. (z) Renewals.--The commission on renewal pre­

miums personally collected will be as fol­ lows:--Ordinary Branch-Business over twelve months in force ,

s per cent. Industrial Branch-Weeklv Section. business over four weeks in z! per cent. Endow­

ment collections. Weekly Section-3·Business over twenty weeks in force, zo per cent. Life col­ lections.

Monthly Section-*Business over one month in force per cent. Endow­ ment collections. Monthly Section-*Business over six

months in force, ro per cent. Life

collections.

*Or under these periods, in the case of business not personally introduced. (3) New Business Allowance.-When the weeklv collectible Life debit is under £4, a;

allowance will be made on the following scale, provided the agent introduces and completes new proposals in the Indus­ trial Branch that shall yield to the asso­ ciation weekly premium revenue as stated

(Table N excepted), upon which the first instalment of premiums has been collected -such business to be sound and satisfac­ tory to the association in every respect,

and subject to inspection and acceptance by the association.

1st, 2nd, :>rd and 4th weeks ... 5th, 6th, 7th and 8th weeks ...

9tb, lOth, 11th and 12th weeks Decreasing thereafter at rate of (per week)

For Weekly J,ife Premium .Hevem'.e of

is. 6d.

s. d. £ s. d. £ s. d.

10 0 l 0 0 l 10 0

8 9 0 17 9 I 6 3'

7 6 0 15 0 I 2 6

0 6 0 l 0 0 6

Ceasing entirely at the expiration of the 27th week. Two shillings and sixpence monthly pre­ miums to be counted as equal to 7d.

weekly. In the event of no new business allowance being granted, from any cause whatever, tlien the agent will be entitled to the remuneration only on the week's

results, under clauses (r) and (z) above. Ouarterlv Remuneration.-When the weekly L collectible Life debit is £4 or over, and

agent has received no new business allow­ ance under clause (3), the agent will be paid an allowance to be known as "quar­ terlv remuneration" upon the permanent net 'increase of the weekly collectible Life debit during each quarter (after all poli­ cies transferred from any other agent h:tve been deducted, and all cases beyond the days of grace duly lapsed), as fol­ lows:-

For increase made while the Life debit is £4 and under £6, three times the amount of aprroved Life in­ crease.

102

For increase made while the Life debit is £6 and under £ 7, four times the amount of approved Life increase. For increase made while the Life debit

is £7 and under £8, five times the amount of approved Life increase. For increase made while the Life debit is £8 and upwards, six times the

amount of approved Life increase. Quarterly remuneration is subject to the fol­ lowing p rovisions: -(i.) If the amount of the weekly col­

lectible Life cfebit shown on the

weekly account for the Monday from which a quarter commences be £8, and the amount of the weeklv col­ lectible Life debit taken in the' same way thirteen weeks from that M:on­ d::ty be £ro, the increase in such

debit will be £ 2, and the agent will be allowed £I 2, providing that por­ tion of such increase has accrued in consequence of policies having been

transferred to him, or existence of policies on book in arrears over lirriit allowed. (ii.) If the collectible Life debit should

decrease during a quarter , and the agent should subsequently claim this quarterly bonus on any future in·

crease of bonuses, it will only be

permitted upon the increase from the last date on which the allowance was authorised. For example :-If an agent's collectible Life debit has in­ creased from .£8 to £ro, and then decreased to £9, any subsequent in­ crease must be reckoned on the £ro,

and not on the £9-(iii.) The collections averaging not less than 9 5 per cent. of the debit. (iv.) A form will, at the termination of

every thirteen weeks, have to be filled in by the agent and forwarded

through the Superintendent to the home office for examination. If

found in order. the agent will re­

ceive an authoritv to charge in his weekly account f or the eighth week after close of quarter the amo unt of quarterly remunera.tion (if any) to which he is entitled. T6. (a) (i.) 6o per cent. of the first year's

premiums if paid annually, .'lo per cent. otherwise. (ii.) z! per cent. (b) (i.) Generallv twelve times the weeklv

nremium. (ii.) J2! per cent. 16 A. (a) (i .) 6o per cent. of the first vear's

premium if payable annually, so per cent. otherwise. (ii.) 2! per cent. (b) (i.) T welve times the weekl y premiums with

slight variations to meet loca l conditions in ·some States. (ii.) rzi per cent. 17. (a) (i .) None.

(ii.) 5 per cent.

SECTION IX.-INTEREST E AR NI!D.

Question 62.

What is the average rate of interest at which the total assurance and annuity funds of

vour companv are invested ? -

Replies.

r. £4 5s. to .£4 rs. 6d. , a:s per report for 1906. 2. For the year ended JISt December, 1907, 4·J4 per cent., after deducting real estate

charges. ..

,)- The average rate at which the total assurance and annuity funds of this Society were invested on JISt D ecember, 1907, was £4 · 8s. 8d. per cent. 4· £4 8s. nd. per cent.

5· 5-3I per cent during 1 1907 . 6. The rate of interest yielded by the funds (after deduction .of amount to credit of invest­ ment fluctuation fund), for the year ended

31st December, 1907, was £4 os. 3d. per cent. 7. The average rate of interest at which the total assurance fund is invested is :- ·

1900

Per cen t. 4.2 6 $· 7 I 4.06

1901 4.II

1902 4·23

9· For the year 1907 the average rate of interest earned was £4 6s. 8d. per cent. 1 r. At .) Oth September, 1908, the average rate was

4· 7 4 per cent. per annum. 12. The average rate at which funds were invested at JISt December, 1907, was 4·557 per cent. The rate· of interest has· not yet

been determined for 1908. 13. 3. 87 per cent. 14. I907, £4 5s. rrd.

15. 3-42 per cent. r6. £4 9s. 7d. per cent., as at 3oth September,

. 1908.

r6A. Almost per cent.

I 7. per cent.

Question 63.

What method is adopted in your company i_n com­ puting the average rate of mterest

earned? Replies.

I. Taking the average of the funds at the begin­ ning and the end of the yea r, and de­

ducting the year's interest. · :<. Rates ascertained by dividing the net intere·>t

received by the mean of the assurance . fund, diminishedby half the interest. 3· The average rate of interest earned through­ out any particular year is computed by

dividing the interest receipts by the mean of the total funds at the beginning an :l end of the year in question. 4· The rate is found by dividing the interest in­

come of the year 1907-8 by the mean fund of the year, diminished by one-half the interest income. 5. The interest shown in the revenue account is

divided by the mean of funds at the be­ ginning and at the end of the year. 6. The interest received during the year is divided by the arithmetical mean of the assurance

funds at the beginning and end of the

year, diminished by half the interest. 7. Our company does not adopt any method for this, and, so far as I know, no method

is adopted by other companies. 9· The average rate of interest is determined by dividing the interest received in the year bv the mean of the funds (at the begin­

ning and end of the year) diminished by one.half the interest.

1145

103

I I. This company has not adopted any method. 12. See schedule attached hereto, which gives :n detail the method used in calculating the average net rate of interest earned in

I9o8. Questions 62 and 63 call for dif­ ferent answers, the former referring to the average rate of interest at which the funds are invested, and the latter the

average rate of interest earned. In our dividend calculations we take the net rate of interest earned, making a pro­ vision for charging a sum equal to

3-16ths of 1 per cent. of our mean assets as investment expenses. In arriving at the interest earned, we also take account of profit and loss items which would not

be considered in determining the rate at which the funds were invested. r 3· Add together funds at beginning and end of

year, and divide by 2. From the quo­

tient subtract half the interest actuallv accruing for the year. Then the rate of interest is-roo x Interest.

R <"mainder thus obtained. 1-l.-21

A+B-l

Where I .is the interest earned in the year. A and B the capital at the beginning and end of the year, respectively. r 5. The rate of interest is obtained by finding the

percentage that the interest received

bears to the mean funds, i.e., half the

sum of the funds at the beginning and end of the year, less half a year's in­

terest.

r 6. The mean amount of the funds for the vear. r6A. Dividing the total interest earned in "a year b1• the arithmetical mean of the funds at the beginning and at the end of the

year.

Question 64.

What method do vou consider furnishes the most accurate

Replies.

r. See replv to Question 63. z . The method described in reply to Question 63. 3· The method given in reply to Question 63 gives sufficientlv accurate for anv purpose

to which it requires to be applied,

but probably a mere theoretically ac­ curate method is to use the formula

' 21

A+ B-1, where I is the year's in­ terest revenue, A the fund at the begin­ ning of the year , and B at the end of

the year.

-1-· That depends upon the object of. the calcula­

tion. The method stated m answer to

question 63 gives the rate earned during · the year. )· Ours.

6. The method described under heading 63. 7· I could not sav.

9· That outlined "in answer to question 63, as can be verv simply and conclusively shown.

II.

- 2J

The formula A+B-I

When I equals interest received during year, A equals funds at beginning of year,

and B equals funds at end of year.

u. We consider the method referred to in reply to Question 63 the best for determining the net rate of interest earned. It has been

used by the comp:my for severa l years, and was contained in a paper delivered by Mr. Weeks before the Actuarial So­ ciety of America. in October, r9o6. r3. The method given in reply to Question 63 gives

the best working approximation we are aware of. 14. That given in reply to Question 63 IS- That given in reply to Question 63. 16. I see no object in employing a more intricate

method than that given in reply to Ques­ tion 63. That method is sufficient\v exact for all purposes. ·

16A. I fail to . see tliat any advantage is to be

gained by refining on the method de­ scribed in answer to Question 63.

SECTION X . - DEPOSITS WITH GovERNMENT.

Question 65 .

What is your opinion as to the desirability or

otherwise of requiring a company to lodge a deposit with the Government prior to commencing life assurance busi­ ness m the Commonwealth

Replies.

I. It rs very necesary, provided it may take the form of approved securities, which may be replaced when necessary by other ap­ proved securities. z. I am of opinion that no company should be

allowed to commence business without making a deposit with the Government as evidence of bona fides. 3· It seems desirable that some deposit shouid be

required from new companies as a

guarantee of good faith, and in order to discourage the starting of bogus enter­ prises. 4· D esirable. 5· All Life Offices should be compelled to make

such deposit.

6. It is a prudent provision against the formation of "mushroom" companies. 7. I strongly favour such being done. It is

the greatest and only initial guarantee of a company's bona fides. 8. Certainly, as a guarantee of bona · fides and for protection of policy-holders. 9· It is desirable as a guarantee of bona fides. u. I agree with recommendation of Life Offices

Association. (See pp. 134-6.) 12. The conclusion come to by the Select Com­ mittee of the House of Lords on Life

Insurance Companies is probably ap­ plicable to Australia. A copy of their re­ port, dated Jist July, 1906, is attached. Their opinion was formed after hearing the principal British actuaries. r 3· I favour the English Act of I87o, but this

would preclude the formation of any fur­ ther mutual societies. I4· I think the English Act has conclusively proved the desirability of such deposit. r 5. I am of opinion that a deposit should be re­

quired from all new Life Offites.

L

104:

r 6. The lodging of any substantial deposit with the Government would have prevented the establisJlment of any of the present Australian Life Offices. For companies now in existence such a requirement

would be an excellent thing, as it would tend to prevent any further competition than now exists, out I am not sure that

this wouid be a good- thing from the

point of view of the public. J6A . The Government deposit prevents the estab lishment of new companies. To have n· deposit invigorates the business by the

advent of fresh blood, with its attend­ ant risk of misadventure. To require a deposit creates a monopoly for the exist ing institutions, with its a ttendant risk of bloated overgrowth and undisturbed self -sufficiency . I favour no depo>it .

Question 66.

Do you consider that the sum sr:eci:fied as deposit in the English Life Assurance Companie, Act r87o, viz., £zo,ooo, is a sufficient guarantee of bona fides 'I

L Yes.

2. Yes. 3· Yes. 4· Yes.

Replies.

5· Yes, it is better than nothing at a ll

6. Yes. 7· Yes. 9· Yes. r I. See reply to Question 6,'i 12. See repl y to Question 65 .

r3. Yes. 14. Yes. 15. £Io,ooo is sufficient and would not prevent new offices being formed. If the amount of

the. deposit is unduly large it would tend to create a monopoly in the hands of the existing offices, and the effect would pre­ clude the f orm ation of any new mutual life offices. r6. Yes. r6A. It has mostly proved sufficient in England for

th e purpose for which it was intended.

Question 67.

(a) In vour opinion is the provision of the Eng­ lis h Act for the return of the deposit

when the accumulated funds amount to .£4o,ooo a desirable one? (b) State your reasons for your opinion.

Replt'es.

I. (a) No.

(b) I think £zo,ooo should be .retained for the security of policy -holders. ,., (a) No.

(b) If a Co!ppany can make a deposit with the Government to enable it t o commence business it should certainlv be prepared to leave it with the Goveniment no mat­ ter what the amount of its Funds. The f act that the Accumulated Funds reached

£4o,ooo is no reason why the policy­ holders should not continue to have the addition11l protection which the deposit affords.

3· (a) am\ (b) This provision seems to have, on the woole, worked well in E ngland, and there does not seem to be any sufficient reason for altering it as far as it relates to local compan:ies. It is capable of abuse when applied to foreign companies-4· (a) H is not a proper provision.

(b) A. Company might accumulate even £4o,ooo and still be insolvent. The guarantee

of bona fides should be such as to secure the establishment of a solvent Comr:;any before :it can be withdrawn, and in the case of a foreign company it is not de­ sirable that it should be possible to with­ chaw all the assets and then to relin­

quish business.

5· (o) No.

(b) Ali life offices should be to

posit a percentage of the:rr funds With Government. 6. (a) Yes, in the case of companies or institu­ tions established locally, that is to say,

where the head office is not in a foreign country. Otherwise there is a risk of

the business being discontinued and no funds left for the protection of the local policy-holders. (b) ft is undesirable that a large portion of a

Life Assurance Company's funds should be locked up by a Government Depart­ ment, as it has been proved th.at a com­ pany with the usual powers of mvestment can safelv obtain a much larger return by way of interest by using the money itself than is obtained by the same when · invested by a Government Department. i. (a) No. (b) As the deposit . earns interest

there is no necessity, and it is well to

keep this additional safeguard. 9· (a & .b-) Yes, for all companies with head

offices in the Commonwealth, and, there­ fore under its jurisdiction, because the is in the first place required to

show the company's bona fides, and when it has £4o,ooo of premium income it should be in a proved position, though it might be advisable to insist that the

withdrawal of the deposit shall not only be conditioned on a certain premium in­ come, but on the soundness of the com­ pam•'s actuarial position, since extrava­ gant management might secure a ?ig pre­ mium income with a correspondmg un­ satisfactory financial position. It would, however, be wise to retain the derosit (or so much of it as would he sufficient to cover Australian liabilities) in cases

where· the head office of the company is in another countrv. and where, therefore, the authoritv ;f the Commonwealth could not follow, unless the plan sug­ gested in question 68 .were adopted. A case which came before the South Aus­ tralian Courts within the last f ew yea rs emphasises the necessity of this. It is rlesira.ble that some. protection should

be afforded to policy-holders when a foreign company ceases business, since thev (and other creditors) must prose­ cute their claims in a foreign and pro­

bablv distant country. If a real safeguard of policv-holders' in­ terests is reQ uired the deposit if retained should bear· some relation to the full

liabiHtv on the policies. Less than this simply a meas.ure of protection and a

guarantee of bona fides .

r r. See reply to Question 6 5· rz. reply to Question 65.

13. (a) No.

105

(b) Should remain with Government so Ions as any obligations remain outstanding agai!1st the company. !4· (a) I think it is immaterial.

(b) The company might get a slightly increased interest yield elsewhere, but offices

would pefer to keep a great deal more than £zo,ooo in gilt-edged securities. rs. (a) No. (b) The deposit would remain as an evidence

bona fides, and make no appreciable

difference to the office, because, as thei1 business grew, the amount of deposit

with the Government would be a small proportion of the funds invested in Gov ernment securities, r6. (a) Yes.

(b) I see no reason for holding the deposit when . once a company has got a sound foot·

in g.

r6A. (a) Yes. (b) The deposit will probably by that time

have served its purpose. If the liabili­ ties are less than the assets the companv is likely to flourish, and if they are not. the holding of a fraction of the assets

by the Government seems likely to prow futile.

Question 68.

What IS your opini?n the de sir a bi 1 i 1:

of a defOSit bemg retained by the Gov. ernment so long as Commonw'ealth busi. ness remains on the company's books, dnd so determined as to bear a definite ratio

to the liability 'incurred in respect oi

such business ?

L. In my opinion £zo,ooo would be nmpk

z. If a company had to continue making with the Government as its liability iu creased, the time might arise ''hen the fact of a large portion of its funds be­

ing "tied-up" might prejudicially affect policy -b.Qlders. The directors of a company being anxious to get as large a return as possible upon

their funds would be hampered if they were unable to vary their in>estment; ao circumstances demanded. 3· I see no objection to the enactment of some

rrovision of this sort. 4· I see no objection to the Government retaining the deposit so long as Commonwealth business remains on the company's books,

but I am not in favour of the amount

of the deposit being required to bear a

definite ratio to the liability. J. Desirable certain] v. 6. I think the provisions of the English Act. very suitable for the Commonwealth busmess,

so far as companies locally incorporated are concerned, but as indicated in my

answer to question 67 (a), there appears to be a good reason for retainin_g the or-iginal deposit in the case of a foregn company, for the protection of policy-holders. So

far as making the deposit vary according to a certain ratio based upon the actual liability in respect to the business in

1147

force, I believe such a method would be unsound in pactice and hurtful to insurance oi.nstitutions generally. 7. strong! y favour such being done, but do not

consider the deposit should be reduced in proportion to the business existing. In the event of a company having only a

few remaining policies, there are other means of disposing of the business prior to withdrawal of deposit. 9· 1 think it would be an excellent thing if the

Government were to require a deposit of assets representing the liability on, say, 4 per cent. pure premium basis. Com­ panies would make a more severe valua­ tion than this, and so have ample funds

in hand over and above a Government guarantee. If assets were made readily available by the Government there could be no more objection to der:ositing with

the Government than with a bank or a

safe deposit company. Some concession would have to be made to young com­ panies. r r. See reply to QuestiOn 65. r 2. See rep! y to Question 6 5. 13. See reply to Question 67 (b).

q_. I think this might fairly be done. 15. l am of opinion that a deposit should be re­

tained by the Government so long as

Commonwealth business remains on the company's books, but that the sum fixed as the original deposit is ample. r6. A deposit would be unnecessary and might be

mislearling.

r6A. So far as companies having their head office located within the Commonwealth an: concerned the arrangement would be in­ operative so long as the company remains

sound. It would only come into useful operation in the event of a company get­ ting into difficulties. If the ratio re­

ferred to were much less thall unitv the Commonwealth would aprear ridiculous when winding up showed that it had been holding on to an insufficient amount of

deposit. On the other hand, if the ratio were unity, or nearly so, the solvent com­ panies would be much hampered in their operations needlessly.

Question 69.

Do you consider that a deposit should be required from all existing companies (not only from those commencing business)?

Replies.

r. Yes. z. Yes. But I consider that existing companies having deposits with State Governments should either be empowered to transfer

such deposits from the States to the Com­ monwealth, or else be credited bv the Commonwealth with the amount of de­ posits so made, and if these deposits did not equal the requirements of the Com­ monwealth that the balance onlv be de­ rosited with the Commonwealth: 3. In some of the States a permanent deposit is

already required by the State Government from all companies. I presume a Com­ monwealth deposit would hardly be re­ quired in addition to those at present re­ quired by the States. There does not

10()

4· Yes. 5· Yes.

seem too much objection to a deposit with the Government of reasonable amount, but is questionable whether such an enact­ ment would prove to be of any substan­ tial benefit.

6. Provided the ex1stmg company is incorporated locally, and has a well-established busi: ness, no deposit should, in my opinion, be required. 7· Yes. 8. From all companies transacting new life busi­

ness.

9· Not necessarv unless full amount of liability is derosited. I I. See rep! y to Question 6 5.

12. See reply to Question 65. '3· Could scarcely be made retrospective, for to de­ mand £zo,ooo from a young company might have the effect of crippling it. 14· If my assumption that the deposit is required

for the protection of policy-holders is correct, then such deposit should be re­ quired from existing companies. r5. Yes, provided the deposits now made with the

State Govemments are accepted as de­ posits by the Commonwealth. r6. No. r6A. No.

Question 70.

Should companies having their head office in Aus­ tralia receive preferential treatment as regards deposits or other matters?

Replies.

I. No.

2. I think not.

.). I think foreign companies sltould be required to deposit a sufficient amount of approved securities with the Government, as other­ wise there may be no assets in Austraiia which could. be levied upon in case of need. ·

4· I think companies having their head offices in Australi8 are entitled' to receive preferen­ tial treatment as regards deposits, but T attach very little importance to the

matter. There are no other points upon which I should recommend preferential treatment. I wish, however, to state that, in my opinion,

the fundamental basis upon which de­ posits have been held by the States as

assets '' secured '' for the discharge of a comrany's liabilities under. its policies in a State in the event of its insolvency; and further, the provision that in the

event of a company's insolvency the

whole of the assets in the State shall be applied, so far as the " same will extend, '' in or towards satisfaction of the liabili­ " ties of the company in the State ; and " no part of such assets shall be applied ''in payment of any liabilities of the com­ " pany incurred elsewhere than in the '' State until the whole of the liabilities " incurred in the State shall be paid in

"full" is radically wrong.

A life assurance company is one institution in which all the pol·icy-holders are equally interested j but State legislation seems to rroceed upon the idea that a life assur­ ance company is composed of a number of institutions, a.ll more or less hostile and requiring to be protected against

each other. It is only because legislation of this kind has never had to be brought into active operation tha\t it has done no harm. If a. company becomes insolvent, the deposit

should not be held by the Commonwealth until the whole of the compan

6. Yes. 7· No.

8. No;

Why should •they ?

policv-holders in Australian companies should have the same protection as those insured in other offices. 9· Pi"eferential treatment for domestic offices

not necessary. Competition is good for the business. We should be able to do at leastt a.s much as we ask foreigners to do. rr. See replv to Question 65. rz. We should naturally prefer that they would not.

IJ. Local companies, being quite equal to all local requirements, should be entitled to pre ferential treatment. r :f.. I think not, for the reason advanced in my

reply to question 69. r5. No. 16. No.

r6A. It

A foreigner .would find it much more difficult to get a footing in AustrnJia

without having made a deposit with tl,e Commonwealth Government than he would do with one. He, however, having once commenced business should be com­ pelled to maintain an office, and settle claims. in Australia so long as business remajned on his books. would be desirable that . companies having

their head office outside of Austraiia should give some guarantee tha.t they would maintain facilities for policy­ holders conducting their business with them.

SECTION XL-DETAILS OF LIABILITIES AND AssETS.

Question 7 r.

Should, in your opinion, the returns furnished to the Government ·be st!fficientlv com­ plete to enable an outside to

make an independent valuation as re­ gards liabilities

Replies.

r. Yes. 2. Yes, if practicable, and not too voluminous. 3· Yes. 4· No.

5· Yes. 6. I consider it altogether superfluous to call for such detailed schedules a.s would enable an independent valuation to be made of

the liabilities. At the same time, how

1149

107

ever, there is no doubt whatever that in­ formation should be given of such a

chaJ·acter as would enable an indepen­ dent actum·y to form a very fair opinion as to the character of the reserves made. The present schedules which are required

to be filed under ·the Life Assura:nce Companies Act present a. very fair

standard, but in view of the very con­ siderable variation in the character C'-f the business transacted since the>e sche­ dules were first framed, particularly in

regard to the increased volume

of endowment assurances effected, there might, in any fresh legislation, be

framed a fresh schedule to give more de­ tailed information in regard to such an important class of policies. 7. Certainly.

8. Yes.

9· They should be sufficiently complete 10 enable a competent actuary to judge therefrom of the correctness of the valuation re­ turn. The complexity of the contracts

issued bv a life office is so that

complete' returns would. involve enormous cost if it were desired to prim them in

full. For all practical purposes 1t

should be sufficient to print returns in the form or the >Chedules Ito the Im­ perial Act of 1870, somewhat extended and modemzed, so as to include, for in­

stance detailed schedules of endowment There could not be the

slightest objection to requiring complete manuscript copies of the valuation--­ group totals, with the units of measure­ ment used, and the values brought out, to be deposited with the Government at the same time as the p rinted returns were

filed.

r I. I agree with recommendation of Life Offices Association. (See pp. 134-6.) 111. The returns required by the 1Eritish Govern­

ment, which are largely .followed by the various Australian colonies, seem to us sufficiently comprehensive. We under­ stand that ·the British Government are enabled to approximately check our

figures by means of these schedules. If their· Government actuary can check them, then an outside actuary can al.;;o do so. 13. Would entail an enormous amount of unneces-

q. Yes.

sary work, provided the original valua­ tion be made by a properly qua.lified

actuary, who would be quite as compe­ tent and reliable as the Government

nominee.

r 5· It would be sufficient if particulars were given enabling a check valuatioill to be made of endowment assura111ces and endow­ ments such as are required for whole life

assurances l.n the British and Australian State Acts. r6. No.

I6A. No; if there is no reason to doubt the ac­

tuary's statements as to his bas.is r;f

valua,tion and results this would be un· necessary. And if there is reason to

doubt his statements, it is just as reason­ able to doubt his returns.

Question 72.

Should the returns furnished by hfe assurance companies be so drafted as to show par­ .ticulru·s of policies ·participating in profits separately from those relating to

policies which db not participate?

1. Yes.

Replies.

2. I do not know that such a separation would

3· Yes. 4· Yes.

5· Yes.

be of any practical val ue.

I assume that this question refers to th e schedules in which details of the ac­

tuarial valuation are . given. The various State Acts require. this subdivision. I see no necessity for showing a separate revenue account and balance-sheet for

non-participating policie<; unless in the case of a proprietary company, whose shareholders take the whole of the profits from the non-participating business.

6. Yes, but no more than is already provided for in the schedules under the existing Life Assur:1nce Acits. 7. I cannot sav.

9· Yes. I r. Yes. I think so.

r z. At the present time we am required bv the

British Government, and bv several rf the Australian colonies, to. divide our data into participa.i:ing and non- partici pating policies. .

I 3· The actuarial. reports issued by the different

compa.mes already set out this informa­ tion separately. q. I think it is flil11 advantage to separate the

classes.

15. It affords little extra trouble to the life offices, but the information is of little value.

The proportion of non-participating business is generally very .smaJI. r6. No. The total amount of . non-participating business in Australia is of no conse­

quence in comparison with · the whole. r6A. The question is not of importance in Austra­ lia at rthe pre>ent time, considering hOw small a proportion non-participating

policies beal! to the participating.

Question 73·

Should such separation also applv to the reserves ill' connexion with particip31ting and non­ participating business?

Replies.

r. The liabilitv for participating and non-partici-pating policies should be shown

3· Yes. 4· Yes.

5· Yes.

separately.

The various State Acts require !his separation of the liabilities in the

actuarial valuation. I assume that the question does not mean a separation of the assets in which the reserves are in­ vested. In the case referred to iill answer to question 7 2, if a separate revenue

account and balance-sheet are kept there should also be a separation of the assets.

6. Yes; hut no more than is alreach· provided for in the schedu!es under the existing Life Assurance Acts.

7. I cannot sav.

9· .\o, the li:1bility should be shown separate)_,, but separate funds should not be esta1J lished: rr. Yes. I1. See answer to Question 72. 13. This is usually set out also. 14. Yes. 15. No.

r6. '\n. See reply to previous question, r6A. See answer to question 72.

Question 74·

Do vou think that bonus a,dditions should in all returns be included as initegral parts ·â€¢f the sum assured or not ?

RepNes.

• r. Yes; should be included. 2. No. I think it is better that they should be

shown separately.

3· No.

4· I think it is immaterial.

'i· Yes. 6. The bonus additions s.hould, I consider, be detailed separately in the valuation

schedules required, but this is alrea.dy done in the schedules under the existing Acts. 7 . I do not think so.

9· Bonus additions should be shown separately. r r. I think they should be shown separately. r2. Our system does not provide for bonus addi­ ·tions unless desired in place of cash

dividends. They are so small in number that they can be kept separately, but we do not think it necessary to furnish a

sepa,rate valuation of these. r3. Yes, 14. No. 15. In mv opinion bonuses

· all returns.

r6. Yes.

should be separated :r1

1 6A. Tt would do no harm, and would save labour.

Question 75·

Should, in your opinion, fuller details be given concerning the names and amounts of all stocks and shares held by life assurance companies as investments, than are re­ quired under the English Act of r87o?

Replies.

r. I think existing ample.

2. I think that as the varietv of investments avail­ able to life offices in Australia is limited, that the practice at present adopted by Australian offices is sufficient. 3· I think this might be done with advantage. 4· I think it is desirable.

5· Yes. 6. No.

7. Yes. I think the fullest and most complete

details should be given. 9· Full information should he deposited with the Government and be available for anv one wanting information at a small r r. See reply to Question 7 r. r2. We furnish to the State of New York, and

print for distribution among our policy­ holders, a complete statement of every

108

. security held by the company, with its book and market values. That infor­mation is \'ery much more comprehensive than is required by the English Act of r87o. 13. The English Act appears to have answered all desired purposes. 14. I do not consider this necessary. rs. Yes. r6. No; but I would not object to supplying the fullest information. r6A. I do not think so, considering the restricted class of securities in which Australian life offices in vest. Question 76. Would fuller publication diminish the risk of fraudulent manipulation of funds? Replies. I. I think not. 2. I think not. There are few, if any, secuntles in which Australian companies invest that lend themselves to manipulation. 3· No. 4· I am not aware that there is a risk of this kind. 5· Yes. 6. I do not think so. 7. In my opinion it would. 9· It is not clear. r2. Yes. 13. Possibly. 14. I cannot think that it would. r 5. I do not think so, r6. No. I cannot see how it would. r6A. I do not think so. Question 77. Would it be desirable in the interests of policy­holders, that <1. periodical review of assets of the companies carrying on life assurance business in Australia, should be undertaken by duly qualified Govern­ment officers, and that the reports of such officers should be published in con junction with the companies' retqrns? Replies. r. No. 2. I do not know that policy-holders would be greatly protected by such a review. The companies' directors and officers should be a sufficient guarantee that the assets are as stated in retums. 3· I do not think this desirable, for it would re­quire a large army of Government em­ployes to periodically review all the assets of the companies, consisting as they do largely of real property in possession, mortgages, stock and deben­tures of various descriptions, loans on policies, etc., etc. .q. The directors and principal officers should be better able to do this, and divided re­sponsibility is undesirable. 5. Yes, with limitations.

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109

6. No. There does not appear to be any greater

call for Government interference in the business of life assurance than for many other classes of business carried on in the Commonwealth. 7· It would be an additional safeguard, and would

be highly appreciated by policy-holders. 9· Yes, it should be in policy-holders' interest, provided that it be made a matter of •

definite legislation, and that the cost be borne by the Commonwealth. 11. No.

t 2 . As we give a complete statement of each indi­

vidual security the Government official can determine at any time whether ,our assets are worth the amount we place

upou them, or not.

13. Such a practice has not been found desirable in England, and would appear to us to be unnecessary. q. No.

r 5. Not if proper! y qualified auditors are required to be employed, and such a1,1ditors re­ ql,lired to give a comprehensive certifi­ cate. 16 . It would not be desirable. r6A. I take it that si.!Ch an arrangement would be