ON THE DIVISION OF PROFITS. 1093
Mdenee annual premium thus charged to be the true value of the risk, it follows
les that with lives of that age the office would have an accumulation of
2thaken funds during 19 years, after paying the claims on account of deaths in
) fru each of those years; no portion of which accumulation is to be con-
h sidered as profit, but a fund out of which the deficiencies of the future
Iw annual premiums shall be supplied in the discharge of claims.
mean Suppose, while the above premium is the correct one, that an office
from false data should make a reduction thereon of 20 per cent, it
Id out by would in that case be able to pay all the claims on it for nearly 17 years
Xi cole without the aid of fresh assurances, after which period there would be
ake be a deficiency ; but with the constant addition of assurers it would be
r cltole able to pay the claims made on it for many years afterwards.
r adopted. This illustration we hope will show the difficulty to the public of
1 leh judging of the solvency of an office; and to the admirers of very low
oh mt rates we will state for their consideration, that offices whose rates are
not amongst the lowest, when the period arrived for dividing the profits,
>. have been obliged to inform the assurers that so many claims had heen
made on them that they had no surplus to divide.
| ON THE DIVISION OF PROFITS.
: To enable a company to determine what profit they have realized, a
| valuation of all their liabilities should be made, and of the premiums to
be received thereon : the difference between the two is the amount to
| be reserved, and whatever they have above this amount may be con-
sidered as surplus capital, which may be apportioned as profit.
It is the common practice of offices to value the liabilities by the
same table of mortality and rate of interest as the premiums were de-
duced from; but since many whose opinions have great influence
- recommend that a rate of mortality should be employed which may be
fF assumed as representing that which will actually take place amongst
i the members of the office, we shall attempt to point out some objections
er fe to which such system is liable.
a progres When the same rate of interest and table of mortality are employed
a as the premiums were calculated from, the present value of the sum
assured at the time of issuing the policy is the same as the present value
ioe Jc of the future premiums to be received; and as the number of years
iy ee increase from the original date of the policy, the present value of the
on fst sum assured will increase, and that of the future premiums will decrease.
rod of i In no case, therefore, will this mode of valuing cause the present value of
rs afer i the future premiums to appear to be greater than that of the sum assured 3
rged bY 0 and when the accumulation of premiums in hand is greater than the
pt ole amount which according to the valuation ought to be reserved, the
eat 171% surplus denotes so much profit realized by the company, and as such
4 may be appropriated by them, the sum remaining in hand being that
for which an office charging similar rates would relieve them of their
liabilities,
