S. Brown, Esq. 2 June 1853. 1723: Would not that secure bona fides ?—No; a party starting a company and assuring himself for 1,000 l., would not be a proof of a bona fide intention; the profits a proprietor would realise from others might be more than the 35 l. 1724. If he were to pay 10 years' premiums in advance, that would be sufficient?—Yes; if he would subscribe sufficient to make the largest share, the 50 l. shares I spoke of, the amount of his profits, I think, would be as adequate a check, assuming one-third of the premiums should be profits, because he would subscribe as much as would give nearly 120 l. in profits, which would be a check. 1725. Mr. Mullings.] Might not it be done in this way; that each party should be called upon to pay down a number of premiums at once?-It would not be equal to a guarantee independent of an assurance, because the money that is paid down in premiums probably would be spent in some extravagant way, and there would be no guarantee at all. 1726. Mr. Chambers.] It would not furnish the same security to policyholders; my question was, whether it would not afford the same security for the bona fides of the parties?—Yes. 1727. Do you not think that the payment of 50,000 l. as a guarantee fund, would rather tend to encourage extravagance in the management of the business, and that the safety of the institutions, supposing it to depend on its provident management, would not be secured by a guarantee fund?-The guaranteed fund would be kept independent, and would not be capable of being used in expenses, and the parties subscribing would have a great interest in seeing that the expenses were not excessive. 1728. Chairman.] You propose that a guaranteed fund should be subscribed. by the directors or managers of the company?-Partly; supposing there were 15 directors, it would be a material provision that the subscription should not be less than 50 l. a share, and 10 shares to be held by each, and the parties subscribing to that guarantee fund would probably contribute some portion of the capital as shareholders. 1729. Mr. Cowan.] In what way was the guarantee undertaken by the directors in the guarantee of your office?-It was merely an agreement together, that each of the promoters of the company (I am not sure whether they were all directors at the time) should, if necessary, provide 500l. at any time, within five years from the establishment of the company. 1730. Was there a deed or written obligation ?—Yes. 1731. Was that made known to the shareholders ?-I believe not; I have not seen it in print. 1732. Has that guarantee been since withdrawn?-Yes, it lasted only five years; it was an agreement to provide 500l. if necessary, within five years, but from the small expenses it was totally unnecessary to pay up anything. 1733. Mr. Muntz.] I suppose the whole object of a guarantee is to insure the payment of preliminary expenses?-No, to pay early claims, if any should fall in before there is sufficient in premiums to meet them. In the case of the Equitable there was rather a singular provision made: Mr. Morgan, in his history of the rise and progress of the Equitable Society, states that the charter fund proprietors, as they were called, or promoters of the society, 21 in number, represented themselves as having contributed to the formation of a fund towards providing for the expense of procuring a charter, and for other purposes relating to the society, and claimed in return 158. per cent. entrance money. In 1767 they were paid off by an annuity for 13 years of 25s. per share, on a total number of 146 shares, the present value of which at 5 per cent. interest would, at the time of the conversion, be about 1,7147. only; so that there was another instance of a society starting without anything more than what would be considered a guaranteed capital not paid up. 1734. Mr. Mullings.] The parties in those cases generally enter into covenants or contracts with trustees to be prepared to pay money when called upon, is not that another circumstance?--In modern times I think it is more usual to pay a portion of it. 1735. Mr. Chambers.] There are 15 offices, you say, which, judging from their prospectuses, do not appear to have a guaranteed capital?—Yes, 15 started since 1844. 1736. Do you know of any in which there has been such a guarantee by the directors or promoters, as that to which you have been alluding ?—I am not aware. 1737. Is it not mentioned in the prospectus ?-No. 1738. It 1738. It is not mentioned in the prospectus of the Equitable?—No. 1739. Mr. Cowan.] Was the fact of your guarantee made public to the shareholders?-I am not aware. 1740. Chairman.] You have not the original prospectus?-I have not. 1741. And you do not know ?-I think it was not. 1742. The deeds of settlement of all these new companies are registered in the Registrar's-office ?-Yes, they are. 1743. The deed of settlement, at all events, would show whether there was any guarantee fund?-In that case it was not in our deed of settlement; it was a subscription made by the promoters themselves; it was not in the deed of settlement. 1744. Mr. Cowan.] You did not make use of it with the view of attracting business?—No; the business was made solely from the exertions of the gentlemen who started the business, and who were very careful of the expenses; as may be supposed from the fact that the total expenses in the first five years were under 14 per cent. 1745. Mr. Mullings.] You recommend that the guarantee fund should be paid up with regard to all new offices?—Yes. 1746. Chairman.] As a security for the bond fide intentions of the party?— Yes. 1747. That they will not carry on the business unless it is apparently profitable to the members-Yes. 1748. Mr. Cowan.] You consider that that would be quite as effectual as a deposit ?—Yes. S. Brown, Esq. 2 June 1853. Samuel Ingall, Esq., called in; and Examined. 1749. Chairman.] ARE you an Actuary-Yes, of 25 years' standing. 1750. Of what office?—The Imperial Life Assurance Company. 1751. What is the constitution of that company?—It is a proprietary com pany, now giving four-fifths of its profits to the policy-holders. 1752. When was it established ?-In the year 1820. 1753. Was it established with a capital?-With a capital of nominally 750,000 l., of which 75,000 l. was paid up. 1754. Actually paid up at that time?-Actually paid up. 1755. Has that capital been kept intact?-With the exception of about 84 100 l. shares now held by the company, as a matter of official convenience, the whole has been kept intact. 1756. Has the whole of the paid-up capital been kept intact?-Yes. 1757. Has it been added to ?-It has been added to; it now amounts to upwards of 139,000 l. 1758. Then you have added a sort of reserved fund, a portion of the profits? -Yes. 1759. Do you think that a paid-up capital in the first instance is indispensable to the safe establishment of assurance offices?-Quite indispensable, in my opinion. 1760. But if an assurance office is conducted on sound principles, there can be no capital required for the business of the office?-If it be conducted on sound principles, and the expenses are very small, I do not think that any capital is necessary. 1761. And no capital will be required ultimately, if it is conducted on sound principles; that is, if its premiums are equal to its risks?-I consider that there S. Ingull, Esq. 6 June 1853 S. Ingall, Esq. 6 June 1853. should always be a reserve either by a paid-up capital, or a part of the profits, to guard against possible fluctuations in the mortality and rate of interest. 1762. But any capital of an assurance office which should ever be infringed ultimately, and in the long run, for the purpose of paying its liabilities, would imply that the business had been carried on at a loss?—Yes. 1763. Then what is the great benefit of a capital on the first establishment of an office?—I think it makes the managers of it more careful in their expenditure when they risk their own capital. 1764. You would require it more as a test of the bona fide intentions of the proprietors of the office, than as a fund from which the liabilities of the office would ultimately become payable?--In the first instance, I should. 1765. Have you any hesitation in saying, that the premiums and receipts of an office ought in the long run to be equal to its liabilities, without the aid of any paid-up capital?—I do not hesitate to say that they ought to be so. 1766. And that in any well-conducted office it would be so?—Yes. 1767. What, in your opinion, is the best test that would enable the public to judge of the relative security of different assurance offices; could you suggest to the Committee any test in the state of facts, with regard to the condition of assurance offices, which would be a safe guide on the part of the public in judging of the relative security of such offices?-I think there are several simpie tests; one 1 heard mentioned by some of the previous witnesses, viz., that onehalf of the premiums received on existing policies should be in hand at any future. period. 1768. Then in any account which was published on the state of the office, would you suggest that one of the items of that account should show the amount of existing premiums, the amount of existing risks, and the amount of cash in hand? Yes, the amount of premiums received on existing risks, with the other items. 1769. What proportion, in your estimation, ought the cash in hand, or the assets of the company, to bear to the existing liabilities of the office ?-That would depend very much on the age of the office; I should say that the office should have one per cent. per annum on the amount of the existing assurances, up to about 20 years; that is, if an office has been in existence 20 years, it ought to have about 20 per cent. of the amount of the existing assurances. 1770. Twenty per cent. of the existing liabilities?—Yes. 1771. Not more than 20 per cent. ?-I should think 20 per cent. would be sufficient, if the premiums were adequate and paid in full. 1772. That is one per cent. per annum -Yes, on the existing assurances. 1773. What should you say for an office which had been in existence for 30 years?—I would say that after 20 years, if the premium fund increased one-half per cent. per annum, that is after the office had been in existence for 30 years, if it had 25 per cent. of the existing liabilities in cash, or in good securities, it would be sufficient. 1774-5. Would not a great deal depend on whether the office was obtaining much new business, or whether its business at the moment consisted chiefly of old policies which were becoming claims; would not a great deal depend on whether the amount of policies represented a large or a small proportion of new business?— My supposition is that it is a steady business. For instance, supposing an office were to issue 200 policies in the first year, and so go on for the first 20 or 30 years, then it should have about one per cent. per annum on account of its liabilities at the end of 20 years. No office, in my opinion, can be safe, that is not quite independent of all new business. 1776. Would not a good deal depend also on the character of the policies, whether they were for life, or for short periods?—I should say the bulk of assurances in an office is generally for the whole term of life. 1777. Is there not a much greater variety in the character of policies than there used to be, there being a greater number of temporary policies?—Yes, there is a greater variety. 1778. Would not the proportion of life policies to short policies, or temporary policies, interfere somewhat with that conclusion?-Yes, but I do not think there is so large a portion of temporary policies effected now as there was some years ago. 1779. You think a larger proportion of the policies effected are for life?—Yes, for the whole term of life. 1780. Are there any other general tests or facts which you would suggest to the Committee .Committee as being a proof of the condition of the society?—I think those two things would convey a very good general idea to the public; viz. the one per cent. per annum on the amount of the liabilities, according to the age of the office, and the amount of the premiums in hand paid on existing assurances. 1781. What proportion should that be?—I should say it would vary, according to the mode of valuing policies, between 47 and 53 per cent.; or I may say, 50 per cent. in round numbers, viz., one-half the premiums paid. 1782. In round numbers one-half of the premiums on existing policies?Yes. 1783. Then you think that those two facts being published along with the annual accounts would be a tolerably faithful index of the condition of the office? -I think they would. 1784. Would you suggest to the Committee any test that would enable an actuary or a professional man to judge of the condition of offices; suppose a pri vate individual were to consult his own actuary as to the condition of an office, would you suggest to the Committee any test that would enable him to judge, which a private individual would not have at his command ?—I should consider it necessary, in order to speak positively as to the condition of the office, to have the amount assured at different ages, and the amount of premium payable on those policies, distinguishing the ordinary premiums from the extra premiums. 1785. Do you mean the loading-Either the loading or the extra premiums for foreign risk. 1786. Do you mean the margin to cover expenses over and above the strictly necessary premium to cover the risk?—No, I mean the extra premium over and above the published rates of the office for the particular age. 1787. To cover what?-If the life had had gout, for instance, an extra charge is made. 1788. You mean an extra charge to cover special risks ?-Yes. 1789. Mr. Glyn.] You are alluding to going to an unhealthy climate, or any risk of that kind? Yes. 1790. Chairman.] What you would require would be a statement of the ordinary assurances, with the premiums payable upon them at different ages, distinguishing the cases of special risks?--Yes, those ages being the present ages of the lives assured. 1791. Will you proceed to say what, as an actuary, you would require ?—1 should require those particulars to be given for every year of age, or at least for every five years of age; I should then require to know from what table of mortality, and at what rate of interest the premiums were deduced, and also whether any additions by way of bonus had been made to the original sums assured. Those particulars having been given, would enable me to form an opinion of the solvency or insolvency of the office. 1792. You would also require a statement of the assets of the company?— Decidedly, 1793. You think those particulars which you have just enumerated would be sufficient for you, as an actuary, professionally to advise any person who might come to you for your advice upon the condition of any particular office?—Yes; it would enable me to say how much the society ought to have in hand to be in a solvent state; it would be for the party interested to compare my calculations with the amount of assets which the office possessed. 1794. Are actuaries pretty generally agreed as to the principles on which the surplus or supposed profits of an office should be arrived at, for the purpose of distribution among its shareholders as a bonus?—There appears to be a great difference of opinion among actuaries upon that point. 1795. It is a point not at all settled ?-It is not. Some actuaries differ much as to what is surplus. 1796. But is it not one of the most essential things that the office, for its future security, should proceed upon some well-ascertained and safe principle in dividing its profits-Certainly. 1797. And, in short, the security of the office may depend on whether it is properly or improperly reducing its assets on hand by division of profits?-It is a most important point to be settled. 1798. And yet that is a point on which actuaries themselves are very much disagreed?-Judging from what a few actuaries would call surplus, there is a very great difference of opinion. S. Ingall, Esq. 6 June 1853. S. Ingall, Esq. 6 June 1853. 1799. Can you state to the Committee the chief grounds upon which you. imagine that difference of opinion to exist?-In the statements of some societies, I observe that what is termed surplus exceeds the whole amount of the capital or assets of the society. 1800. You mean the assets, not the capital?-Yes. 1801. The money on hand?-Yes, and other securities. 1802. Do you mean they have a surplus stated larger than the whole amount of assets which they have to meet their liabilities?—Yes. 1803. Do they divide that ?-Some do what is equivalent to dividing it. 1804. Suppose a loss were to occur next day, how would they pay it ?—By distributing the surplus over the whole duration of life its effect is very insensibly felt for many years. 1805. Mr. Glyn.] At any rate they make their division upon it ?—They make their division upon it. 1806. Chairman.] If it does not cause an inconvenience at the moment, it must nevertheless cause some amount of loss ultimately?--In my opinion, next to an improvident expenditure, it is the most dangerous practice that can be resorted to in an assurance company, and is generally adopted in offices where there is a deficiency of assets. 1807. You mean the division of excessive bonuses?—The premature return of what is in modern times termed profits or surplus. 1808. Can you give the Committee any account of the mode in which such calculations are made to lead to such deceptive conclusions ?-There are several modes by which the same end may be attained; suppose, for instance, an office were to adopt the premiums deduced from the Northampton tables of mortality at 3 per cent. interest, and in making up its accounts should take another table of mortality representing life as of much longer duration; it would, in many instances, produce what actuaries term a negative value to the policy; that is to say, it would make the value of the future premiums very far exceed the value of the reversionary sum which the office is bound to pay. 1809. Would that not be a palpable error for an office to conduct its business in one department on one set of tables, and for the purpose of calculating profits take another set of tables; would not that be a manifest departure from sound practice--I consider it is, but it is a plan rather frequently adopted now-a-days. 1810. Then by that means the office would take credit for a more favourable. set of tables than they used in calculating their risks?—Yes. 1811. But provided the tables they used for calculating their position at any particular moment were the true tables, would that bring out any erroneous result; suppose the Northampton table was a favourable table, although they might charge their premiums in the first place according to the Northampton tables, if they take what may really be a more correct table to estimate their liabilities at any particular moment, would that necessarily lead to an erroneous result, provided they do not include their future profits in their estimate, and provided they make a sufficient allowance for the portion of their premiums which is called loading, or a margin for future expenses and contingencies-If the office includes in the amount of its receipts the whole of the loading, and proceeds to distribute its profits upon that principle, even if a correct table of mortality has been taken in the first instance to deduce the premiums from, it would pro lucethe same results. 1812. Is it not customary for offices to reduce their rates of premiums from time to time?--Yes. 1813. Then suppose an office established in 1810, and going on for 20 years until 1830, at one rate of premium, and then finding they were charging a higher rate of premium than was necessary; and being obliged by competition to reduce their rates in 1830 to a lower scale, would it lead to any erroneous result, if they were from that time forward to calculate their position at any particular moment, all their tables being made on the reduced rate of premiums, although it would involve a great number of risks or liabilities, undertaken at a higher rate, viz., the old table; would the difference between them not be fairly profit?-A careful actuary would always make allowance for any reduction in the premiums. The amount of premium already paid has less to do with the value of the policy than may at first sight appear. If, as you suppose, the office had gone on for a given number of years taking a certain rate of premium, and then for the future should take |