Let us now suppose a company to be formed for the simple purpose of assuring lives. Their business is to invest the premiums of those who assure with them ; their receipts will consist entirely of cur rent premiums and interest on the invest ments of the old ones ; and their out goings will contain expenses of manage ment, payment of claims, purchase of their own policies, and (possibly) losses by bad investment.
There is one question which is gene rally settled at the very outset, namely, whether the company is to be what is called mutual, proprietary, or mixed.
A mutual company is one in which the members stand bound to each other, and constitute the company themselves. In such a company no capital is, generally speaking, raised at the outset, except a small sum for necessary expenses at starting. This, however, is not neces sarily the feature of a mutual company ; for if its members choose to constitute themselves an investment company as well as an assurance company, they may, without losing their mitiNal character, require every assurer to be also a share holder. In a mutual company the profits of course are divided among the assured.
A proprietary company is one in which a body of proprietors raise a capital and pledge it for the payment of claims, in case the premiums are not sufficient : for this security they receive, in addition to the interest of their own capital, the pro fits of the assurance business. It has long been proved that, with proper tables of premiums, and a fair amount of busi ness at starting, this capital is an unne cessary security ; and the only reason which could now make such an office desirable would be the lowness of its premiums. Of course it matters nothing to the assured how they are paid, as long as they are paid; the capital may he diminished, but the assurer cares for nothing except its exhaustion before his turn comes. This must be the sole con sideratim with a person who is tempted by low premiums to a purely proprietary office : the nominal capital signifies no thing ; it is upon the amount of assurance to which it (with the premiums) is pledged that the solvency of the office depends. Generally speaking, however, we believe it will be found that the purely proprietary offices have not allowed them selves to run much risk.
A mixed office is one in which there is a proprietary company, which does not take all the profits, but a share; the rest being divided among the assured. The
only good effect of the capital upon the condition of the assured in such a com pany is this :—that the directors, having fixed capital as well as premiums, may justifiably seek for investments which a mutual company must avoid. Having the capital to make good purely com mercial .losses, they may perhaps attempt to get a higher rate of interest, and of course take more risk of loss ; the as sured, who are sharers in the whole of the profits, since the profits of premiums and profits of original capital are not distinguished, come in for their share of the extra profits of the capital. But no such attempt at gaining higher interest by secondary securities should be made until a sum sufficient (with future pre miums) to meet all claims is invested in the very safest securities which the state of society offers.
There is much confusion in the ideas of many persons about interest, arising from not distinguishing between interest and other returns. Perhaps it would be best to retain the term interest in its general loose signification, and to sub divide it, for accuracy, into pure interest or net profit, debt-insurance, and salary.
In the construction of a table of pre miums, three points must be left to the judgment of the constructor,—the rate of interest, the table of mortality, and the addition to be made for expenses of ma nagement and probable fluctuation, or discrepancy between the predictions of the table and the events which actually arrive. The third point would not arise if, as was once the case, the table of mor tality made life much worse than the actually prevailing state of things shows it to be. Security against adverse fiucta ation is thus taken in the choice of the table ; and this was done by the older offices, which chose the Northampton Table—by the Equitable, for instance. But we hold decidedly by the method of choosing a true Wk.., and augmenting the premiums given by it as a :afcguard against fluctuation ; and for this reason, that wrong tables are usually unequally wrong, making different errors at differ ent ages, and thus augmenting different real premiums by different percentages.