According to the Carlisle Table (which we prefer for the purpose), of 5642 per sons alive at the age of 30, 3018 are alive at 65, whence the chalice of living till the second age is 3018+5642 or • 5525. Now by applying calculation to this ques tion, we find that an office which would have practical certainty (thousands to one for it) that, as far as this instance is concerned. the office should not be injured by adverse departure of events from tables, must make provision for twenty five deaths, at least, in the period above mentioned, more than the tables predict, out of 250 persons at the commencement. And this even on the supposition that the table itself can be certainly reckoned upon as representing the law of mortality of the whole insurable population. It would be a very long process indeed to apply calculation in detail, so as to form a well supported idea of the proper amount of precaution against fluctuation ; and the question is mixed up with another, to which we proceed.
The rate of interest to be assumed is an element which requires the greatest caution. It must be a rate which can actually be made, and therefore prudence requires that it should be something be low that which may reasonably be looked for. To show how powerful an agent it is, we shall repeat the example already given, of the 5642 insurers for twenty years, on the supposition that the office which charges as for 3 per cent. finds itself able to make 3i per cent., and it will appear that the office leaves off with an accumulation of 15,4411. nearly ; and if it be lucky during the first years, it may be said to be safe against any fluctu ation for which there is an even chance, by the increase of interest alone.
Take what amount of precaution we may an office must, at first starting, de pend upon something either of capital or guarantee. Even a mutual office must raise something at the outset. Tables must be constructed with very large ad ditions to the calculated premiums, which are to meet the very earliest contingencies alone; indeed it is difficult to say what addition would be too large. But this point it is unnecessary to insist ou, since we can hardly suppose it possible that any set of men would found an office with no resource except premiums from the very commencement. Supposing pro per precautions to be taken, we imagine that an addition of 25 per cent to pre miums calculated from the Carlisle Tables at 3 per cent. per annum, is sufficient to place a mutual office upon a sound foot ing, and to give a very great prospect of a return in the shape of what is called profit. It never has been found that an office charging at this rate has been with out surplus of some kind.
This surplus has been called by the in accurate name of profit, whereas it is really that part of the security against fluctuation of interest and mortality which has been found to be unnecessary. In mutual offices it is to be returned to the assured in an equitable manner in purely proprietary offices, it is really profit to the proprietors, whose capital has yielded them the ordinary interest, since by hypothesis, none of it has been necessary to meet claims, and they there fore share among themselves the residue of the premiums. It is impossible to avoid this surplus in a well-constituted office, for the mathematical line which separates su:plus from deficiency cannot be expected to be attained, so that the who would not have the latter must take care to have the former. It is usual among the offices to adopt a plan for increasing this surplus, which we will now describe.
Two rates of premiums are adopted, the one less than the other. Those who pay the higher rate are to have a share of the surplus : those who pay the lower rate have nothing but the nominal sum for which they assure. If the table of lower rates yield a surplus (which it is supposed it will do), that surplus goes to augment the final receipts of those who assure for profits. This scheme may be very well practised by a proprietary company, or by an old mutual company, but whether it is a good plan for a young mutual com pany to adopt, may be a question.
The public has been much misled by a notion that assurance companies must ac cumulate large profits, and the Equitable has been constantly cited as the proof Now, all who would form an opinion on this subject must remember that the cir cumstances of the Equitable are very pe culiar. It realized large accumulations, in the first instance, by an excess of cau tion commendable at the time, but since proved to be unnecessary. Of late years, newly assured parties are allowed to share in these accumulations, on con dition that they are first assured in the office for a large number of years, taking the chance of receiving less than their premiums are really worth. This how ever is not the question here ; we merely stop to remind the reader who is disposed to form a general opinion about offices, because the executors of A, B, and C re ceive two or three times the sum for which those persons were nominally in sured, that this only happens because D, E, and F, who died during the days of a caution which has since been shown to be unnecessary, did not get their share of the then existing surplus.