The general consensus of opinion among British and Canadian actuaries, as reflected by the extra pre miums charged to cover the war risk, is also in accord with the view that a much heavier death rate than five per cent per annum may be anticipated. At the out break of the war, the extra premium recommended by the British Life Offices' Association in connection with new assurance was 7 per cent for the combatant branches of the service. This rate was shortly after ward increased to 10, and later on, it was decided to leave the question of extra premium to the indivi dual judgment of each office.
In an instructive address to the Actuarial Society of America in 1916, Mr. Arthur B. Wood, actuary of the Sun Life Assurance Company of Canada, dis cussed the European war risk with particular refer ence to the practice and experience of Canadian com panies. He said: It is generally conceded that the statistics of previous wars are no indication of the mortality rate likely to be experienced in the present European war. Such informa tion as is thus far available undoubtedly indicates that the rate of mortality has already been very high, and no one can predict with any degree of confidence what the future ex perience will be.
Considering the uncertainty attached to the question it is a wise precaution not to fix the extra premium definitely in advance when issuing a policy, but to retain the right to readjust the rate from time to time according to the judg ment of the company.
'7. Interest return.—A life insurance company bases its calculations upon the fundamental fact that every policy which it issues must be paid if the policy be carried to a conclusion. The experience of lapsed policies is of no value to the company and indeed its effect on the whole business of life insurance is wholly an uncertain one, so any possible gain from that source the company does not and should not consider. Its calculations are based on the payment of the amount for which the individual is insured, either at the death of the insured or at the end of the insurance period in an endowment policy.
It stands in respect to the endowment in the position of one who knows that in twenty years he must meet a note for $1,000 and must collect, during that inter val, such a sum of money as, set aside and permitted to increase at a certain rate of interest, will meet that obligation at the end of twenty years. Now the life insurance company, as it insures large numbers of persons, many of whom die before the policy period of expiration, meets its obligations as they fall due, by adjusting its charges on the basis of the mortality table and an assumed rate of interest less than it may reasonably expect to earn, but yet so near as to what it may expect to earn that its premiums will not be unduly high. Competition among the different com
panies, it may be added, is quite sufficient to take care of this factor of the premium fixing. In the early history of the United States when the rates of interest ran very high (6 per cent when they were 4 per cent in other countries), an undue increase was assumed from this source and a decade or two was spent by the companies in working to a more solid foundation. Probably the general assumption now is that the company will earn on its invested funds 3% per cent and it so estimates in making its premium rates. As a matter of fact, the companies earn more than this sum and it is not improbable that the time may come, with the enormously increasing demand for capital, when 4 per cent will again become a fixed rate of interest for which the companies may assume a re turn from their invested funds. However, under the system of annual dividends which prevails in the UnitedStates it is almost immaterial what rate of in terest a company may assume so long as the amount be within the line of safety. If it assumes a rate more nearly to what it will earn than some other company, the other company can even up by making its annual dividends somewhat higher.
8. Policy conditions.—The general conditions of policies may be briefly summarized. The beneficiary may, if the right has been reserved, be changed by the insured. For many years this right did not exist but the beneficiary once having been named, a change could not be made by the insured without consent of the beneficiary. If the beneficiary dies before the in sured, the policy vests in the insured.
There are two classes of policies: participating and non-participating. The first shares the dividend, the second does not. It is purely a question of choice with the individual which type of policy he pre fers to take. The non-participating policy has the advantage of a fixed payment according to the terms of the policy, subject to no reduction during the period payment of the policy, while, in the case of the participating policy the insured shares in dividends as the company is able to declare them.