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0 000 8 06303
COPY.
176
Extract from the opinion of Mr. George King, F.I.A., F.F.A.
on the principles which should be the guiding ones
in Life Assurance Legislation,September,1906.
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Question 13.
Do you consider it wise to have a severe table of
mortality and a low rate of interest fixed by legislation as a standard of solvency for life assurance companies ?
*The whole of the foregoing remarks show that I
am opposed to restrictive insurance legislation and that I
believe the system of liberty with publicity to be by far the
best. It might perpetrate enormous mischief to have a severe
standard of solvency; because, to force into liquidation a
company which is capable of meeting all its contract obligations
would inflict untold disaster on numerous holders. Valuations by
a severe mortality table at a low rate of interest are quite
unnecessary for the purpose of solvency, and are advisable only
that bonuses corresponding to the premiums charged may be
available for policy holders. British companies assume, low rates
of interest in their valuations, not because they consider them
necessary to ensure solvency, but entirely from the desire to
retain a substantial margin of interest in order to maintain
the rate of bonus to the assured. In discussions at the Institute
of Actuaries, the opinion has frequently been expressed by
various authorities that for bonus purposes, the margin between
the effective and the valuation rates should be about one per
cent. Should a company become so weak that the question arises
whether it should not close its doors, a very different valua-
-tion standard becomes imperative. Therefore, if a standard of
solvency be fixed, it should be that suitable for a weak company
and not for a strong one, and it should be so devised as to
protect the policy holders to the extent only of the sum 28-
-sured, irrespective of future bonuses. Such a valuation must
not be on the net premium method, or at a low rate of interest.
Now if a valuation standard be imposed by legislative enactment,
there