a large surplus fund must necessarily accumulate from the circumstances already noticed so highly favourable to the offices. A capital to commence with is wholly unnecessary, as the receipts continue to be annually paid in, and are placed at interest in the public securities, long before any large demands can take place, and there is no danger of losses occurring from bad debts. Of societies founded on this principle of mutual assurance, there are established in London The Amicable The London Life Assurance and and in these the assurers are entitled to share in the profits; but they do not share in the whole of them, one-third being generally reserved. The second principle on which Institutions of this kind are founded, is that of a number of persons forming a company, and raising a capital among themselves, as a guarantee for the payment of all contracts or policies which they may effect. Security to the assured, and freedom from responsibility, are the supposed advantages held out by this plan; in consideration of which the rates charged are generally as high as the preceding, though the exact sums only, named in the policies, are paid on the deaths of the parties, without additions or deductions. The offices which have adopted this plan are The Albion British Commercial Eagle Globe London Assurance The Pelican West of England Whatever advantages may be supposed to attach to these offices, the assurer most undoubtedly pays very high for a security, that is merely nominal, or at least unnecessary; but we suppose the greater number of the assurers are proprietors, and as such share in the profits of the concern. The third principle consists of a combination of these two. The proprietors subscribe a capital, relieve the assured from all loss and responsibility, take one portion of the profits to pay the interest of the capital, and give the assured, at certain intervals, the remainder. The Rock, the Alliance, the Guardian, the Palladium, and some others, are founded on this principle, which is," perhaps, as good as any other, though it curtails the amount of the additions which would otherwise be made to those assurers who are not proprietors, or holders of shares. From a table given by Mr. Morgan, the actuary of the Equitable, formed from above one hundred and fifty thousand instances, Mr. Babbage concludes that forty-seven is about the average age at which persons persons assure; that is to say, as many persons assure later in life than this age, as under it; that about one-third commence between forty and fifty-nine-tenths between thirty and seventy; that about one-fifteenth of the whole are under twenty when they commence; that on a life aged forty-six, the profits per cent. on the premiums demanded by the several following offices, are as follows: London Assurance Alliance 3ol. 2s. 261. 7s. propor But before we can judge of the comparative advantages to the assurers, this table must be viewed in conjunction with the tion of those profits which is returned to them in the shape of a bonus; the mode of assigning that proportion; the periods at which it is so assigned; and the periods at which the assurers become entitled to participate in those profits. These being points of the highest importance to the interests of those about to assure their lives, we shall view them briefly in succession. 1. Of the Proportion of Profits returned to the Assured. If in the appropriation of the profits among the members of the societies for mutual assurance, the money which they have contributed, beyond the sum necessary for the risk and expense of management, be honestly returned to them with its accumulations, the high rate of the annual premiums, as we have already observed, is of less importance to those who pay them; but the different Companies vary very materially in this respect. We have mentioned the ten proprietary Companies, who make no return of profits. Seven of these are stated to demand the highest rate of premiums, and one of them, the British Commercial, nearly the lowest. What, it may be asked, becomes of these profits? All the others make certain returns of their profits to the assurers, varying from seven-eighths, which is the rule of the Amicable, to two-fifths, which is that of the United Empire, only however if the directors think fit.' The most common return promised is twothirds. The following six Companies,' says Mr. Babbage,' have not thought it necessary to inform the public what part of the profits they are to receive back: The Alliance, Atlas, European, Guardian, Hope, Union.' One of the reasons, he tells us, for this concealment is, that if an office announced a specific portion of its profits, a new one might start up and under-sell it, by offering a still larger share-a most laudable reason, truly! We entirely agree with him, that there ought to be no concealment, and that the fair and straight-forward way is, to acquaint the public with the share to which they are to be entitled, and also the manner in which it is to be apportioned.' We may be quite certain that wherever mystery is employed, there is something wrong, and the assurer would do well to avoid the office which practises it. Mr. Babbage says, that the only two companies (and they are those which probably rank highest in public estimation and importance) that have yet assigned a bonus to the assured, by adding a certain per centage to the amount of the policies, are the Equitable and the Rock. In this, we apprehend, he must be mistaken; at least, he is inconsistent with his own statement, wherein he had just told us that all but the ten proprietary Companies profess to make certain returns of their profits; perhaps, however, they may not yet have made a commencement of fulfilling their professions. The Rock is a young establishment compared with the former, and only made its first dividend of profits in the year 1819, thirteen years after its establishment, when it is stated to have added twenty per cent. to those policies which had existed ten years. The Equitable, at various periods since the year 1782, and in two periods of ten years each ending in 1820, added to each policy, existing at the former date, one hundred and eighty-five per cent., the average addition of ten years being 231. 2s. 6d. per cent. The conclusion drawn from this comparison is important. A difference of 31. 2s. 6d. on 201, or nearly one-sixth between two offices, may not appear very great; and it may perhaps be expected that, on a larger experience, they will approximate much more nearly to each other. That there are very sufficient reasons why this cannot be the case, and that the relative advantages of the two offices are not truly estimated by the numbers 20, and 231, I shall now proceed to show. In order to render this matter, which is of considerable importance, more clear, I shall suppose two assurance offices to commence at the same time, one on the plan of the Equitable, the other on that of the Rock and some others; that each makes by its business a clear profit of 300,000l. every ten years; each office awards two-thirds of the profits to the assured, but one of them, immediately on each division, transfers one-third of the profits to a body of proprietors. pe By tracing the progress of these offices through a considerable riod of years, we shall see the important result produced by the deduction of one-third of the profits for the payment of those who guarantee the capital. At the end of the first ten years, both offices divide a profit of 300,000l., and two-thirds of this are added to the policies of the assurers at both offices; but at the Equitable, the other third increased during the next ten years, suppose it only at three per cent., amounts to 134,392/.; and at the second division, the profits of the Equitable are greater than those of the other office by this sum. The "The following table will show the sums added, at intervals of ten years, by an office on the plan of the Equitable: 'Whilst at an office in which one-third of the profit is paid to proprie tors, the constant sum of 200,000l. can only be added at the decennial period of division; and in the course of sixty years, the assurers have received additions of near 682,000l. at one office above those given by the others. 'Nor is this the whole difference; for although two-thirds is the sum nominally divided amongst the assured, since that sum is only payable on the death of their respective nominees, it is not really equal to two-thirds, and is, in fact, different for different ages. Thus suppose three assurers of the ages of twenty, thirty-five, and sixty, and that 100%. is the addition awarded to each of their policies, the present value of that sum to each of these parties is 341. 9s. 9d., 42l. 3s. 1d., and 611. 7s. 9d., respectively; and even when the same sum is added to a policy on a life aged eighty, it is worth in present money only 821. 2s. 10d.: this inequitable mode of apportioning them is not however so disadvantageous in a system of mutual assurers, because the reserved surplus again accumulates for the benefit of the assured at the next period of division. 'These facts show that the two-thirds, apparently given to the assured, are in reality not equal to one-half the total profits; at the same time they explain the cause of the large additions made at the Equitable, and show that it cannot be expected that any of an equal extent can ever be made by any society burdened with a permanent proprietary.'-pp. 79-82. It may be deserving of notice, that up to the year 1820, the Equitable added to a policy of twenty years' date, 77 per cent; to one of thirty years' date, 161 per cent; to one of forty years' date, 280 per cent.; and to one of fifty years' date, 401 per cent! 2. Of the Mode of assigning the Bonus to the Assured. The surplus profits being once ascertained, it is important to those who propose to assure their lives, to know the modes of assigning them to the assured in the different Companies. There are two questions respecting this appropriation which very materially concern the parties assuring: firstly, whether the portion stated to be allotted is actually so allotted; and secondly, whether the manner of distributing it is fair and equitable? In answer to the first, Mr. Babbage has shewn, in the above extract, that those offices which profess to divide two-thirds do not in fact divide one-half, from its very being a deferred, instead of a present, payment; and with regard to the second point we shall have occasion to enter into it fully, in examining the mode of distribution in that immense establishment, the Equitable. Mr. Babbage shews, by the following statement, how difficult it is for the public to understand and appreciate the merits of the various institutions, in this respect, from a mere perusal of the prospectusses which they put forth. 'If two companies both offer to return one-half of the profits to the assured, and one of them has a capital of 200,000l., although their profits may be the same, if one of the offices deduct out of them an interest for the shareholders before the division is made, the results to the assurers will be very different. Let the divisions of both offices be made septennially, and let them each amount in the gross to 100,000l. Then in the office which takes interest on its capital before division :Profit in seven years Interest on 200,000l. capital, at 5 per cent, for 7 years Nominal profit remaining £100,000 70,000 £30,000 One-half for assurers 15,000 One-half added to interest for proprietors 85,000 Total profit £100,000 If interest is not allowed, one-half of profit for assurers 50,000 50,000 £100,000 In one case the assurers will divide amongst them 15,000l., in the other they will share 50,000l., and yet the proportion allotted to them is nominally the same.'-pp. 87, SS. This is certainly, as we before observed, paying dearly to the subscribers of a capital, for an indemnity to the assurers against loss and an exemption from responsibility, which can hardly be said to exist. It should have been stated, however, that most of the assurers are proprietors, and that none but assurers can hold shares. It would be a tedious and useless detail to give an abstract even of what the various offices promise to do with the profits. The following, however, is a summary of about one-half of them, as given by Mr. Babbage: 'Equitable, Rock, added to policies. Alliance |
