On the Distribution of Profits in Mutual Insurance 

 Societies^ 



By M. B. PELL, ESQ. 



[Read December 7th, 1864.] 



THERE is no part of the subject of Life Insurance which has 

 occasioned so much difficulty, and given rise to so much diversity 

 of opinion and of practice, as that of the distribution of profits. 

 The methods which have been adopted are very various, and very 

 few of them seem founded upon any intelligible principle. 



Many attempts have been made of late years to form an exact 

 theory on this subject, and to deduce systematic rules ; but it 

 cannot, I think, be yet said that there is any method which is 

 generally recognised as theoretically correct, and capable of 

 application in all cases. 



In order to form correct rules for the distribution of profits, it 

 is necessary, in the first place, to lay down some fundamental 

 principle, depending upon the nature of the contract of insurance, 

 upon which the method of distribution must be based, and in the 

 next to express the principle by means of formulas capable of 

 practical application. Writers upon this subject have generally 

 assumed, without comment or controversy, that the fundamental 

 principle is the following. If at any time, upon investigating the 

 affairs of a Mutual Insurance Society, a surplus is found to exist, 

 there should be returned to each member of the society that 

 portion of the surplus which he contributed. A sum being 

 reserved sufficient to cover all the liabilities, the surplus, if any, 

 is considered not as the property of the society, and not strictly 

 speaking as profit, but as the property of certain members held 

 in trust, to be returned to them according to the proportions in 

 which they contributed to it. If it turn out at any investigation 

 that the members have been paying too much in the form of 

 premium, or that the sum reserved at the preceding investigation 

 was more than the event has shewn to have been necessary, then 



