224 ON MUTUAL ASSURANCE, 



the surplus is to be regarded as a separate fund from which each 

 member is to be repaid in proportion to his contribution. When 

 the amount of the surplus has been ascertained, nothing remains 

 then but to determine how much each member contributed towards 

 it. But, with the greatest respect for those eminent writers 

 who have made this principle the foundation of their investiga- 

 tions, there are many consideration which have driven me to the 

 conclusion that it is in reality fallacious, and in many cases is, 

 and necessarily must be, ignored. I shall endeavour to show 

 that where there is no antecedent agreement as to the mode of 

 distribution of profits, the adoption of the principle against which 

 I am contending involves a violation of some of the rules which 

 are universally recognised and adopted in settling mutual 

 contracts, and in regulating the affairs of monetary and com- 

 mercial associations. I cannot see that there is anything so 

 entirely peculiar in the mutual contract of life assurance as to take 

 it out of all ordinary rules, and to require or justify successive 

 revisions and amendments according to circumstances as they 

 arise. 



In stating my objections to this principle, I shall endeavour to 

 show (1) that it cannot possibly be fully carried out ; (2) that if 

 in regulating the affairs of any society it could be pushed to all 

 its legitimate conclusions, it would be found that the society was 

 not in reality an insurance but an investment society ; (3) that 

 the principle must be fallacious, for if consistently applied, it 

 would, under some circumstances, lead to results, the justice, or 

 even the legality, of which could not be maintained. 



In a paper by Mr. Sheppard Homans, actuary of the Mutual 

 Life Insurance Company of New York, published in the London 

 Assurance Magazine in October, 1863, a most elaborate method 

 is given of estimating the contributions of the several members 

 to the surplus fund. " It appears," he says, " that the contribu- 

 tions or over-payments of policies during a bonus period may in 

 general be found thus : Credit each policy-holder (1st) with the 

 amount actually reserved at the last preceding distribution of 

 surplus as the then present value or re-insurance of the policy ; 

 and (2nd) with the effective (or full) premiums paid since that 

 time, both sums being accumulated at the actual current rate of 



