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Press, Volume LIV, Issue 9736, 26 May 1897, Page 2

TO TH« EDITOR OF THJS PRESS. Sib,—Referring to your ertito-.-i*l under this head in your ieaue of 22nd instant you remark:—-" It has for a long time been the case that the bonuses declared by Australian life insurance offices have shown a declining tendency J This was quite to be expected in view of the fall in the average rate of interest realised on investments, as the #*urplas available for bonuses can only be obtained from excess interest. It is interesting fto 1 note that the same 1 thing is being experienced iri Great Britain." You might also have added in New Zealand and all otherj'parte of the world as the great fall in interest during the past th,ree orldur years has affected not only all life offices, but all financial institutions throughout the world.

My object, however, in writing is to point out the erroneous statement you have made, viz., "-that all surplus available for bonuses can only be obtained from excess interest." "There are really three sources of profit, speaking generally, that go to make up the bonuses in a life office, viz., 1. Excess of interest realised over that assumed in the calculations on which the premiums arc based ; -Profit from loading; 3. Favourable mortality. The main sources of profit are derived from the first and second causes. As regards the profit from loading, it might be explained that this is a sum added to the ne,t premium (i.e. the bare premium equivalent to the life risk without anything added for office expenses of any kind), which represents an average say of 28 per cent. This, when added to the net premium, forms tbe gross premium as charged to all first-class risks. This, loading for expenses of course has nothing whatever to do with the special loading charged in certain cases for any departure from the first-class standard of risk.

. Speaking for the Australian Mutual Provident Society, which I represent in this city, I would point out that its expenses on the annual premium income only amounts to about 13$ per cent.—say one-half of what is provided for—the balance forms part of the annual bonus declared. When it is pointed out that the annual premium income is over a million and a quarter sterling, it will be readily observed what a considerable proportion of the bonus is due to the fact that the Society carries on its business at a ratio of expense on the premium income so much below what was anticipated and provided for. Of course I am awajgs that yon were dealing with tbe offices as and a comparatively small amount of bonus is derived: from this source, taking the other Australasian offices collectively, owing 'to their ratio of actual «x~n~es >p£Cwi-

mating more closely with what is provided for in the premiums charged. I may also point out that some of the other offices as well as the Australian Mutual Provident Society, in valuing their liabilities, have provided" for the fall of interest and its effect on the bonus by reducing the*, assumed rate of interest to be earned, thus creatiog larger reserves.— Yours, &c, James Halr, District Secretary A.M.P. Society. Christchurch, 26th May, 1897.