THE PROPOSED EXTENSION OF THE BUSINESS OF THE SOCIETY.

Evening Star, Issue 11278, 27 June 1900, Page 6

THE PROPOSED EXTENSION OF THE BUSINESS OF THE SOCIETY.

TO THE EDITOR. Sir, —So much misunderstanding appears to exist on this,subject, a nd so many irresponsible and misleading statements* are being circulated through the Press regarding the merits of the proposal and the ae' ‘on of the Board, that the directors have deemed it opportune to submit to the members some of the reasons which have induced them to take a step which they believe is in the best interests of the society. Before dealing with the* merits of the proposal, however, it is thought that it will be opportune to place on record the facts relating to two matters, on which, to (judge’ from the tone of the correspondence which is taking place, some of the members entertain erroneous views. 1. Reference has been made to alleged previous defeats of proposals to extend the business beyond the Australasian colonies. The facts are briefly these:—ln the thirtyseventh annual report, for the year 1885, the Board'announced that they had decided to open a branch in London. At that time such a step was quite within the powers of the Board, as the bye-laws then contained no restrictions regarding the localities in which the society might transact business. Some of the members strongly opposed the proposals, an agitation was set on foot which engendered much bitterness of feeling, and the Board decided to abandon the extension. This was announced at a special meeting of the members held on June IS, 1886. The matter next came up for discussion at a special meeting of menibers, convened in response to a. requisition presented in accordance with the bye-laws, and held in 1891. In this second movement the Board took no part, either for or against, preferring to leave the matter entirely in the hands of the members. At the meeting referred to, Mr R. M. Pitt moved a motion, having for its object the extension of the business to London. This motion, slightly amended, was, submitted to the ballot, with the result that there -were 14.957 votes in favor of the extension and 9,508 against it. As an amendment of a bye-law requires that two-thirds of the votes must be in favor of it the motion was defeated, although a large majority of the votes were in favor of it. This was the onlv occasion on which a ballot was taken in reference to the extension of the business of the society beyond the Australasian colonies. 2. It is contended that the form of proxy paper which has been issued to.members is misleading, and indeed some have gone so far as to impute sinister motives to the Board. It has been asked “ Why cannot a paper be issued to each member, asking him to vote yes or no';” The answer to this is (hat any such proceeding would be utterly purposeless. If such a course were adopted, and the whole of the‘members voted “Yes,” the Board would still be powerless to act. To enable the Board to extend the business to? London or elsewhere (here must be an amendment of the bye-laws, and such amendment can only be made at a special meeting of the members, such as that convened for the : Both prox. At such a. meeting, members unable to attend may bo represented by proxy. The custom has been to have a s «Pl)ly of proxy papers at the various offices of the society, in order to furnish a copy to any member who applied for one. Knowing from past experience that few members would so apply, and anxious to obtain a. full expression of opinion, the Board passed the following i* solid ion, which was embod-id in their last report, and adopted at the annual meeting That a. speial meeting of the members of the society shall be convened for a day to be hereafter fixed for the consideration of such bye-laws, and tha.t a stamped envelope covering nl proxy paper should bo issued to every member of the society, to enable him to vote on the proposed bye-law.” In acordanco therewith the Board caused a form to ho sent to each member, accompanied by a. stamped envelope for reply. The Board being in favor of the proposal a, notice in red ink was printed on the top of the paper intimating that the proxy if given to Sir Joseph Abbotf or Mr Littlejohn would bo used in favor of the amendments, “ unless otherwise directed.” It is difficult to conceive whift fairer or more candid course could be adopted, or what other would elicit as full an expression of opinion. : As a matter of fact, a number of these proxy forms have been received with a request "that they be used against the proposal, and they will be so used. Coming now to the merits of the proposal, it is contended—1. That the extension of the business beyond the colonics will entail an increase.l rate of expenditure. 2. That the collection of additional funds elsewhere will increase the difficultv now experienced in obtaining safe investments at remunerative rates. .. 3. That tt | rate of mortality is’higher in Great Britain than in the colonies, and that consequently tho oxlcnsdon will result in loss. There are a number of other minor objections of a more or less imimportant character advanced, but these appear to-be the cnief cues, and it is thought that answers to these will satisfy most thoughtful members-. 1. flie.chief item of expense in a progi essive life office is t he cost of new business. The denser the population and the laro-er the average sum assured, the smaller will be the relative cost of the business. A large new business is not absolutely essential to the stability of a solvent life office, but an increase sufficient not only to replace the natural loss through death, surrender, and lapse, but also to add something annually to the existing volume, preserves the youth of an office and keeps down the rate of mortality. . Up to the year 1892 the net annual addition of business to the volume iu force was considerable. The financial crisis of the following year, however, exercised a very marked effect on the waste, and in the year 1894 the net addition to the volume of assurances in force was only £179,059. The condition has improved * since that date, but another similar crisis would probably produce a more marked effect. But the most important feature in connection with the new business in recent years has been the constant decrease in the average sums assured. As some part- of the expense of new business, such as the medical fee, depends on the policy, and is independent of the sum assured, a reduction in the average sum assured is synonymous with an increase in cost. For example, to take the year 1885—a very prosperous one for the society —the average sum assured per new policy was £357, and the cost for medical fees and expenses was £5 7s 5d per policy. In 1899, which was also a, good year, the average sum assured wps £261, and the cost per policy £4 17s lOd. Had the expense for each £IOO of assurance been the same in 1889 as in 1885, the cost would have been £3 18s 6d per policy instead of £4 17s lOd, and this disparity is likely to increase as,time goes on and as the average sum assured lecreases, as it inevitably will if our operations are confined to the Australasian colonies. The average sum assured under the society’s existing assurance policies is £302; a quarter of a century ago it was £415; and this reduction, resulting in a less profitable class of business at an increased rate- of expense, must go on rif we .confine our operations to these colonies. In' the best British offices the average sum assured runs up To £1,500, with the result that an office such as the Scottish Widows’. Fund conducts its busi-'

uess for.about 10 or 11 per cent, of its premium income, while' our expenses are about, 14.per cent.. It is an axiom that the larger the average, sum assured the smaller is the cost of the business. At the present time the society has ail agency in London for. the purpose of re6eiving premiumsfrom members resident in the United Kingdom and transacting other important .financial business there, and, as far as the existing business is concerned, the establishment of a branch, office in London, will not add materially to the expense now entailed by the conduct of the agency. The Board are quite, satisfied. that the extension of the society's field of operations will tend to decrease, and not to increase, the rate of expense, while it will secure advantages in other directions, hereafter referred to. *2. The objection based on the difficulty of obtaining remunerative investments is one which, if pushed to its logical conclusion, would justify a (demand that the office should refuse to take any more new business or acquire any new funds, but quietly work itself out. Such, however, is not the destiny which the Board iiave in view for it. It is quite true that the society, in common with other financial institutions in the colonies, has not been able recently to realise as remunerative rates on its investments as it did some .years ngo. It is equally true that it has become increasingly difficult to obtain suitable mortgage securities. In the liaht of these facts the Board hive "endeavored to profit by experience, aud havefelt the propriety of investing an increasing proportion of the fluids in Government securities. At the end of 1892, the year preceding the financial crisis, 3 per cent, of the assets were invested in Government securities; at .the end "of. last year the proportion was over 13 per cent. Now it is a fact evident to everyone who observes the condition of the money market that colonial Government stocks can, as a rule, be obtained more advantageously in London than in the colonies. One example will be sufficient to illustrate this. A few months ago the Government of New South Wales placed £1,000,000 of 4 per cent. Treasury bills on the London market at 99>j; the investment therefore yielded a little over 4 per cent.- The bills were not procurable in the' colony, and as the society had no responsible officer in London'it was unable to obtain any. Last month the same Government placed £500,000 of per cent, bills on the local market, and in order to obtain a share of these the society had to offer a small premium. The absence of an office in London lost it over i per cent, per" annum on this transaction. The Board realise that if the existing condition of comparative stagnation in the commercial and industrial enterprise of the colonies continues th'ey will be compelled to resort more freely to investments in Government stocks ; if, on the contrary, as they believe, the present condition is only a passing phase of national life, to be followed later on by an extension of enterprise, there will be ample field for the remunerative employment of the society's increasing funds. In any event the sum which the proposed extension will add to the society's accumulations will be insignificant compared with the amounts of British capital which annually seek investment in the colonies. Furthermore, as the rate of exchange is always against a debtor country, the transfer of funds from London to ' the colonies will afford a constant source of profit.

But there is another noint in connection with the proposed extension, and bearing on the question of investments, to ■which no reference has yet been made. With the termination—now in sischt —of the present war in South Africa, there will be added to the British Dominions a large part of the continent of Africa. There can be no doubt that on the termination of hostilities there will be attracted to South Africa a. population as numerous, as enterprising, as wealth-producing as that which has- developed the resources of these colonies, and contributed to the marvellous growth of this society. There is no reason to doubt that the next half-century will witness a second Australia in the African continent. There are already evidences of a growing and prosperous trade between these colonies ami South Africa, and there appears every probability that the opportunities for safe ;i:ul remunerative investments which, tenru"'arily at least, appear to be lacking here will eventually be found in. South Africa. 3. The question of the relative rates of mortality and their influence on the profits of a life office is one which is difficult of explanation to persons not skilled in the treatment of statistics. Those who are opposed to the proposal of the Board appear to consider the question settled by the statement that the rate of mortality in ti-eu- Britain is 18 per thousand, while in ibe colonies it is only 12. We need not cousUt whether these figures are accurate or rat. fn * the reason that they have nothing whatever to do with the question. The rate of mortality in any general population has :.)o necessary connection with the rate among assured lives in such population. The mortality statistics of u general population include the } unrig children and the old people who do not find their way into life oftio'.':;. These .statistics,again, as far as Great Britain is concerned, include an enormous number who find no counterpart in these colonies—the dwellers in unhealthy parts of densely-populated cities, the paupers, and the vicious. To arrive at accurate conclusions, it is necessary to compare things that are comparable —that is, we must compare assured lives in Great Britain with a similar class in these colonies, and to render our deductions certain we must compare these under similar conditions. This, unfortunately cannot l>e done; but when due allowance*is made for the varying conditions, we arrive at the conclusion that a-ssured lives in these Colonies cannot be shown to possess a greater vitality than corresponding lives in Great Britain. The most reliable table of the value of assured lives in great Britain is that known as thc'Hm, on which our own calculations are based. This table contains the experience of 20 English and Scottish offices, from their foundation to the end of the year 1865. The experience dates back 120 years, and contains facts connected with a, period when medical science was in 'its infancy, and the principles of public sanitation imperfectly understood. Since the date at which this experience ends a number of life offices have compared their rates with those expected by the Hm table. In no instance has the Hm expectation been reached ; iu many cases, the experience has been much below that expectation. It became evident to actuaries that the Hm table does not present a true representation of the value of assured lives in these days, and the Institute of Actuaries, in conjunction with the Faculty of Actuaries of Scotland, is now engaged in tabulating the experience since 1863. Meanwhile, however, we have to rely on the Hm table, and deduce conclusions as near to the truth as the means at our command will admit. It is presumably well known that, the probability of death increases with the age, but it is, perhaps, not so well known that such probability also increases with the duration of the assurances, although the ages may remain constant. The following table, extracted from the Hm experience, will, explain this: ANNUAL MORTALITY PER. CENT. IN . YEARS OF ASSURANCE. Under 5 years 5 years and upwards Ages. in force. in force. 20-24 .65 94 30-34 74 , 94 40-44 89 ... 1.16 50-54 1.25 ... 1.88 60-64 2.90 3.57 This table means that the rate of mortality among a, body of lives, aged 20-24, who have been assured for five years and upwards, is nearly 50 per cent, greater than it is among a body of similar age assured for less than five years. As the age increases the disparity diminishes, but it is- very marked at all ages. This fact emphasisc's tho desirability of securing a constant influx of new lives, as by that means the a-ges or duration of the policies is kept down and the rate of mortality prevented from increasing. Furthermore, the rate of mortality is largely influenced by the kind of policy, being much heavier among ordinary life policies than among endowment assurances. For example, during the trirst 40 years of this society's existence the death rate among holders of whole-life policies was .978 per cent, per annum; among endowment assurances, it. "was only .511, or little more than half." It is true that the former policies had been iii force for 6.652 years, while the latter had only existed for 5.312 years, but the disparity cannot account for the remarkable difference disclosed. . At the two mortality "investigations of thi-5 society in

I 1878 and 1888 the death: to have shdwti little | anoV this'fact must "be ascribed entirely/ to the abnormal increase in the number, of endowment assurances. Unfortunately, a. favorable mortality experience among endowment assurr ances is nob a source of great profit, as it is in the case of whole-life policies. This may 'be a revelation to some members, but it has been proved to a demonstration, pur mortality investigations have shown that our deaths have been about 67 per cent, of those . expected according to the,Hm. table, and this fact, has at once been accepted by superficial observers as a proof that the mortality among assured lives is lighter in thocolonies than in Great Britain. As a matter of fact, however, the cxpaienco of British, offices has shown a similarly favorable _ex- * pcrienee. when compared with the same exdard. The difference has not been so marked as with us, but the reason for this is obsious, and will be explained directly. For example, the deaths in the Metropolitan ' Life Assurance Society of London, a most conservative office, which pays no commission to agents, and consequently transacts no business of the ephemeral' copimon in these colonies, were, at the end of 45\years, in 1890, equal to 83.5 per cent, of the expectation, but the average age of the lives at entry was 33.6 years, and the average duration of the policies was 17.8 years, while only 1 per cent, of its policies were for endowment assurances. The dea.ths in our society at the end of 40 years had been 67 per cent, of the expectation, but the age at entry was 32 years, the.duration of the policies 6.2 years, and the endowment assurances issued were 42 per cent of the total. At the end of last year the endowment assurances in force largely outnumbered the whole-life policies. No one familiar with life assurance statistics would contend that these figures disclose a more favorable experience in our society than in the Metropolitan. The London Life Association, an office similar in every respect to the Metropo'itan, reported that the claims in its eighty-ninth year were 71.5 per cent, of those expected by the Hm. table. Its policies must have been very much older than those of the A.M.P. Society. It had only 18 endowment assurances out of a total.of 8,560, and yet its experience was but little less favorable than our own. The mortalitv in the Law Life Office, at the end of 52 vears. was 92 8 per cent, of that expected by the Hm. table, but the average "age at entrv was 37.24 years, the average duration of the policies 15.69 years, and it had only 5 per cent, of its business in endowment assurances. In the Scottish Widows' Fund, which is 85 years old, the deaths ranged from 70 to 80 per cent of those expected by the Hin. table, but its policies are, of course, very much older than the end of 50 years they had been in force for over 12 years—and its endowment assurances are only about 21 per cent, of the total. The above remarks indicate that if the material for an accurato comparison existed, it would be found that the experience of this society has not been one whit more favorable than that of the offices above quoted, while the business of these offices is of a more tenacious character—less liable to lapse—and is obtained' at a cheaper rate than our?. For the reasons stated above the Board are of opinion that the proposed extension will be in the best interests of the societv.' It will enable the society to obtain 'new business of a more stable character and at less cost than ca.n be obtained in the colonics. The rate of interest being a matter beyond the control of the Board, and the probability being that, owing to the'rapid increase iii the means of communication, the interest rates will tend to assimilate all over the world, prudence suggests that an effort should be made to counteract the effect of the loss of interest by a reduction in the cost of management. The Board are satisfied that the extension will secure this end. Finally, the Board venlure to think that their experience in the conduct of the pociety's affairs, and their knowledge of manv particulars not. accessible to the general body of the members, place them in a belter position toiudgc of the wisdom of the proposed step than can be occupied bv anyone unfamiliar with the work of the office • and they arc supported in their view by the unanimous opinion of 28 leading commercial and professional gentlemen who arc charged with the conduct of the society's affairs in the other colouics, and some of whom have been connected with the institution for a quarter of a. ceuturv. With a full consciousness of their responsibility, the Board recommend the members to adopt the proposed amend' nients in the bye-laws.— v ours, etc., J; P. Abbott, „ , Chairman. Sydney, June 13.