AUSTRALIAN MUTUAL PROVIDENT SOCIETY.

New Zealand Times, Volume XXIX, Issue 4239, 21 October 1874, Page 1 (Supplement)

AUSTRALIAN MUTUAL PROVIDENT SOCIETY.

[From the Sydney Morning Herald, Oct. I.] A special meeting of the members of this society was held in the principal office, Pitt street, yesterday, to receive the report oLthe directors on the fifth quinquennial investigation of the affairs of the society. The following directors were present ; —Professor Smith (chairman), Mr. John Fah-fax, Mr, J. H. Goodlet, Mr. B. Molineaux, Mr. G. R. Dlbbs, the Hon. A. Campbell, M.L.C. There was a very large attendance of members, in fact many more than the room would conveniently accommodate. The Secretary read the advertisement convening the meeting. The report having been circulated amongst the members was, at the wish of the meeting, taken as read. The Chairman, in moving the adoption of the report, said he would be as brief as possible ; but there were a few matters which he thought ought to be brought under the notice of the members, and which might perhaps be explained more fully than by a cursory glance at the report. There were a great many figures in the report, which would re2>ay careful perusal ; but figures were not as a rule very popular or pleasant reading. The directors deserved credit for the mass of figures they had given ; but they also deserved credit for the mass of tabulated statements which they had not laid before the members in the report. As an example, ho held in his hand a printed table of huge size, which it was not thought necessary to Incorporate with the report. I hey would see that the voluminous report did not represent all the work . that had been gone through in preparing it for presentation to the members. As the members were aware, this was the society's fifth great stock-taking. It had completed a quarter of a century’s existence, and they had now met to celebrate as it were, a silver wedding. It was pleasant once more for the directors to be able to come before the members with such a satisfactory state of affairs. And he thought that those who founded this society—and there were still a few of them amongst us—must look with great gratification to the immense fabric which had been reared on the foundations that were laid twenty-five years ago. As there was now some historical interest attaching to the society, he would read the names of the gentlemen comprising the first Board of Directors, appointed on the 15th December, 1818. A provisional committee was previously formed, and that committee appointed the following Board of Directors Mr. Archibald Michie (chairman), Mr. T. W. Smart (deputy-chairman), Thomas Holt, Frederick Ebsworth, David Jones, Michael Mumin. He would also give the names of those who were added to the Board during the first ten years of the society’s existence John Fairfax, W. H. Christie, Michael Metcalfe ; Dr. Savage, F. W. Unwin, Dr. Mitchell, A. T. Holroyd, George King. Those were all the directors during the first ten yearn of the society’s existence. If any of the original directors or members, now considered the h state of affairs, they could not but be highly gratified. Their original expectations, he thought, could never have led them to imagine what would he placed before them to-day. If the members looked into the particulars of the report they would see the present state of the society. But to save them the trouble of turning over the pages, he would indicate its position in as few words as possible. The society at the end of last year had 17,511 policies in force ; the total sum insured amounted to £7,000,000 sterling ; the annual ipremium revenue was close upon a quarter of'a million sterling—these three items having been very nearly'doubled during the quinquennium. And the total annual income reached the noble figure of £317,000. (Cheers.) The realized assets amounted to £1,318,076 —that being an increase of about 124 per cent, over the assets of the previous quinquennium. But he would go beyond the quinquennium, and give a few details to show the transactions of the society from the beginning. These details were comprised in an elaborate table at the end of the report. It would be seen by that table that the total income of the society from the beginning- to the end of last year, speaking —nr-Totma numbers, was £2,229.100: The sums paid during Hu-- ■ veal's to members and their representatives amounted to no less than £617,400 ; the whole expenses of management, including commission,, during the same period, was £278,600 —being just 12 J per cent, of the total income. And it would also be noticed, what was really surprising, considering the amount of business that had been done, that the whole amount put down under the head of depreciation was £19,200. Several thousand pounds of that represented furniture still in the office, which was written off last year, but which was not a loss as they had it to use ; he supposed that the actual loss was not more, than £16,000 on investments up to the beginning of this year. It ought to be noticed that of the premiums paid to the society during the twenty-five years, 75 per cent, was represented by-the investments. So much for the present position of the society and its progress during tho'past twenty-five years. When we compared this society with the English offices, we had great reason to be proud. Mr. Black had given him a table showing the position of English offices. The particulars of thirty-two of them were printed on page 42 of the report. These thirtytwo comprised the best English offices. Now in the matter of new policies in the twentyfifth year of its existence our society stood at .**/ the head of them, and very considerably at the head of them. As regarded the amounts assured we did not stand at the head, because some of the old and wealthy English offices kept a larger sum on one account. But our society stood fourth in order in respect to the amounts assured. In regard to new yearly premiums, it would be found from the same table that we stood second. There was just one office ahead of us, that was the Gresham. That was a very fine position for our society to occupy, and we had great reason to be proud. But when we turned to some of the American offices we had to hide our diminished heads. He would give the meeting some particulars of the business of the 25th year of the Mutual Life Office of New York. In tho 25th year of its existence that office issued more policies than our society had at present altogether. It issued 19,460 policies, of the value of close upon thirteen millions sterling. The annual income was about two millions sterling, and its realised assets were four and a half millions sterling. That society divided its profits annually ; and it divided in the twenty-fifth year of its existence half a million sterling. Its policies were six times the number of ours, and the sum assured was eleven times greater than ours ; its new premium income was nearly twenty times ours ; its annual income was six times ours ; but it was very remarkable that its realised assets were only three and a half times ours. He did not intend to enter at any length into the special results of the quinquennial investigation of our society ; but there were two or three points which he must notice. It would be seen that there was the very handsome surplus of £260,000 —that was, speaking in round numbers. If they went into that a little more minutely, they would find that all that profit was made on the assurance business. He supposed that some of the members present Were present at the last quinquennial meeting, and would remember that the directors pointed out that in regard to the endowment and annuity branches there was a deficiency. It was on that occasion "the subject of great debate, and he need not therefore now dwell upon it. But the endowment part of the society’s business was now on a much better footing ; and it had now a small sum to its credit—a small surplus which would be available for distribution among the endowment policies, for which a reserve was made at the last quinquennium. Jn the annuity department there was still a slight deficiency. In fact, the gain upon tho endowments just about balanced the deficiency upon the annuities. Therefore, as he had said, the large amount of profit of £260,000 had been made by the assurance branch. lie would call attention, and give some explanation respecting the guarantee fund. That was a matter that •was pretty largely debated at the last quinquennial meeting ; and it would bo recollected that £50,000 was then set aside as a guarantee fund. But no such item would be found in the present report. It might bo thought by

some that if there was any necessity for setting apart a guarantee fund ■ at the last quinquennial investigation, the same necessity must exist now— and that it would be a more prudent course to reseserve a still larger sura, corresponding to tho increased operations of the Society, An explanation of the omission could be gathered from the report; but he was anxious that the members should be fully satisfied on the point, and he would, therefore, endeavour to make it clear. The society was in a much better position now than it was in five years ago, even with the guarantee fund of £50,000. One of tho principal reasons for a guarantee fund was because the tables then adopted in valuing policies created rat.ior too small a reserve. The new method of valuing had been fully detailed in tho report presented to the members last yesr ; and it was also described in the present report. The old valuation was made upon what was known as the Carlisle tables of mortality. Tho new basis of valuation was founded upon the experience of the largest English offices, collected for many years. In valuing policies all depended upon the expectation of life. Now the Carlisle tables of mortality were founded upon the General population, including men and women, and nave rather too high a value of life as appliedto insurauco offices at least sucli was the result of extended experience. The principal insurers were males; comparatively few women insured It was well known that whilst m the earlier part of life tho expectation of life on the part of tho man was better than that of the woman, in the latter part of life the ease was reversed, audths expectation of the woman was greater than that of the man. J-hat was one reason why the Carlisle tables were considered to be not so suitable for tho insurance offices as the actuaries’ Then, again,; a kind of selection went on which operated against insurance offices, and which was now well understood. The insurance offices did not take lives at random—good, bad, and indifferent. They rejected the bad, added some years to the indifferent, and took the <r o od lives, whereas the Carlisle tables of mortality took the inhabitants of a particular district. Ample experience showed that the benefit of selection was lost in a few years—m four or five years. We begin by taking better lives than the average. But notice the number of policies that were allowed to drop. And the policies that were dropped were not those of inferior lives. The policies of inferior lives were carefully kept up. It was only when people were perfectly well and had the utmost confidence of living to old age that they dropped their policies. It was thus easy to seethe kina of selection that operated against the society—a selection that went on increasingly against the society. The benefit of the earlier selection, therefore, in favor of the society vanished entirely in four or five years, aud the result was that the assured lives were rather of less value than the general average of thelives outside. Hr. Black had put into his hand a report of a meeting of the Institute of Actuaries inLondon, and he found that Mr. Bailey, the vice-president, one of the gentleman who had given this society the benefit of his opinion a short time ao-o, said that “those who trusted to the Carlisle tables as sufficient for the valuation of the liabilities of a life assurance company aro leaning upon a broken reed.’’ And that was now universally understood to be the case. He need not dwell more upon it. Mr. Black when be first came out and found the last valuation advanced to a great degree. As he could not change the basis of valuation he recommended them” to make a reserve guarantee fund of £50,000. They had now adopted a system which was admitted to he the- best. They would find, if they went very critically into the matter, that the operation of the Hm (5) table on a society which had a very large proportion of young members, was to nuke a reserve rather larger than was needed. This society was in that position. The majority of their policies were of not more than five years duration. He thought that ten thousand of then/"were not more than five years old. So that they had in the operation of this table really a good guarantee fund, though it was not put under that name. In the table in page 31 they would find that in valuingtbe premiums of the society they did not take into account that margin which was called loading, put upon the premium to pay expenses. Their experience of twenty-five years showed that ~tEeyYtra"not“asiytnnrg"llKe use up the nmtnmt of the loading in expenses. They all knew that last year there were special causes which made the expenses of the year heavy, the total amount, including commission, reaching £38,000. But the loading for last year was over £58,000, leaving £20,000 in excess of the expenses. With all this experience of twentyfive years, they would be justified, or at least no one could find very great fault with them, if they took credit for a portion of that loading at present. But they had left all this for the future ; and this surplus not being touched would really be as good as any guarantee fund they could have. To show them that they had what was equivalent to the £50,000 reserved at tho last quinquennium, he would, iu the third place, quote the item of £25,000 put down under the head of investment fluctuation fund. He did not wish to call that a guarantee fund. The directors had some little debate among themselves on that point. Strictly it was not a guarantee fund, but it was of the nature of one. Their Government securities were worth over £25,000 more than they paid for them ; but they did not divide that. Many companies like their own did divide a profit of that sort. It was a profit now. But they did not want to sell the securities, and for the very good reason that there was no better mode of investment open to them. But when the time came that they might have to dispose of them, the profit might disappear. Therefore there was a sum left in case of a future depreciation of value. Finally, on page 31, there were two sums amounting to about £21,000 shown to he reserved that had never been reserved before. One sum was entitled a reserve for subsequent distribution of the loading received in respect of single and limited premium assurances. That referred to a matter that had been discussed in old times ; and he dared say many members would know exactly what itmeant. If a man took out a policy under table B. 5, he paid all the premium in five years,and therefore all the loading was paid with it in five years. As soon as the loading was obtained it used to be distributed, and went to swell the .amount of profits that were divided at the quinquennium. There was noth! ng loft of this loading to meet the cost of management in future years. Now that was altered, and tho proper amount was reserved to spread over future years.. Then there was a reservo of £3900 in respect of unappropriated extra premiums on endowment assurance policies. These two items, amounting together to about £21,000, wore substantially of the nature of a guarantee fund, that had never been shown in previous balance-sheets. All these four things put together ought to satisfy them that it would have been utterly needless, and worse than needless—it would have been unfair to the present members—to have added any guarantee fund over and above these reserves. If would have been simply taking from the profits justly due to the members at the present quinquennium, Well, they had a surplus of £260,000, of which they were to divide £235,000, the balance being accounted for by the sum of £25,000 at fluctuation account. How did they make out this surplus ? How did they know that out of tho £1,318,000 they had in hand they had more than enough to meet the liabilities of over £7,000,000 sterling in the future ? Well, their assets were of two kinds. There were first the realised assets which amounted in round numbers to the sum of £1,318,000, in the shape of rnorgages, Government securities, loans on policies, and other things. But that was not the larger part of their assets. The larger part might bo called contingent assets. They were got by taking the present value of the future premiums. Now at first sight many were apt to think they ought not to take that into account. He remembered one day a few years ago, a gentleman rushed in to him, and said, “ Your society is iu a bad state ; you aro completely insolvent; your liabilities aro about seven millions and you have only so much to meet them.” He said in effect, in reply, “ My good friend you forgot our future premiums.” Tho gentleman said,. “ You have no right to count on future premiums that you may not get.” “ Very good,” said ho (tho chahman) ; “ but if tho premiums cease tho liabilities will cease also.” (Laughter.) The gentleman never

thought of that, and 'so he “Oh, good morning ; I need not detain you,” and walked off. (Laughter.) That was the important particular in which this business differed from an ordinary mercantile affair - They had been taking stock. A merchant also took stock, hut he could not put down anything for future profits. They could, just for the reason that if their income stopped their liabilities stopped also. Tima they were able to include the present value of their future premiums. Their liabilities amounting to £7,163,000 they would have to pay to the last farthing, but the time in which payment would be made would run over at least fifty years. The present value of this liability could bs calculated. It was £3,321,000 that was to say, if they were to invest that sum at the present time at 4 per cent, compound interest, theu that sum would be sufficient to pay off the whole of their obligations, providing there were no future expenses. Then they calculated their contingent assets by taking the present value of the future premiums, taking care, however, not to include the loading or margin allowed for expenses. They would find that the present value of tho loading was £746,626 which would he devoted partly to meet expenses, and partly as a gurantce, as he bad already mentioned. The contingent assets amounted to £2,298,030, which added to the realised assets made a total of £3,610,706. If they subtracted from that tho present value of their liabilities they would get the surplus, which might bo called profit, and that was available for distribution. All these calculations hinged upon the expectation of life. They would therefore see that it was extremely important to get accurate tables of mortab’ty. The tables used by Mi - . Black wore recognised as being the standard tables in England. But the circumstances of the colony might be different from those of England. That was a matter Mr. Black would keep iu view ; and it might be that they would have to form tables for, their own use from colonial experience. All they could do was to act up to their present light, aud they had done so, noth the view to make the society as secure as possible for the future. Having got their surplus, it was to be divided, and the mode of division had already been well debated. The former method, which was so severely condemned by the actuaries in England consisted in this, that after the total surplus was ascertained, the value of each policy was ascertained and the surplus was divided in the ratio of the values of the policies. That method was found to throw more aud more profit every quinquennium into the hands of the old members aud the holders of policies under tables B. aud J. This sort of thing got worse as the society grew older, and if they had not changed the system the bulk of the present handsome sum of £235,000 now available for distribution would have gone into the hands of holders of policies of more than ten years’ duration. Under the old method the bonus distributed among the new members would have become less and less at every investigation, aud the old members would have received more and more, and this, too, granting that the profits., of. the society continued to he equally large. That subject, however, had been sufficiently debated. Now the profit was divided under two' heads. To make a division the value of each policy was taken as before ; hut in addition to that the amount of the loading each policy contributed during- the five years was also taken. So much of the profit as had arisen from excess of interest (and anything above 4 per cent, was profit, as all their calculations were based upon 4 per cent.) was distributed among the policies in the ratio of their value at last investigation. Mr. Black had fully justified this method in his report. A certain reserve was made iu regard to every policy that was supposed to fructify at 4 per cent. If it fructified beyond that, then the excess had to go back to the policy. But there were various other sources of profit. The loading was the chief source over and above the interest. Mr. Black proposed to take all the rest of the profit and divide it in the ratio of'the loading contributed. It was stated in the report submitted some time ago to be under all the circumstances as fair and as equitable a system as could possibly be adopted. He trusted members would keep in mind when they got the statements of their bonuses that they had now adopted a different system. Formerly a member had to elect within twelve mouths after the bonus was declared whether iIG would tJ-kc its cash value or not. " X£ lie allowed twelve months to elapse he could not then take it. Now he could come and get the cash value at any time. Therefore he trusted that this would obviate any particular rush after cash bonuses. The longer the policyholder left his bonus with the society the more valuable it would become to him. Before concluding, he must, as he had done before, bear testimony to the great help the directors had had from Mr. Black. They owed a great deal to his ability aud enthusiasm. That gentleman went into the matter con amove. It was not with him pure business. It was evidently a pleasure. Perhaps they sometimes thought he asked them to give too much information, hut that was clearly erring on the safe side, as he had made everything as full and plain as was possible. Acting under his 'advice, the directors bad given them information on all essential points iu the particular form required by the English Life Assurance Company Act of 1870. That Act provided that every company must answer a number of questions. . They had no such Act in this country, and therefore they were not bound to give information in.that form. But the English Act had been carefully considered in England, and the information required under it was of a kind which the public ought to have in regard to every insurance company. The value of the Act had been recognised very strongly, and a recent article in the Economist entered into some details about it. He should be glad to see this article published here. If it were read it would be seen that the working of this Act had been very beneficial in England. In the main it had been adopted in Victoria and New Zealand, although they had added to it some provisions of doubtful utility. Mr. Black then had advised them—and the r advice, he thought, was good—to offer this information required by the English Act. Questions were put and answered by Mr. Black in his report on everything of consequence connected with tho society, and it afforded the best means of comparison with other offices. He thought it would be well if in this colony an Act were introduced similar to the English Act, to require all insurance companies to give their information in the same stylo. One reason why this Act had been introduced into England was the collapse of several English offices, and the -widespread distress occasioned thereby. The safety of tho public required it, although the exposure of companies’ affairs might appear to be too inquisitorial. At their last annual meeting he quoted some figures showing the gigantic development of insurance companies now-a-days. ■ There was nothing more important than to provide that their operations should be sound and safe, and that could not be done except by a full disclosure of their affairs. As bo had just remarked, they were greatly indebted to Mr. Black for the services be bad rendered—services which went beyond bare obligations. That gentleman had not performed his duties in a perfunctory way, but with enthusiasm and with intelligence. He had also to acknowledge tho assistance which had been given by the other officers. The various changes in conducting the society’s affairs, in addition to the present valuation, had necessarily involved a large amount of extra labour in the office. That had been cheerfully accorded, and an enormous amount of work had been got through during the past two years. As soon as the pressure of the investigation was over the directors intended to go into the matter in detail, to see who bad given extra services, and they hoped to make some acknowledgment of them. (Cheers.) It was of groat consequence in an office of this kind that there should be careful and efficient assistants. Tho directors desired to make the office accounted a good office to be in—an office that would attract and retain the best class of assistants. The increased business of the office had made it necessary for the .directors to anticipate material changes in the organization. They could not rub on any longer in the present offices. There was not sufficient accommodation ; and they had been cramped up in tho most inconvenient way for a year or two hack ; aud something had now to bo done. The first idea that the directors entertained was to resume possession of tho whole building, aud remove a certain

number of the offices upstairs. But on more mature consideration, it was apparent that the expanse of altering the building would be very groat. It would necessitate a complete refitting of the interior, and the strong room would have to he taken down entirely. And what were they to do whilst that refitting was going on—because the office work could not be remitted for a single day ? Well, the directors had come to the conclusion that the best thing to do was to erect new offices. And for that purpose they had secured a piece of ground on the opposite side of the street. Everyone who had anything to do with altering old buildings must know that it was a very unsatisfactory thing. To alter the present offices would cost several thousands of pounds, and the place would not bo satisfactory then. The directors, after they had built new offices, would be able to sell the present building for a considerable sum, and that, added to what the alterations would cost, would probably bs almost equal to what a newbuilding would cost. It would be seen, therefore, that it would be more profitable to put up a new building, inasmuch as they would have much greater accommodation than could possibly be obtained by an alteration of the present offices. And a part of the new building might be let at a good rent. Under the new laws the directorsdid not require anyformal sanction of the members for talcing such a step: It was one of those matters which he thought had been wisely loft to the discretion of the directors. If they had been compelled to call a meeting to take the opinion of the members, with respect to the purchase of the piece of land opposite, it would have caused great delay ; and by the time formal authority to buy bad been given, the price of the land would have been raised perhaps considerably. At the same time, although the formal sanction of the members was not required, the directors would be gratified to receive an informal sanction, if it should please the members to give it. He would say finally, that if things went on as now—and there was no reason why they should not go on improving —he thought that when the directors met the members this time five years, in tho new buildings—as he hoped they -would—it was very likely they would be able to report that the realised assets of the society were not less than two and a half millions sterling, and that the premium income was not less than half a million sterling, and that there was a grand surplus of half a million to divide. May we all live to share in the proceeds. (Cheers.) Mr. John Davis seconded the adoption of the report. A member asked whether the cash bonuses amounted to tho profits made ? Mr. Black replied that tho bonus would be a reversionary one. Tho £235,000 would be converted into reversionary bonuses, and the whole of the £235,000 would not be exhausted. If the members took the cash value of thenbonuses, a profit in the shape of discount would remain to the society. That was all explained iu the report presented at the last meeting. Mr. Lee asked whether the directors intended to get tho law of this colony iu regard to insurance societies assimilated to that of England ? The Chairman replied that he did not think it would be in the province of tho directors to take any steps of the land. If they did their action would be looted upon as being hostile to other societies. It was more a matter for the Government to take up. , Mr. Oowlishaw asked whether the amount of profit to be divided had been calculated uponthe cash value, or: upon reversionary bonuses ? The Chairman said that the matter was fully explained in the report, that the bonus allotted to each policy was a reversionary bonus. Each person would receive a notice informing him what the reversionary bonus was, and if the policy bolder preferred to receive cash, a small discount would be charged iu favor of the society. This was stated in the last report, on page 107 —“lf the society wei-e then to give all the members the option of taking either the original sum allotted to the policy or the aforesaid reversionary equivalent, it is clear that all those of the assured who were in a precarious state of health woidd elect to take the reversionary equivalent; and those who elected to take the cash would therefore, on the average, be in a better state of health than the general body of tho assured. The society would consequently be exposed to a loss by the assured thus exercising their option; and to g-uartl against this loss we have recommended that the cash alternative, or the surrender value of the reversionary bonus, should he computed at a higher rate of interest, which I think might very properly be 5 per cent.” Mr. Josiah Mullens desired to call attention to what appeared a discrepancy. On page 7, the number of policies were put down at 17,511; the amount assured, £6,977,795 ; and the annual premium, £247,678. On the next page the annual premium was put down as £249,197. Mr. Black explained that £1,509 was included in the latter table, as premiums for extra risks. It would not have done to have included that sum in the comparison contained in the table on page 7. On page 31, the sum of £1,509 would be found reserved for climate and other special risks. Mr. Mullens said he was perfectly satisfied. Ho was led to ask the question in order that an explanation might be given to the meeting. Mr. Brodziak said he could not find any notice of the £50,000 which was reserved five years ago as a guarantee fund. The Chairman said it would be found discussed in page 13 of the report. It had gone to swell the profits. The motion for the adoption of the report was agreed to. A vote of thanks to the chairman and directors was carried with acclamation, and the meeting terminated. The following is the Society’s Fifth Quinquennial Report. Report of tho Directors on the Fifth Quinquennial Investigation of the affairs of the society, presented to the members at a special meeting held at the principal office, 98, Pitt street, on Wednesday, the 30th September. In reporting the result of the fifth quinquennial investigation into the affairs of the society your directors beg to lay before you— The report by the actuary, dated 22nd September, to which aro appended accounts aud statements, including—1. The consolidated revenue account from Ist March, 1869, to 31st December, 1373. 2. The valuation balance sheet of the society, as at 31st December, 1873. 3. A summary and valuation of policies in force at 31st December, 1873. 4. Particulars respecting the valuation of the liabilities, with tables of specimen bonuses, &o. These have been prepared, as tho Actuary explains in his report, in the form prescribed by the “ Life Assurance Companies’ Act, 1870” (England). The schedules convey ample and precise information regarding the position of the society, and will enable the members and the public to judge of its stability aud future prospects, besides affording the means of comparison with tho returns of English offices. In the fourth quinquennial report the attention of the members was called to the method of dividing the profits, and the dh-ectors stated their intention to propose certain alterations in the bye-laws to provide for a more equitable system of distribution. The members have already been made aware of the steps taken by the directors iu carrying out that intention. After much investigation and deliberation certain amended by-laws were submitted, not only providing for an improved method of dividing profits, but also liberalizing the conditions and extending the privileges of membership, and facilitating also the investment of the funds. These by-laws were confirmed and finally passed on the 28th October, 1873. To give legal effect to these changes your directors obtained a spousal enactment, entitled the “ Australian Mutual Provident Society’s Act Amendment Act of 1873,” which, having passed both Houses of Parliament, received the Royal assent on 13th January, 1874. The present investigation has been conducted under the new regulations, and in conformity with the system recommended by the society’s actuary, and approved by the eminent English actuaries whose opinions were laid before you on the 20th August, 1873. Believing that the principles which have been ob-

served are fair and equitable, and the actuary having reported in pursuance of the 20th by-law, “ That, according to the most correct calculation of which the case will admit, the interests of all the contributors to the society, and of persons having claims thereon, in possession or expectancy, are, by tho proposed scheme of division or distribution, fairly dealt with and secured,” the directors now submit the results to the members of the society. The gross surplus, as exhibited iu the quinquennial balance sheet, amounts to £259,899 10s. This includes an item of £24,714 10s., estimated increased value of Government debentures, which, iu pursuance of the provisions of the by-laws requiring a re-valuation of the assets at quinquennial periods, have been taken at the market price on 31st December, 1873. The directors do not regard this item of surplus as applicable for distribution, and it has been carried to an “ Investment fluctuation account’’ as against future possible depreciation. Your directors considering it unnecessary, for the reasons given by the actuary, to make any additional reserve by way of guarantee, have set apart the whole of the remaining surplus, amounting to £235,185, for distribution. For particulars concerning the investigation, your directors refer to the actuary’s report, which they have adopted. Tho accounts and statistical summary appended thereto contain a concise and exhaustive exposition of the progress of the society from its establishment, and of its financial position at the close of the fifth quinquennium. The calculation for the allotment of bonus are being proceeded with, and when the work is concluded certificates, specifying the amount of bonus allotted, will he forwarded to each participating member. Report by the Actuary to the Board of Directors of the Australian Mutual Provident Society, on the investigation of the Society’s affairs, as at 31st December, 1873, and the divisions of an ascertained surplus among the members. Since the last investigation of the society’s affairs took place, the members have unanimously assented to new by-laws for the regulation of its affairs. It will he useful for reference to note at the outside of this report the alterations embodied in the new by-laws and confinned by legislative enactment. They are as follows ; I. The Assurance Endowment, and Annuity Bl anches have been consolidated, thereby securisfg payment from one general fund of all policies issued by the society. 11. The allotment of a bonus to every policy in force at the date of valuation. The reversionary additions not to vest in the case of policies issued subsequently to Ist March, 1873, until they have been iu force for' five complete years. 111. The limit of twelve calender months for exercising the opinion of commuting reversionary additions for cash or reduction of future annual premiums, has been withdrawn, and the members are now free to deal with their bonus additions at any time for cash, or in reduction of their premiums for life, or for a term of years. IV. Contingent prospective additions are to be made on all participating policies which may become claims between Ist January, 1874, and 31st, December, 1878, provided the policy is of not less than five years’ standing. In addition to the foregoing new regulations, the society has now power to issue policies without participation iu profits ; to advance by way of loan, ninety per cent, of the surrender value of policies ; to pay claims one month after notice of the death of a member has been received ; and to invest the funds in making advances, upon, or iu the purchase of reversionary interests and Government securities of Great Britain.

STATISTICAL SUMMARY OP THE BUSINESS. 2. The completion of the fifth quinquennial period since the society was astabhshed affords a suitable opportunity for tracing its progress from year to year, and for systematically recording the business experience of a quarter of a century. I have accordingly prepared and appended to this report a statistical summary showing the income, the outgo, and the assets of the society for each year fi-om 1849 to 1873 ; tho liability in respect of policies still in force for these years, as well as the assurance business effected, discontinued, and existing for each year and for successive quinquennial periods. Then follow tables showing in a condensed form the policies granted, void, and in force at 31st December, 1873. A third classification of the policies appears in the Statistical Summary, according to their duration, and is furnished for the purpose of exhibiting the amount of assurances remaining in force in respect of policies issued in each year from 1849 to 1873. The entire business transacted by the society from its commencement has been brought under observation, and I have the satisfaction of reporting a perfect reconciliation between the registers. Each verifies the other both in point of policies issued, amount assured, and annual income. 3. The assurance policies in force at 31st December last, when compared with the business existing at 28th February, 1869, exhibit the increase that has taken place during the period under review. The net quinquennial increase may he thus summarised. The policies have increased 97 per cent, in number ; the sums assured 81 per per cent, in amount ; and the premium income has been augmented by 80 per cent. Of the business that was in existence at the commencement of the quinquennium 25'5 per cent, has been cancelled. The proportion of the assurances then existing to the total business now in force has a special significance and interest at this investigation. The number of policies included in the valuation which were in force five years ago represent only 39.5 per cent, of the total number now on the registers ; the sums assured 40 per cent. ; and the premium income 42 per cent. The business of the society would have been reduced to the numbers shown in a table if no new members bad been admitted during this quinquennium. 4. Another view of the society’s position will be obtained by withdrawing from observation the entire business which was in existence at the commencement of the quinquennium. Theu follows a table showing not only the now business transacted the last five years, but the new business remaining in force at the end of the quinquennium. It represents, in fact, the new business of a society at the end of its first five years, transacted by a society established for twenty-five years. 5. The total expenses of management have been 15 per cent, on the premiums aud consideration for annuities received during the quinquennium. Compared with the former period there is a slight increase of a half per cent., chiefly due to the special expenses mentioned iu the accounts for the year ending 23th February, 1873. The interests of the old and new members have been fairly considered in the adjustment of the expenses incidental to the introduction of new business. The advantage which tho society derives from tho introduction of new members is exemplified in a table, which shows the per cent, of the total expenses of management for each year of the quinquennium on the premium income. The expenses of management on the premium income at the close of the last quinquennium was 15-67 per cent. G. From tho Consolidated Revenue Account it will he seen that on the 31st December, 1873, the total funds were ... ... £1,318,076 13 10 And on the 28th I’ebruary, 1869 587,234 0 3 Thus showing an increase iu the quinquennium of ... 730,842 13 7 Which is at the rate of 124 per cent. The total premiums and consideration for annuities received in the quinquennium, were ... ... 945,840 0 0 The interests received on the investments was ... ... 250,702 0 0

The total receipts, exclusive of the profit on the investments, were ... ... 1,196,542 0 0 And the total disbursements for claims, surrenders, cash bonuses, and expenses of management, were ... 500,820 0 0 £095,722 0 0 The net premiums amount to £759,285, from which it follows that 91.5 per cent, of the net premiums, and 74 per cent, of the gross premiums received during the quinquennium has been invested. S. During the last five years 379- members have died, and the society has paid £218,322 to their representatives. The claims have been considerably within the expectation ; some interesting particulars under this head will be found on page 47. The mortality experience of the society and the cause of death of all the claims which have fallen due, will be reported on separately. This I hope to be able to accomplish in the course of next year, or early in 1876. 9. The profit realized by the sale of Government debentures has produced £17,380. With the exception of £1525 the whole of this profit has been derived from debentures purchased anterior to the commencement of the quinquennium. The Colonial Government securities now held have been revalued, on the principle of estimating them at their market price on the day the books were closed for this investigation. It is proper in my opinion to value the securities at the price of the day whether that be above or below the cost price. If it were in contemplation to divide any portion of the profit arising from the increase in the value between the purchase and market price, then I should recommend the average price over a period of years to be taken. The market value is of course subject to fluctuation, and until such time as the securities are realised, it will be safer not to deal with this part of the surplus otherwise than by creating an investment fluctuation fund. The amount that will stand at the credit of this fund in next year’s balance sheet is £24,714 10s., as shown in the consolidated revenue account and valuation balance sheet. The, particulars, showing how this amount is made up, appear in a table on page 17. The difference between the par value of the debentures and the value in the books of the society is £3952, —tbat is to say, the difference between the value of debentures purchased at a premium and at a discount is represnnted by the sum stated. The rate of interest they yield has been adjusted so as to produce the par value at maturity, irrespective of the purchase price. Appended hereto is a schedule of the present investments, showing the interest they yield ; the average rate on the total assets productive and unproductive is £5 ss. There is another schedule on page 20 to which I would direct your particular attention ; it shows the amount invested in each class of security at the beginning and end of the quinquennium and also for intermediate years. The proportion which each description of investment bears to the total assets is exhibited, as well as the rate of interest they yielded at the close of each year. The fall in the rate of interest at which the funds have been invested during the past quinquennium has had an important effect on the result of the society’s transactions during the period under observation. The cause of the fall in the rate of interest on the funds that have been accumulating can be clearly traced in the schedule of class investments, which I have furnished for your information. THE VALUATION OP THE LIABILITIES. 10. The tables of mortality, and method of valuation adopted at tins investigation, having been the subject of a reference to actuaries in England, it is unnecessary to make any comment on the propriety of adopting as the new basis of valuation the institute of actuaries’ mortality tables in place of the Carlisle tables, which have been used heretofore. The valuation of the society’s assets and liabilities, which it became my duty to make as at 31st December last, has been conducted in strict conformity with the new and approved basis. The accounts and statements exhibiting the valuation of the life assurance, endowment, and annuity business are in substantial accordance with the returns required under the Life Assurance Companies’ Act, 1870 (England). That Act requires all life offices established in the United Kingdom to state the principles upon which their calculations are based, the detailed results of their valuations, the method on which they distribute their profits, and their practice as to surrender values. Returns similar in character to those appended to this report will have to be deposited with the RegistrarGeneral of Victoria and the public trustee of New Zealand, in compliance with the requirements of their respective Life Assurance Acts. I attach much importance to the compulsory publication and registration of life assurance companies’ accounts and valuations on a uniform system, and desire to see an Act for thenregulation in force both in this and the other Australian colonies where assurance legislation has not taken place. RESULTS OP THE VALUATION. 11. The state of the affairs of the society at 31st December, 1873, may be thus summarised; The total funds as shown in the valuation balance sheet amount to ... *£1,318,076 13 10 The net liability of the society under its assurance, endowment, and annuity contracts is ... 1,058,177 3 10 The difference ... ... £259,899 10 0 is the surplus profit of the quinquennium. Of this surplus I recommend that £235,185 be on this occasion divided among the members, and that £24,714 10s. be retained to form an Investment Eluctuation Eund. 12. The Life Assurance Fund as shown in the balance sheet is ...£1,191,030 5 8 And the reserve for net liability under the assurance contracts is ... 955,959 3 10 13. The assurance policies entitled to participate may be classed as under : —■ Class 1. Policies effected between January, 1849, and 1853, in number ... ... ... 28 2. Policies effected between 1853 and 29th February, 1868, in number ... ... ... 5403 3. Policies effected between Ist March* 1868, and 28th February, 1873, in number ... 8395 (This class participates for the first time in the profits.) 4. Policies effected between Ist March and 31st December, 1873, and for whom a bonus has been reserved, in number 2209 16,035 The bonus additions to this class will not become vested until each policy shall have been in force for five complete years. 14. The surplus-to he divided among the above 16,035 policy holders will, I estimate, provide a reversionary bonus of £634,744. 15. I recommend further that contingent prospective additions be made to all participating policies that may become claims between Ist January, 1874, and 31st December, 1878, but that the amount of such prospective addition for the current year be not fixed until the result of the annual valuation of the assets and liabilities as at 31st December, 1874, has been ascertained. The Board will then be able to fix the prospective additions equitably to the members, and with reference to the profit realised by the society. 16. Examples of the bonuses to be allotted are given on page 18 in respect of class 1, and on pages 14 and 15 in respect of classes 2 and 3. The bonuses the members are to receive, as well as those they would have received if the old method of distribution had been in operation, are also shown. Examples of the bonus to be allotted to policies in force under Tables A, B, and J are given on page 27. • The reason of the difference in the amount of the assets of the society as shown in the audited balance-sheet ou page 23, and that appearing in the valuation balance-sheet arises from the ro-valuation of the securities required to be made at the quinquennial investigation.

17- The Endowment Eund is £73,199 15 1 And the reserve for the net liability 71,813 0 0 The endowment policies in force at last investigation, 654 in number, will share in the surplus in proportion to the reserve then held for each policy. 18. The annuity fund does not admit of the declaration of a bonus. The necessary reserve for the liabilities computed by the Government annuitants’ table (1860) is £30,405 ; and the annuity fund is £29,132 3s. Id. 19. It devolves upon me, in pursuance of a special resolution of the Board, to certify to a method of distribution which has been adopted by the directors as fair and equitable to all the members. The method is described on page 25, and need not be recapitulated. I therefore certify “that according to the most correct calculation of which the case will admit, the interests of all the contributors to this society, and of persons having claims thereon, in possession or expectancy, are by the proposed scheme of division or distribution, fairly dealt with and secured.” THE HIGH RESERVE MADE FOR THE LIABILITIES. 20. The special characteristic of the data which have been employed for ascertaining the liabilities is, that the profit from what is called suspended mortality has been excluded, and therefore a high reserve has been established. If the Carlisle table had been used on this occasion, the surplus brought out would, I estimate, have been £402,899, or £143,000 more than that which has resulted from the use of the Institute of Actuaries’ Hu (5) table with Hm pure premiums. The results may be stated thus:— The reserve required for the assurance liabilities by the Carlisle table would have been £812,959, but by using a table constructed so as to leave out of account the profit arising from selection during the earlier years of the assurance, a reserve has been made of £955,959. The society has, as I have elsewhere shown, nearly doubled the business during the last five years ; and the difference between the results brought out by the Carlisle and Institute tables are more marked in the case of this society ou account of the large influx of new lives during the quinquennium. At the last investigation I recommended £50,000 of the then ascertained surplus to be retained as a guarantee fund, and that sum was equal to 1372 per cent, of the assurance liabilities. If the present valuation had been made on the Carlisle basis, a sum of £118,172, equal to 12-84 per cent; of the assurance liabilities, would have been required as a guarantee fund, in order to make the reserve for the liabilities of the Carlisle table equal to the reserve which has been retained under the new and approved basis of valuation. 21. The addition to the net or risk premium amounts to £58,455 per annum. The whole of this margin, commonly called the loading, has been reserved for, future expenses and profit, and no portion whatever has been anticipated, or brought into account.... ■' 22. The' following special reserves had been made:— i. The sum of £17,855 has been reserved out of the loading , received, . and limited premium policies., .■ li. The sum of £2732 has been reserved, being half of the total extra premiums paid upon current policies. hi. The sum of £3942 has been reserved for subsequent appropriation among the holders of certain endowment assurance policies. rv. The sum of £11,870 lias been added to the value of the liabilities to meet the payment of claims one month after death. 23. The profit to be allotted among members exceeds the sum divided on the last occasion by £l3B, 85. Large as are the bonuses to be now declared (and they are very large when compared with the bonuses of any of the English offices), it would not have been proper, in fact I think it would have been unjust to the present members, to make greater provisions for the liabilities than has been made. 24. With a reserve baaed upon the new data above described, and a guarantee fund equal to 2'5 per cent, of the assurance liabilities, the society is in a very strong position—fortified, in fact, to an extent which can only be fully appreciated by those conversant with the relative positions of life assurance institutions. Respectfully submitted by Morrice A. Black, Actuary. Sydney, 22nd September, 1874.