H.—l

3

16. Averages and percentages deduced from the tabulated returns for the years 1881-96 are given in Appendix I. 17. Information as to the forms kept in the Eegistry Office for the convenience of societies, and sent free on application, is to be found in Appendix IV. 18. For many years statistics relating to the sickness and mortality of New Zealand friendlysocieties have been collected and tabulated, and at the end of two quinquennial periods the experience was analysed. Since 1891 an analysis of the experience for the quinquennium preceding the valuation date of the societies" valued in the office has been made concurrently with the valuation. Tables of the general mortality of the colony have been recently published. It is thought that a step forward may therefore now be taken by substituting, as far as possible, in the calculation of present values, New Zealand rates of sickness and mortality in lieu of English rates, the only standard hitherto available. Owing to the paucity of numbers at the higher ages it is still compulsory to make use of English sickness rates aftsr age 70, the experience for the years 1876-80, contained in a special report to the English Chief Eegistrar by the Actuary to the Friendly Societies, being accepted pending the collection of additional statistics of the colony. The death rates are taken from " Bates of Mortality in New Zealand," by Mr. George Leslie, Assistant Actuary, Government Life Insurance Department. On these data are calculated the present values of an annuity for life, and of the several liabilities on account of benefits during sickness, and at the death of a member, and of a member's wife. The rate of interest assumed in the calculation is 4 per cent. If before long it may be thought desirable to lower the rate, yet, while many societies continue to find safe investments for their accumulated funds at a> considerably higher average rate, the need of reduction cannot be said to be urgent. 19. It should be clearly understood that no new method is being introduced into the valuation of friendly societies. The adoption of a New Zealand table of sickness and mortality has been contemplated for years. The English table, although disparaged by some as a temporary standard for New Zealand societies, proved a serviceable guide which all would have done well to follow. The objection that it was too severe a test under what were hopefully regarded as more favourable conditions is now disposed of, and a lasting tribute is due to the memory of the able compiler of the statistics on which it was based for most valuable service rendered to friendly societies throughout the world. 20. The effect of a relatively lower rate of mortality is to increase the present value of the contributions, and at the same time to decrease the present value of the death benefits. There is also, in the new table, a decrease in the present values of the first-twelve-months sickness. On the other hand, there is a great increase in the present values of the after-twelve-months sickness, which a reduction in the rate of chronic sick pay will only partially counteract. The lower the rate of mortality at any given age, the greater is the number of lives subsequently at risk; whereby, apart from any increase in the rates of sickness per member, is created an increased total liability, and whereby, notwithstanding a decrease in the sickness rates, there may be. an equal or even a greater amount of sickness to be paid for. Moreover, the deaths among members of friendly societies have been fewer than the expectation as compared with the general rates of the colony, the result being a further addition to the number of lives at risk and a corresponding increase of liability. 21. It cannot be said that societies were not well advised. Nearly twenty years ago a table of rates of coptributions for benefits was prepared by the Actuary and recommended by the Eegistrar for adoption. As the danger which threatened their finances became more clearly defined, the warning note was repeated by every actuarial valuer, It was very difficult, however, to persuade members that the effect of a low death rate could be unfavourable from a financial point of view. The strength or weakness of a friendly society is mainly determined by the strength or weakness of its finance. It is of no avail that all its other rules are model rules unless the contributions to the sick and funeral fund are adequate to provide the promised benefits. The following extract is from the 1897 report of the Public Actuary in South Australia. Had Mr. Gouge known the history of friendly societies in this colony, and how confident many of their members were that the actuaries who made the first valuations were altogether wrong, that the Registrar's warning was unnecessary, and that the members themselves were the only competent judges of the position, he might have included New Zealand also in his reference. The publication of the results of the investigation into the financial condition of friendly societies in this colony, as disclosed in my last report, created in the minds of many members mingled feelings of alarm, despair, and ridicule ; and those who were moved by the latter sentiment were not slow to give expression to their opinions. The process employed in the valuations to ascertain the ratio which the probable future receipts of a society bore to its probable future expenditure being the first of its kind which had been brought under their notice, it was rather to be expected that the members would fail to entertain a proper appreciation of the meaning of "present value," or of a " valuation balance-sheet." If, as the result of my investigation, I had told them that their society during the previous five years had received in cash so much more than it had paid away, that would have been clear to them, and conclusive proof that they had made so much profit, and they would have been comforted by the assurance. But when I demonstrated to them that, as to the future, the present value of the probable expenditure was greater than the present value of the probable income by a sum much larger than the funds which the society had then accumulated, the mingled feelings just indicated were expressed. By general consent my conclusions were pronounced to be wrong, and the members who had not taken the trouble to read my report and study the basis upon which those conclusions were arrived at were most assured of that fact. Similar opposition and adverse criticism were manifested in England many years ago, and also in Victoria, when the actual condition of friendly societies there was disclosed and remedies suggested. 22. The following table of contributions for benefits is published for the information of societies in terms of section 5 of " The Friendly Societies Act, 1882 " : —