Analysis and Apportionment of the Expenses of Management of a Life Office with a view to ascertaining the Office Premium Loadings

Extract

In 1907 I had the honour of reading before the Institute a paper dealing with the Comparative Bonuses under Whole-Life and Endowment Assurances, and therein I pointed out that the method of apportioning the expenses between the two classes had a considerable effect upon the rates of bonus, and in the discussion more than one speaker referred to the relative premiums as vitally affecting the conclusions to be drawn from any investigation. The solution of the first problem will, mortality apart, also give us the key to the rates of premium which an office should charge for Whole-Life and Endowment Assurances respectively. As the premiums are the foundation of our business it is of the utmost importance that an analysis of the expenses should be made periodically in order to ascertain the adequacy of the remuneration the office receives for the risks it undertakes. The question of the office premiums has been frequently discussed, but I do not think any paper has been submitted to this Institute in which an agreement has been shown between the loadings adopted in obtaining the office premiums and the actual expenses of the office. The object of the paper is to elicit the views of the profession upon this subject.

The commission paid by the majority of offices is, for the principal classes of Assurance, usually a percentage of the sum assured on payment of the first annual premium and a percentage of the office renewal premiums. The loading required to provide for the commissions is therefore easily ascertained and requires no discussion.