On the Bonus Earning Power of a New Business Fund

Extract

If a text be needed for this paper it is to be found in a remark of Mr. Elderton's during the discussion following a paper by Mr. Maltby on “Results of an Investigation into the effect of different valuation bases upon Surplus,” in J.I.A., vol. liii, p. 167. In the course of his argument, in which he dealt with the strain of setting up reserves on the net premium basis in respect of new business, Mr. Elderton said:

“If they could not do with as much good new business as they could obtain, which was wrong—the new business or the valuation?”

The 3 per-cent net premium method of valuation functions because over the whole business it produces results similar to those which might be expected with a bonus reserve method.