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The Select and Ultimate Method of Valuation
Published online by Cambridge University Press: 18 August 2016
Extract
“Before proceeding to examine the different methods pursued “in the valuation of the liabilities of an office under its policies, “I will briefly state what appears to me to be the true principle “upon which the valuation should be based. On the establish-“ment of an office it is assumed, or ought to be, that a certain “table will exactly correspond with the mortality likely to prevail “among the persons whom they will insure; and that a certain “rate of interest (generally 3 per-cent) is what they may with “certainty depend upon realizing. Under these circumstances, “premiums calculated upon such data, increased by a small “addition sufficient to cover all expenses likely to be incurred, “are charged. We will leave out of consideration the addition “ made for bonus, as it is only charged to be returned again. “Suppose now that all these conditions are realized, and that “after a few years it is found that the mortality experienced “corresponds exactly with the table adopted; that the rate of “interest realized is exactly 3 per-cent; and that the additional “charge, technically called the loading, has exactly covered all “the expenses. How much ought the office to have in hand? “The answer naturally will be,—the total net premiums received “in each year, less the claims paid in that year, accumulated at “3 per-cent compound interest.
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- Copyright © Institute and Faculty of Actuaries 1908
References
page 426 note * See Moir's “Office Premiums”, Transactions of the Faculty of Actuaries, vol. ii, p. 212.
page 431 note * See text of this section on p. 448.
page 432 note * “Implement, v.t. To complete, fill up, supplement, provide, fulfil, satisfy.” —Murray's English Dictionary.—[ED. J.I.A.]
page 435 note * It must, however, be understood that in fact the companies which compute premiums by the net level premium method, using an ultimate table, really fix the rates for the others by competition.
page 439 note *
Thus, since 
is the true general formula for the value, taking into account the cost of new business, it follows that, in effect, to use, the formula: 
is to charge a liability still for expenses, paid n years ago, for the net premium 
is still receivable.
page 448 note * That is, the Seventeen Offices' Experience Table.—[Ed. J.I.A.]
page 450 note * See footnote on p. 432
page 459 note * See p. 471, infra.
page 461 note * The text of the section referred to is given on page 448.—[Ed. J.I.A.]
page 463 note * The value of the initial provision by Mr. Dawson's formula, deduced at 3½ per-cent, in respect of a life aged 35, according to the O[NM] Table, is ·663 per 100 assured.—[Ed. J.I.A.]
page 465 note *
Since my paper was written the authorities of one State have declared that reserve on the basis of 
is the standard there.
page 471 note * Recommended by the Life Managers' Association and the Royal Commission in Canada.