The object of this paper is to attempt to evolve a theoretically correct method of valuing life policies in an office having a ‘level’ Compound Reversionary Bonus system. This method can then be used to examine the existing methods of valuation in detail, and also to trace the connexion between the existing methods. The theoretical method of valuation can be approached by a mathematical analysis on strictly theoretical lines. A Compound Reversionary Bonus method has been used in this paper, but similar principles can be applied in the case of a simple reversionary bonus method.

It is emphasized at this early stage that I am only concerned with the theory of valuations, and the practical points, such as legal requirements, presentation of valuation results and simplicity of valuation machinery, are not considered.