ACTUARY'S REPORT ON THE VALUATION OF THE GOVERNMENT INSURANCE DEPARTMENT As at 31st December, 1911.

Appendix to the Journals of the House of Representatives, 1912 Session II, H-08c

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Session 11. 1912. NEW ZEALAND.

ACTUARY'S REPORT ON THE VALUATION OF THE GOVERNMENT INSURANCE DEPARTMENT As at 31st December, 1911.

Presented to both Houses of the General Assembly pursuant to Section 40 of the Government Life Insurance Act, 1908.

Wellington, 6th April, 1912. In accordance with instructions received I have made a valuation, as at the 31st December last, of the actuarial liabilities of the Department, with the object of ascertaining the net surplus available for division amongst the policyholders, and in compliance with section 40 of the Government Life Insurance Act, 1908, I have now the honour to report the results of the investigation. PROGRESS OP THE DEPARTMENT. The progress of the Department during the last three years, when compared with the two previous trienniums, in respect of new business and total business in force, is as follows: —

From the above it will be seen that, not only has there been a satisfactory increase all round— in number of policies, sums assured, bonuses, and annual premiums—but the regularity of the increase has been conspicuous. The Consolidated Eevenue Account, given below, shows the total income and expenditure for the past three years, and also the growth of the funds of the Department during the triennium. For purposes, of comparison the Consolidated Eevenue Account for the preceding triennium is also given.

Triennium. New Bus Number of Policies. New Business of Triennium. ainess of Trii Sums assured. iennium. Ii Annual Number of Premiums. Policies. In Force at End of Triennium. n Force at E Sums assured. 2nd of Triennium. Reversionary ! Annual Bonuses. Premiums. 1903-1905 1906-1908 1909-1911 9,526 9,739 10,476 ' £ 2,112,927 2,261,767 2,487,472 £ 70,428 72,803 77,477 £ 45,137 10,468,316 47,033 10,955,749 49,376 11,514,657 £ 954,751 1,068,950 1,168,620 £ 319,221 331,830 348,285

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CONSOLIDATED REVENUE ACCOUNT.

It will be seen that the regularity of the increase of income and outgo has also been well marked. Income. —The chief item of importance, besides a substantial increase in the premium income and purchase-money for life annuities, is the revenue from interest, which exceeded by £70,410 the interest-earnings of the previous three years. The average rate of interest realized each year for the past six years has been as follows :— £ s - d - £ s. d. 1906 .. .. .. 4 910 1909 .. .. .. .. 412 11 1907 .. .. .. .. 410 3 1910 .. .. .. .. 412 3 1908 4 12 2 1911 4 13 0 These figures were obtained by finding the rate yielded each year on the mean of the funds at the beginning and end of the year, and they show that the rate of interest earned on the Department's investments has been more than maintained. Outgo. —The claims have increased in a normal manner, taking into account the growth of the business and the increase in ages of policyholders and duration of policies. Indeed, the rate of mortality experienced has been extremely favourable, and the surplus has received a large accretion from this source. The surrenders were abnormally increased in consequence of a large number of policyholders relinquishing their policies immediately after the expiry of the tontine period, on the 31st December, 1910. The amount of bonuses surrendered was also increased through the same cause. This cannot recur, as the Department does not now transact tontine business, and has none left on its books. The amount paid in commission during the triennium has somewhat increased, in consequence of the larger amount of both new and renewal business ; while, as regards the expenditure on commission and management combined, the business is now conducted at a lower cost than formerly, as the following table will show : —

Ratio of Commission and Expenses (excluding Taxation).

Here again the regularity and consistency of the improvement shown is very noticeable, and it will be seen that the expense-ratios have constantly diminished since the introduction of triennial valuations, and that they are now materially lower than they were twenty-one years ago. The taxation, not included in the above, has now increased to nearly 4 per cent, of the premium income of the Department, which is a considerably higher rate than that borne by other Australasian offices. THE VALUATION. The business to be valued consisted of 49,376 policies, assuring £12,683,276 inclusive of bonus additions, and £21,405 immediate and deferred annuities per annum, the ordinary annual premiums thereon amounting to £345,825. The Department also receives £2,329 per annum, representing additions to the tabular premiums imposed when assurances are effected on lives which are estimated to fall below the requisite standard for any reason. These extra premiums are held to cover the current year's extra risk, and are not brought into the valuation as an asset.

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Triennium ending 31st Uecei iber, 1911. Previous Triennium. Triennium ending 31st Deee: iber, 1911. Previous Triennium. Funds at beginning of triennium Renewal premiums New premiums Consideration for annuities Interest Fees Tontine Savings Fund No. 2 transferred at maturity 1 £ 4,264,685 936,581 75,810 47,755 623,409 10 18,562 £ 3,822,577 905,698 70,786 38,705 552,999 36 Death claims Matured claims Annuities paid Surrenders Bonuses surrendered for cash Commission Taxes Expenses Investment reserves Funds at end of triennium.. £ 416,364 332,899 47.944 *197,055 24,712 58,151 39,152 120,565 30,000 4,699,970 £ 392,458 273,988 43,440 176,659 16,668 52,307 33,677 116,919 20,000 4,264,685 Total £5,966,812 £5,390,801 Total £5,966,812 £5,390,801 ♦In jluding tontim policies at maturity.

Year. To Total Income. To Premium Income. 1890 14-4 per cent. 20-2 per cent. 1893 13-4 19-0 1896 12-0 17'5 1899 11-9 17-5 1902 11-3 16-8 1905 ll'O 16-7 1908 10-6 16'6 1911 10-4 16-7

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Basis of Valuation. —The net premium method of valuation has been strictly adhered to, whereby the whole margin of loading has been reserved as a provision for future expenses. The H m Table of Mortality, with 3-| per cent, interest, has been used, but an additional reserve of £101,500 has been added to the liability, making it equivalent to that produced by an H m 3J-per-cent. valuation. The annuities were valued by the British Offices Life Annuity Tables (1893), using 3 per cent, interest. The valuation of the Department's liabilities under its various contracts has therefore been made on a more stringent basis than ever before, and the adoption of this course is bound to result in advantage to the policyholders. £ The value of the total liability under the several contracts is ... 7,563,873 Deduct the value of the future net premiums ... ... ... 3,181,474 4,382,399 Add special reserve of ... ... ... ... ... 101,500 Making an immediate net liability of ... ... 4,483,899 The accumulated funds (after making further provision of £30,000 towards the Investment Eeserve Fund) are ... ... 4,699,970 Difference, being excess of assets over liability, or gross surplus at 31st December, 1911 ... ... ... £216,071 The sum of £56,766, brought forward from the last investigation, together with a further sum of £44,734 from the profits of the last three years—making a total of £101,500—has been absorbed in strengthening the valuation basis in the manner already described. In adopting this course full effect has been given to the advice of Messrs. Ealph P. Hardy and George King, tendered to the Department in 1903, that " steps should be taken gradually to bring down the valuation-rate from 3| per cent, to 3J per cent, in the not very distant future." I consider it highly satisfactory that it has been possible to do this, while at the same time increasing the bonus as explained further on. THE SURPLUS. Of the surplus of £216,071 (which does not include the interim bonus paid during the triennium, amounting to £14,648), I recommend that £8,966 be carried forward, and that £207,105 be divided amongst all the participating policyholders, in the form of a uniform reversionary bonus per cent, on the sum assured and existing bonuses for each premium paid since the previous valuation, distinguishing between general and temperance policyholders in regard to profit from favourable mortality in the manner provided for by the Act. The result is that policies in the General and Temperance Sections respectively will on this occasion both receive compound bonuses of 21s. per cent, upon the sum assured and existing bonuses for each year's premium paid since the last valuation, the total reversionary bonus so allotted amounting to £333,994. This compound bonus of 21s. per cent, is equivalent to a simple bonus commencing at 21s. per cent, per annum to new policies, and increasing with the duration of the policies to 31s. per cent, per annum in the case of the older policies. These bonuses are good for the premiums charged—which are small as compared with those of other offices—and they may be expected to increase still further in the future. A complete valuation statement, prepared in accordance with the Government Life Insurance Act, 1908, is appended. In conclusion, I would again call attention to the consistently steady results of the Department's business, arising under sound and strict methods of valuation. The new business returns have steadily increased, the expense-ratio has been reduced, the mortality experience has been favourable, and the yield from interest has increased, both in amount and percentage. In addition, increased bonuses are now allotted, while at the same time substantial reserves have been made, thereby still further strengthening the financial position, and I consider the policyholders have reason to look forward to the future with great confidence. Eespectfully submitted, Morris Fox, The Government Insurance Commissioner. Actuary.

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Summary and Valuation of the Policies of the New Zealand Government Life Insurance Department, as at 31st December, 1911.

Approximate Cos. of Paper.— Preparation, not given; printing (2,500 copies), £4.

By Authority : John Mackay, Government Printer, Wellington.—l9l2.

Price 3d.

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Particulars of Policies for Valuation. /Assurances: Hm Table 3$% interest '(adjusted Vai ues \ to Hm 3i% basis > Annuities: British Offices Annuity Tables, 1893. I 3% interest. DESCRIPTION OF TRANSACTIONS. Number of Sums assured Office Yearly Policies. and Bonuses. Premiums. Net Premiums. Sums assured Office Yearly and Bonuses. Premiums. Net Premiums. Net Liability. ASSURANCES. I.—With Participation in Profits. Whole-life Assurances —Uniform Premiums Limited, Single, and Commuted Premiums Endowment Assurances —Uniform Premiums.. „ Limited .Single, and Commuted Premiums Double Endowment Assurances —Uniform Premiums Limited, Single, and Com muted Premiums Deferred Endowment Assurances —with return of Premiums Joint Life —Whole-life Assurances „ Endowment Assurances Survivorship Assurances £ £ £ £ £ £ £ 10,253 3,534,332 655 347,959 27,615 6,194,552 72,848 9°5 198,483 62,225 750 164,136 2,179,526 237,193 3,828,645 769,435 3,594 2,163,141 645,435 2,953 1,763,865 1,534,091 234,240 2,064 ,780 215 : 64,419 8,463 I 2,173,969 1,392 60,979 1,104 51,913 33,725 991,405 14,816 803,565 11,631 677,075 22,094 314.330 . ' 16 1,932 12 2,500 12 5,544 1 | 1,000 1,266 60 1,266 60 65 24 45 251 59 8 36 202 48 6 3,355 614 87 2,744 671 95 2,204 549 63 Annuity Assurances 2 55° ( 20,061 ~i 87 -j and deferred L ( annuity, 4,307 J 1,013 93i 22,174 12,389 11,416 10,758 Reserve for extra Premiums 879 3,115,191 Deduct 6,511 879 4,183,738 Add 6,511 Additional Reserve of Loading Total Assurances with Profits ., 47,331 12,346,818 335,983 281,351 7,298,929 3,770,450 3,108,680 4,190,249 II. —Without Participation in Profits. Whole-life Assurances —Uniform Premiums .. Endowment Assurances „ Deferred Whole-life Assurances —with return of Premiums Deferred Endowment Assurances Industrial Assurances Temporary Assurances Total Assurances without Profits Total Assurances 528 166,340 109 25,812 3 1,000 44 8,400 3 60 6__ 3,400 3,795 811 7 109 46 3,605 736 6 96 64,876 12,196 14 75 25 30 64,688 12,567 61,389 11,405 3,487 791 75 25 30 693 205,012 4,769 4,443 77,216 77,255 72,794 4,422 4,194,671 4,296,171 48,024 12,551,830 340,752 285,794 7,376,145 3,847,705 3.181,474 ENDOWMENTS. Simple Endowments —with return of premiums Endowments —Premiums cease on death of purchaser Total Endowments * Adjustment to pi lace as surance reser ves on Hni 3J tasis 719 256 99,296 32,150 3,675 1,297 30,729 6,615 30,729 6,615 •■ •■ 975 131.446 4,972 37,344 37,344 ANNUITIES. Immediate Deferred Total Annuities Total of the Results .. 373 4 (per annum) 16,992 106 150, 063 321 150,063 321 101 377 49,376 17,098 101 150,384 150,384 12,683,276 and £21,405 per annum. 345,825 and £2,329 extra premium (not valued). 285,794 7,563,873 3,847,705 3,181,474 4,483,899