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On the Liquidation and Reconstruction of an Insolvent Life Insurance Company

Published online by Cambridge University Press:  18 August 2016

T. B. Sprague
T. B. Sprague*
Affiliation:
Institute of Actuaries
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Extract

The first question that must be considered in connection with this subject is,—When is a Life Insurance Company insolvent? This question has recently acquired greater practical importance in consequence of the passing of the “Life Assurance Companies Act, 1870,” by which it is for the first time in effect enacted that an insolvent Life Office may be wound up, altho it has not committed any act of bankruptcy. Under the old law, even if such a Company were notoriously insolvent, it may be said that practically there was no means of putting a stop to its operations until it failed to pay an accrued claim. This has now been altered, and a Company that is proved to be insolvent can be wound up. The 21st section of the above Act provides that the Court of Chancery “may order “the winding up of any Company in accordance with the Companies “Act, 1862, on the application of one or more policyholders or “shareholders, upon its being proved to the satisfaction of the “Court that the Company is insolvent, and in determining whether “or not the Company is insolvent the Court shall take into account “its contingent or prospective liability under policies and annuity “and other existing contracts.”

Type
Research Article
Information
Journal of the Institute of Actuaries , Volume 16 , Issue 4 , July 1871 , pp. 229 - 243
Copyright
Copyright © Institute and Faculty of Actuaries 1872

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References

page 234 note * As stated in my recent paper “On the proper method of estimating the liability of a Life Insurance Company under its policies,” I have been led by subsequent reflection t o modify considerably the views which I formerly held (see Journal, vol. xi) as to the respective merits of the hypothetical and net-premium methods of valuation. In particular, my remarks on the net-premium method contained on p. 102 are to be considered as superseded by those contained in my paper above referred to. On the other hand, the objections to the hypothetical method of valuation on the top of p. 103 do not seem to me to be entitled to so much weight as I formerly attributed to them. It i s undeniable that in some cases, such as in the transfer of policies from one Company to another, the premium actually payable is an important element in the determination of the value of the policy, and the net-premium method of valuation is quite inapplicable.

I may here add that the arguments advanced by Mr. Tucker in his well-known paper (see this Journal, vol. x p. 312) in recommendation of the hypothetical, or as he calls it, the reinsurance method of valuation, are not in my opinion the most convincing that can be found. The above explanation of its operation, which was suggested to me by a remark made by Mr. R. P. Hardy, the Actuary and Secretary of the London and Provincial Law Office, appears to place it in a new and more favourable light.

page 242 note * This refers to the Office that is contemplated in the judgment as taking over the policies of the Albert. If the policies are not taken over, but formed into a Mutual Society, there is, as we have seen, no difficulty in allowing profits to the participating policyholders.