The first Income Tax proper was the Income Tax Act of 1799 imposed by Pitt as a more or less temporary measure intended to finance the war with France.

Subsequent amending Acts were passed in 1803, 1805 and 1806. In 1816—just after Waterloo—the Tax was abolished and remained in oblivion for 26 years. In 1842 it was resuscitated by Sir Robert Peel, who was responsible for the Income Tax Act of 1842, and the Tax has remained in force ever since as a permanent and increasingly important part of our financial system. Of the Acts subsequent to 1842 the most important is the Act of 1853 when Gladstone left his mark on the Tax in several important particulars.

Up till 1860 the annual Act by which the Tax is imposed was known as the Income Tax Act. From that time onwards—in order to make it more difficult for the House of Lords to exercise their constitutional right to reject money bills—the Tax, along with several others, was incorporated into one Act called the Customs and Inland Revenue Act. In 1894 the title was changed to the Finance Act, by which name it has been known ever since.

It has been said that the chief object for which insurance offices exist is to pay claims. Whether this is true or not it is certain that the payment of claims is an important part of the business of life offices. Before, however, claims can be paid it is necessary to ascertain who is the proper person to receive payment and in view of the troubles in which an office may be involved if payment is made incorrectly it is essential that those who aspire to official positions in life offices should have some knowledge of law.

As under the rules of this Society this paper must be read in 20 minutes it will only be possible to deal with a few of the points which arise, but it is hoped that it will give a bird's-eye view of the subject and so enable those who are about to consider it more fully to do so with advantage.

In the following notes English law is referred to in the absence of any statement to the contrary.

There are three conditions which must be borne in mind in the calculation of office premiums.

Necessity for adequacy. Every premium charged must be sufficient to cover the risk and the expenses which are incurred in connection with the particular policy in question, and also to provide a reasonable contribution towards the general expenses and to leave a margin for profit. The fact that several offices charge very low rates for whole of life without-profit policies seems to indicate that the necessity of complying with this condition is a question on which some difference of opinion exists.

Influence of competition. The rates should compare well with those charged by other companies. An office which charges exceptionally low rates at certain ages or for certain classes of assurance will find that it is issuing a large number of policies in these sections of the business, and that people are going elsewhere for the classes of policy for which its rates are high.

Principle of consistency. The rates charged at differentages, and for different classes of assurance, should be consistent, and the differences between the with-profit and without-profitrates should be reasonable in view of the rate of bonus whichthe office is, in normal times, in the habit of granting.

The present paper has been given the title of ‘The Analysis of profits of a Life Office,’ but it is clear that it will not be possible in the time available to discuss all the points which may arise in practice under this heading, and it is therefore intended to limit the paper to a discussion of the more usual questions which arise in analysing profits where an annual valuation is made by the ordinary net premium method. Whatever be the precise method adopted in valuing the liabilities of a life office, the principles underlying an analysis of the profits will be the same, and once these principles are grasped no difficulty will be found in applying them to any particular case. In the first place, it should be appreciated that the necessity, or at any rate, desirability, of analysing profits arises only through our assuming in the valuation of the liabilities, rates of mortality and interest different from those actually realised in practice.