In considering Indian Railway Securities as investments it is advisable to have a knowledge of the history of the railways. The first lines to be built in India were constructed by Companies on land supplied free by the East India Company, who also guaranteed that a certain rate of interest should be paid each year on the capital expended with their approval. This arrangement was made with the idea of attracting Companies to build lines, and in return the East India Company had the right to exercise a certain amount of supervision and control and also had certain options of purchase. When in a position to do so, the Companies repaid each year, to the extent of one half the excess net earnings in that year, any amounts paid by the East India Company under the guarantee arrangements.

The issues that are of chief interest to Insurance Companies as investors are the loans raised by Foreign and Colonial Governments and Municipalities, principally in the form of bonds, and Foreign and Home Corporations in the form of bonds, debenture stocks, ordinary stocks, &c. When these borrowers want money—and they have apparently much needed it during the past three years and are needing it now—they set about the attainment of their desires by calling in the help of their financial agents or advisers who may be either a financial house or a bank. The usual methods in this country are for the Issuing House to buy up the loan at an agreed figure and subsequently to issue the loan at their own price, making what profit they can, or to act merely as agents for the borrower, charging a commission for their work and the advice they give.

Office Premiums should fulfil the following conditions:—

(1) They should be adequate. Whatever the method of construction, the premium must be sufficient to cover the risk and expense, and leave a reasonable margin of profit.

(2) They must be reasonable from a competitive standpoint.

(3) They must be consistent with one another.

The premiums should be based on select rates of mortality, and our decision of the table of mortality to be used for the premiums for particular classes of risk should be based on—

(1) The experience of the class of assurance.

(2) Possible variation in that experience in the future.

(3) The special conditions of the particular office.

It is easiest to understand the subject by approaching it arithmetically and remembering that in practice tables give values of n V for integral values of n.

Throughout these notes it is assumed that n V = n V (m) if n is integral. The error cannot exceed 1 per cent, of the true value where the entry age is 35, or 3 per cent, where the entry age is 60. As mentioned in the Text Book, Part II., p. 346, the maximum percentage error arises when m becomes infinite and is one-half of the net annual premium per cent, for Whole Life Assurances. For Endowment Assurances the differences are very small, increasing with the maturity age.

In dealing with the general question of the valuation of special policies, it must be borne in mind that the particular circumstances of each office as regards special schemes, &c, have to be considered when the method of valuation of any class is fixed, and that, therefore, some latitude must be allowed, and hard and fast rules and unnecessary complications and refinements avoided. In those cases where exact reserves are not obtained the approximations used in practice should be simple in application, and give a reserve which does not in the aggregate fall -short of the true reserve.

The particular aspect of sickness insurance to be discussed is the Waiver of Premiums under life assurance contracts on disability both temporary and permanent.

Waiver of premium on Permanent Disability was introduced in Germany in 1876, and in America in 1895, and is extremely popular. In Russia some companies offer a variation, which consists of giving the assured under a participating policy the option of relinquishing the right to participation and demanding in lieu insurance against invalidity by which he is released from all future payments of premium and immediately receives 50 per cent. to 75 per cent. of the sum assured, the remainder of the sum assured being paid at death or maturity.

The principle of book-keeping by double entry is the complete recording of every transaction as it occurs in a. System which is composed of a number of accounts. An Account is simply a statement of a set of monetary transactions, classified in a convenient form to show the effect of each transaction, and of the transactions as a whole, on the business. The usual form of Account is as follows:–The left-hand side is called the Debit side, and the right-hand side the Credit side. All monetary transactions, involving as they do an exchange of one kind of property for another, can only be completely recorded by two entries in the Accounts, the one debiting the Account which receives the benefit, and the other crediting the Account which imparts the benefit.

The present Estate Duty was imposed by the Finance Act, 1894, in place of other previously existing Death Duties, and is payable on all property (with a few exceptions), real or personal, settled or unsettled, which passes on a death after 1st August, 1894.

Under Section 8 (3) the Executor shall specify all the property in respect of which Estate Duty is payable, and shall be accountable for the Estate Duty in respect of all personal property of which the deceased was competent to dispose.

Under Section 8 (4), where the Executor is not accountable, every Trustee, Guardian, Committee, or other person in whom any interest in the property or the management thereof is at any time vested, shall be accountable for the Estate Duty.

The following Notes afford a mere outline, which the student must fill in by means of experience and reading. Many of the papers in J.I.A. dealing with reversions discuss, in great detail, the formulæ that should be used, and seek for an extreme accuracy which, as has been pointed out by Sir G. F. Hardy, J.I.A., XXX., p. 78, almost defeats its own end. These papers may be interesting to some people, but seem to have little practical value. Probably no two actuaries would make exactly the same deductions from a fund, use exactly the formula, tables and rates of interest, and make exactly the same deduction for costs, etc., but any two actuaries having considerable experience of reversionary transactions would reach approximately the same values. From nearly every point of view there is no “true value” of a reversion; a value only becomes “wrong” if it is so low as to make a purchase at that figure impracticable for any vendor, or so high as to make it impracticable for any purchaser.

The general principles on which a valuation should be made are the same for Industrial as for Ordinary Assurance policies, but the differences between the two classes of business necessitate considerable difference in the methods by which these principles are applied.

The greater number of Industrial Assurance policies are issued on the basis of the weekly payment of id. and small multiples of id., the premiums being collected weekly by agents. The average sum assured is consequently small and the expense of collection relatively great. Medical examination is not asked for except in special cases, the agents being required to form their own opinion of the eligibility for insurance of the proposer. The effects of serious errors of judgment in this matter are minimised by the usual condition that a proportion only—usually one quarter—of the sum assured shall be paid should death occur otherwise than by accident during the first three or six months of the assurance; the proportion being increased to one-half for the second period of three or six months; and the full sum assured being payable thereafter.

All the larger Friendly Societies and many of the smaller ones have organised separate sections for administering the benefits of the Act to their Members and to others insured under the Act. In some Societies this course was opposed on the ground that the admission of a new class of lives might lead to an unfavourable sickness experience in the State Section, and that unfavourable results in that Section might react on the prosperity of the voluntary side of the Society. But the consideration which outweighed all others with the majority of Members was that the Voluntary Sections of Societies would in future be largely recruited from their State Sections, and that any Society which did not organise a State Section would be likely to die out from lack of new Members—a prospect very distasteful to Members of Friendly Societies, even though it might not involve any pecuniary loss to them.

In connection with the financial arrangements of Insurance Offices it is sometimes of advantage to borrow money in order to make permanent investments, or for other reasons, and at other times funds are available which can conveniently be placed on deposit with Bankers or Discount Houses, or elsewhere, pending permanent investment. In the former case the Office should seek to obtain- the money at the cheapest rate, in the latter case the Office should obtain as good a rate of interest as possible for the short period during which the money is deposited.

To such money, borrowed or deposited for short periods is applied the term “Short Money.”

Insurance Offices place their money with their own Bankers, the Discount Houses, the Stock Exchange, and the Joint Stock Banks, and obtain money from their own Bankers, or from the Discount Houses.