Bonus Maintenance on a Valuation by the A1924–29 Tables

Abstract

SynopsisAssuming that the A1924–29 mortality will in the future be generally used in life office valuations, investigation is made as to the margin necessary between the rates of interest realised and anticipated in the valuation in order to maintain a simple or compound bonus at the rate of 30s. per cent.It is found that the margin necessary is greater than that deemed sufficient under the OM tables.In the case of a simple bonus, however, it has of course been the practice to value the bonus also at the lower rate, thus making a greater reserve for future bonus than is necessary, while in a compound bonus office the existing bonus has not always been valued at a rate of interest 1½ per cent, lower than that anticipated which would be necessary in order to maintain a future bonus in respect of that existing at the rate of 30s. per cent.It is shown that under the new tables a margin of ¾ per cent, in the case of a simple and ¼ per cent, in the case of a compound bonus is still sufficient to maintain a bonus of 30s. per cent, subject to certain limitations as regards expenses.The necessity of making annual valuations is stressed and approximate methods of computing the fluctuations in the Mortality and Loading profits are outlined.