Notes on the Practical Application of the Contribution Method of Distributing Surplus

Abstract

It is now almost seventy years since Sheppard Homans, then actuary of the Mutual Life Insurance Company of New York, described in a paper presented to the Institute (J.I.A. Vol. XI, p. 121) a new method of surplus distribution, devised by himself and D. P. Fackler. The new method was one which had been applied by them for the first time in the surplus distribution of the Mutual Life in 1863. That method, known as the Contribution Plan, has since been universally adopted in the United States and Canada and is thus the method of surplus distribution which is and for many years has been applicable to the larger part of the life insurance in force throughout the world. The method was not received with favour by British actuaries nor, except possibly in isolated cases, has it ever been applied in Great Britain. The methods of T. B. Sprague and T. G. C. Browne, while frequently referred to as “contribution” methods, are of a different character from Homans’ method and differ from it radically both in principle and in practical application.