CONTENTS OF NO. III., VOL. XV. ARTICLES. ART. PAGE I. PROFITS AND PREMIUMS OF LIFE INSURANCE. By Professor C. F. M'CAY, of the University of Georgia,.... 227 II. ADMINISTRATION OF THE RAILROADS OF MASSACHUSETTS: With Reference IV. THE GERMAN ZOLLVEREIN,.. V. CAUSES OF FAILURE AMONG MEN OF BUSINESS,.. 250 255 ... 260 VI. COTTON MANUFACTURE IN SWITZERLAND. Translated from the Report of the VIII. WESTERN MOUNDS,..... IX. VIRGINIA AND HER GREAT CENTRAL IMPROVEMENT,.. 267 MERCANTILE LAW CASES. Action to Recover the Amount of a Clearance Bond,. British Admiralty Court-the Concordia-Salvage,. Salvage The American Ship Charles Williams,... Libel on a Charter-Party-Contract of Affreightment-The Brig Casco,..... COMMERCIAL CHRONICLE AND REVIEW, 289 289 289 290-294 EMBRACING A FINANCIAL AND COMMERCIAL REVIEW OF THE UNITED STATES, ETC., ILLUSTRATED WITH TABLES, ETC., AS FOLLOWS: Measures of Commercial Policy adopted by the Administration Party-The Sub-Treasury-Modification of the Tariff of 1842-Warehousing System, and the Loan Bill-Changes effected by the Tariff-The Iron Trade-The Ad Valorem Principle-Our Trade with England-Export of Tobacco to Great Britain-English Tobacco Trade-Facilities of the Warehousing System-Western Produce-Bread-stuffs from Western States-Influence of the Currency on Commerce-The Sub-Treasury-The Mexican War, etc., etc.,.................... 294 COMMERCIAL REGULATIONS. PAGE United States Tariff of 1846-Act Reducing the Duty on Imports, and for other purposes,....... 300-307 Reduction of the Tariff of Denmark,.... 307 308 Act Establishing a Warehousing System in the United States,.... NAUTICAL INTELLIGENCE. Lights in Banks' Strait, Van Diemen's Land,.... .......... 310 310 311 Revolving Light on Swan Island.-Fixed Light on Goose Island.-Revolving Light, Island of Bermuda, 311 .... Customs Revenue of Liverpool, for Quarters ending July, 1845 and 1846,.. Michigan State Bank, condition on the 30th June, 1846,........ Reduction of the National Debt of England,........... · Revenues and Disbursements of the British East India Company,........... Finances of the (New York) Croton Aqueduct,.... JOURNAL OF MINING AND MANUFACTURES. Silver Mines of Almaden, in Spain.-Coal Mines of Prussia, Manufacture of Cables and Cordage at Manilla.-Woollen Manufactures in Turkey,................ 317 United States Patent Office, and Report of 1845,. Transparent Malleable Glass.-Manufacture of Silk in New England,........... Iron Mines of Georgia.-Fitzgerald's Tuscan Straw Braider,........ ....... 316 .......... 318 318 319 319 RAILROAD AND STEAMBOAT STATISTICS. British Mail Steamers between Liverpool and Boston-their Voyages from commencement to Jan. 1, Value of Manufactures of Wool imported into the United States from 1821 to 1845, inclusive,...... 326 Value of Imports, and Amount of Tonnage in Foreign Trade of the United States, from 1821 to 1845, inclusive,........ ....... 327 Value of Manufactures of Cotton imported into the United States, from 1821 to 1845, inclusive,...... 327 Value of Manufactures of Iron and Steel imported into United States, from 1821 to 1845, inclusive,... 328 Value of Unmanufactured Iron and Steel imported into United States, from 1821 to 1845, inclusive,... 328 Productions and Exports of Java, from 1836 to 1845,.. MERCANTILE MISCELLANIES. The Policy of Imprisonment for Debt,.......... ... ... ... ... ... ... .... ... ... .... ... ... A Large and Liberal Merchant.-The British Merchant,..... THE BOOK TRADE. Notices of Twenty-seven New Works or Editions,..... HUNT'S MERCHANTS' MAGAZINE. SEPTEMBER, 1846. Art. I-PROFITS AND PREMIUMS OF LIFE INSURANCE. THE profits of a life insurance company must arise from one of two sources. The average mortality of the assured must be less than that given in the tables on which the operations of the society are based, or the investments of the company must be more productive than is estimated in the calculation of the premiums. Both of these sources of profit doubtless exist. Even the Carlisle tables, which give the expectation of life much greater than the Northampton, do not make it as large as the experience of the companies would authorize. This may not arise from a smaller rate of mortality in our country, but from the fact that the lives are not taken at random, but carefully selected, free from hereditary diseases, and, at the time of insurance, from any diseases that would tend to shorten life. So also with the other item of profit. In calculating the premiums, 4 per cent is estimated as the rate of interest, while the actual nett interest, after paying the ordinary expenses of the company, will often exceed 5 per cent, especially where the investments are large, and well managed. In the mutual companies it is necessary that the premiums should be too high, so as to accumulate a fund to meet extraordinary losses from any uncommon mortality among the assured. Their official publications acknowledge both these sources of profit, and the safety and security of the companies rest upon them. It may be expected, therefore, that our mutual companies will have something to divide among their members, and it becomes important to inquire how these profits ought to be determined, and how they ought to be divided. If they are distributed properly and justly, it can never be important for any one to inquire whether the premiums charged are too high, for he may be satisfied that the excess will be returned to him in the shape of dividends. It would be wrong to consider as profits, at any given time, five years, for example, after the commencement of the society's operations, all the excess of receipts over the expenditures in that time. For it is evident, if the assured were to apply for a second insurance, they would have to pay a larger annual premium than they had agreed to pay before, so that their present payments cannot be presumed to be sufficient to meet the future losses and expenses of the company. As this deficiency must be made up out of previous accumulations, it is the balance only of the amount on hand, after laying aside a reserve for future losses, that can fairly be regarded as profits. Though this reasoning is conclusive, it may be well to look at the subject from other points of view. Suppose the company to stop insuring, and, in the course of time, all the assured but one should die. If all the accumulated fund had been counted to be profits, the whole capital of the company would have been exhausted, excepting only the profits placed to the credit of the survivor, and there will be no means to pay his insurance but his own annual payments; which, on account of his advanced age, would be manifestly insufficient. Again, if the mortality of the assured should be exactly equal to that of the tables, and if the nett rate of interest on the investments of the company should be exactly equal to that allowed in the calculation of the premiums, it is evident there could be no profits; and yet, from the smaller rate of mortality in early life, there would certainly be accumulations in the hands of the company. To illustrate this by an example, suppose sixty-five persons, at the age of twenty-one, to be insured in a mutual company, for $1,000. And suppose the mortality among the assured to be one every year, in accordance with the hypothesis of De Moivre, which differs but little from actual results. The premium of $2.11, for $100, would meet all the liabilities of the company, supposing their nett rate of interest to be 4 per cent. There would be no surplus after paying the last insurance. Every cent would be exhausted. Nothing that could properly be called profits could be made by the company. Yet, in five years, the accumulated fund on hand would amount to $2,342, which would be more than 50 per cent of all the premiums paid. If these were to be regarded as profits, and divided among the assured at the time of their decease, the company would become insolvent before two-thirds of the members had died. Had the premium been 50 or 100 per cent larger, a similar result would follow. The company would not fail so soon, but it must fail before all the assured are paid. It is wrong, therefore, to regard the accumulated fund as profits. It is not only unjust, and founded on false principles, but it endangers the stability and solvency of the company. The same remarks would apply with more or less force, if the company should divide a large portion of their excess on hand. The usual rates of insurance are, beyond doubt, only a trifle too large, and it would seem, therefore, impossible to accumulate 50 or 60, or 70 per cent profits on the amount of premiums. This seems still more extraordinary when the companies have just commenced business, and have had no time to increase their funds by compound interest, and have had large expenses compared with the amount of their capital. The laws which govern the duration of human life are far more regular than those which govern fire and sea risks. Most policies being for life, and not for a single year, or for a short period, we cannot expect that as large profits will be made on life insurance as on insurances against fire and disasters at sea. If the deaths are few or none, at first, they are more likely to occur hereafter, and there is the more necessity of laying by a fund for future losses. When the premiums have been carefully adjusted from bills of mortality extending through a long period, it would seem dangerous to the stability and solvency of the companies, to divide even half the premiums that have been received. If many of the policies were for a single year, and much of the profits arose from expired policies, it might be safe; but otherwise, it would certainly be hazardous in the extreme. In order to determine the true amount of profits, imagine the company, at the end of five years, to close its business, and transfer all the assured to a second company. As they are now older than when the policies were first taken out, the premiums they have agreed to pay, would not be sufficient to purchase as large an insurance in the second company. This deficiency must be made up by the first company. They must make a single payment which, together with the annual premium of the assured, will purchase in the second company as large an insurance as in the first; the balance on hand, after making these payments for each of the assured, will be profits. To give an example of this mode of calculation, let the assured, at the age of thirty-five, take out a policy for $1,000. The premium on this is $27.50. At the end of five years, when the assured is supposed to be transferred to the second company, this annual premium will only purchase an insurance to the amount of $859.37; and the balance of the $1,000 must be paid for by the first company. For this purpose they would have to pay $72.35; and their profits will be their accumulated fund diminished by this $72.35, and such other sums as they would have to pay for each of the assured. There is another mode of making this calculation. The value of an annuity, according to the Carlisle tables of mortality, has been calculated for the companies, and is used by them for purchasing the policies of those who wish to surrender them. At the age of forty, an annuity of one dol lar is worth $16.074; the difference in the premiums at thirty-five and forty, is $4.50. The amount to be paid by the first company to the second would, therefore, be $16.074 ×$4.50, or $72.33, the same that was determined above. This method of estimating the profits, implies that the second company will be willing to insure all who have taken out policies in the first. But this might not be the case. Some who were in good health when the original policy was purchased, may have developed diseases which render a speedy dissolution probable. Some may be on the very brink of the grave; others may have slightly impaired their health, so that an extra premium might justly be demanded by the second company. If these invalids were few at the first division of profits, they would be more numerous at the second or third. For this reason, the profits obtained by the method explained above, would be evidently too large. It is no answer to this objection, that the Carlisle tables give the mortality too large, and therefore a division of the whole profits may safely be made. This would not be a satisfactory reason to the second company. They would say, we only insure the lives of healthy persons, and we would be doing injustice to the members of our own company, and to the new members we are admitting from time to time, if we should allow these invalids to come in on the same footing with the rest. Again, in the formation of the Carlisle tables, a number of healthy persons were selected, and their mortality noticed for a series of ten years. The mortality for any one age, as forty-five, for example, is found by taking the average number of deaths of all those who were at that age in the |