The Pamphlet Collection of Sir Robert Stout: Volume 54
As an instance of this, I may mention the doctrine that has been put forth in some quarters that a member of a mutual insurance office ought to be at liberty at any time to withdraw his whole stake in the concern, by this being meant the full reserve that is made by the office for meeting its liability under his policy. page 10 When we test this doctrine by common sense, we have no difficulty in seeing that it might lead to disastrous results. It assumes, like the imperfect theory on which it is based, that all the lives assured are in the same average state of health, whereas the fact is, that some of them may be at the point of death, and others suffering from acute diseases which will soon kill them, and others from chronic diseases which will inevitably shorten their lives. If, then, the lives remaining in good health were allowed to act upon this doctrine, and to withdraw the full estimated values of their policies, which, according to the usual British practice, is the reserve made in respect of them, it is clear that the remaining fund would be wholly insufficient to meet the liabilities upon the damaged lives, who alone, according to the supposition, would remain insured. The case is, of course, materially altered if the office has in hand, in addition to the full estimated reserve for its policy liabilities, a large reserve fund accumulated out of undivided profit, as seems to be usually the case with the American offices. Another deduction of an opposite kind from the same incorrect theory is that the surrender value to be given to a retiring policyholder should never exceed the estimated liability under his policy, or the reserve made in respect of it; but if a life assured in the last stage of a lingering illness applies for an increased surrender value, it will evidently be to the advantage of the office to make special terms with him, and to pay a surrender value, not only much larger than would be ordinarily paid, but a surrender value that may be greatly in excess of the theoretical reserve made for the policy.