APPENDIX A.

335

the reserve values bear to the total assets of the Approved Societies
must be materially diminished, and the average rate of interest realised
must be correspondingly improved. It is impossible to make a precise
estimate of the future rate since the proportion of the total assets which,
at the outset of the new arrangements, will be represented by reserve
values cannot be ascertained until the details of the new arrangements
have been settled. It has, however, been found possible to make certain
experiments, involving the probable receipts and expenditure over a considerable
 future period, and as the result of these we are satisfied that
an average rate of 4 per cent. per annum on the whole of the funds and
credits of the Approved Societies will be realised in any circumstances
likely to arise over the next 25 or 30 years; we consider, accordingly,
that this rate may be adopted, instead of the present rate of 3 per cent.,
in revising the financial basis of the system. It is, however, an integral
part of our proposals that the rate of interest credited on the Reserve
Values should continue to be 3 per cent. We rely on the high rates
secured on the actual investments to produce the average rate of
4 per cent.
8. In coming to this conclusion we have considered it unnecessary to
look beyond the period, estimated at about 380 years, over which the
redemption of reserve values will extend. As soon as the completion of
this operation becomes imminent, the question of the future use of the
contributions applied to the service of reserve values will arise, and an
opportunity for meeting any difficulty, should such have developed, in
connection with the continued maintenance of the basic rate of interest
will thus present itself.
9. One further point requires attention in connexion with this subject.
If the current rate of interest falls the value of securities yielding high
rates of interest will rise above their cost prices and if, in this event,
investments are realised with the object of increasing surplus, and the
proceeds re-invested, the average rate of interest earned will be reduced.
The same result will follow if securities which have appreciated in value
are written up to the market prices. If, therefore, so high a rate as 4 per
cent. be adopted as the basic rate while a substantial part of the assets,
namely the reserve values, is only yielding 3 per cent., it will be essential
to place a measure of control upon the results of any operations by which
the average rate of 4 per cent. might be endangered. We take it that
the power to vary their securities is an integral part of the selfgoverning
 functions with which the Approved Societies are endowed ;
and that to discourage unnecessary or perhaps ill-timed realisation of
investments the valuation regulations must continue to include a
provision under which investments are taken at their market values
for the purpose of the quinquennial valuation. Taking a long view
therefore, it would seem that further capital accretions to Approved
Societies’ funds are to be expected from the future appreciation of
security values. In our opinion these accretions should be reserved for
the purpose of supplementing the interest income of the Benefit Fund
so far as is found necessary to secure the rate of 4 per cent., and only
the balances remaining, after this purpose has been served, treated as
realised assets. This is a matter for regulations the precise form of
which, having made the purpose clear. we do not regard as falling within
our province,
Tarr PROBABIITIES OF SURVIVORSHIP.
10. The element of survivorship from age to age exercises an important
influence on the liabilities arising under the National Health Insurance
system, and in reviewing the financial basis of the system the assumptions
made in this respect must be carefully examined with reference to
present experience and tendencies. It is perhaps unnecessary for us to
enter upon a lengthy explanation of the effect of variations in mortality
upon the finance of a system of insurance against incapacity. but it will