THE Manawatu Times. SATURDAY, AUGUST 28, 1880. THE LAW RELATING TO FRIENDLY SOCIETIES.

Manawatu Times, Volume IV, Issue 66, 28 August 1880, Page 2

THE Manawatu Times.

SATURDAY, AUGUST 28, 1880. THE LAW RELATING TO FRIENDLY SOCIETIES.

" Words nre thin;;*, nud a drop ai ink failing like dtwupon a t;ioi;sht, produo^s'tlHstwhieh makes thousands, perhaps esillioek thluk."

To encourage providence and thrift amongst all classes of the* community, aud especially those dependant m a great measure upon their corporeal faculties, and to whom ill-health— if not provided against — is ruin, is no doubt one of the first duties devolving upon a government. The matter has cropped up m New Zealand fcotn time to 1 time, and no incousirlerable attempt m tins direction has been made. The population, likewise, has always shown a willingness to cq-operate, and indeed baa taken the lead m the matter, for nearly all the Benefit Societies of the United Kingdom, have been represented for years, whilst the earliest attempt to legislate on the subject of "Friendly Societies was m July, 1 /. Jn 1577 an Act was passed 'consiidating the former Acts, and this with tlie Amendment Act of 1878 is now the law regulating all Societies registered under its provisions. We have before us the third -annual report by the Registrar of Erienflly Societies, which is well worth perusing, as showing the efforts made m the direction of combining to reduce the evil effects" to the families of the members by the ill-health or deaih of the bread-winner. It would appear that the two principal English Orders*, viz., the Manchester Unity of Odd Fellows and the Ancient Order of Foresters, are well represented m the Colony, the fonmer having eleven districts, containing sixcy-thret* lodges ; and the latter, six districts, containing forty-six courts. Tho average jmtuber of members per lodge is, however, alightlv iv favor of the Foresters — being, Man-" cließier EFnii'V, 9" ; cind Foresters, lOi).O12. The Sick and Funeral. Fund invested by thesr two Orders, amounting to sixty-four thousand ' four hundred aud sixty-two pounds sliUUugs $ucl tenpencOi

and twenty-five thousand eight hundred and eighty-six pounds eleven shillings and elevenpence, respectively, ia a guaratoe that the functions assigned to. these. Societies have been faithfully carried out ; nevertheless it would appear that certain alterations iv the management of! the funds prescribed by the Acfc, and to which exception has been taken by many prominent lodges, are really necessary to ensure the absosolute solvency so essential to Provident and Benefit Societies. The Seventh Section of. the Amendment Act of 1878 coutains the following : In all registered societies and brandies, all inonie.? received or paid on account of oaoh particular fund shall be kept :si>parate and distinct, and shall be entered m a se.perato account distinct (rom the monio3 received nnd paid on account of unj other fund ; and a separate fund or funds shall be established for the payment of all expenses of management, and of all expenses, if any, on account of medicnl and surgical attendance, including medicine, and mccli' cal and surgical requisites. .No transfer shall be made of the monies of any one benefit fund to meet the liabilities of any other fund ; nor shall such monies o\" interest, accruing therefrom, be m any manner applied for the use, whether temporary or permanent, of any fund save the fund to which they properly belong. The Odd Fellows and Eoresters of the Provincial District of Otago had, previous to the passing of this Act, both acted contrary to the above provisions, but m a different way, the former having adopted the practice of crediting all interest beyond four per cent, to the Management Funds of their lodges, whilst the latter paid their Court surgeon, and other medical expenses, out of the Sick and Funeral -Funds of the Courts. The following letter explaining the grounds on which this portion oil the Act is based, was sent to the District Secretary upon the occasion ' of a . petition being presented to Parliament, praying that the special prohibition relating to interest obtained by investments should be rescinded ; — Sib, — It having come under, my notice that a petition is being circulated amongst the various lodges of the Manchester Unity of Odd Fellows, with the object of obtaining an alteration of the law m respect to the appropriation of intare3t earned by the benefit funds of friendly societies, I deem it my duty to address to you a short explanation of the grounds on which this porciou of the law is based, and to request you kindly to circulate this explanation amongst the members of the rai'ious lodges. The rate of interest earner! by an investment consists always of three pnrts, one part representing the remuneration paid by the borrower for the use of capital, the second an insurance premium to cover the risk 6f depreciation or loss, and tho third a compensation for other disadvantages or inconveniences attending the investment. The first of these is a nearly constant quantity m a given country at a given time, and ia the rate for the time being at which money could be borrowed on absolute security, and with perfect facilities for realization by the lender. In most English-speaking communities it is but slightly below the rale at ■which the Government can borrow. The excess of the actual interest over this minimum rate is therefore always on tiie average proportionate to the counterbalancing disadvantages attending tho investment. Where and m as far as these disadvantages consist m imperfect security, the portion of tlie interest which represents insuiance again.--t risk nmsb m all eases be reserved to mett tke f ut ure liabilities of the fund, as the contributions ara calculated not only to the assumption that a certain rate of interest shall annually accrue, but also on the assump' ion that there is absolute security for the principal* No provision whatevei i 9 made m the tables for the possibility that losses may be sustained. Now, although tho portion of the rate of interest which .represents insurance against risk is m al! cases m excess of the mathematical premium which would be required to neutralize losse3 on hn average of transactions, and is m fact determined by what is called the moral, as contrasted with tLe mathematical, weight of the risk to the average lender ; although therefore the investors at tho high rates of interest will on an average certainly obtain a larger profit m the long run than tlie investors on the Q-overnmenl; security ; yot it is •with the moral rather than with the mathematical weight of the risk that benefit cl'jbs, and especially small ones, are concerned, and it therefore behoves them to reserve at least a large portion of the interest earned, evon where it is at a rate greatly m excess of that assumed m the calculation of the tables. It is obvious from these considerations that where a high rate of interest is obtained, the portion which may be regarded as pure prodt requires great nicety for its determination, and cannot be ascertained by any hard-and-fast rule, such as would be ■ established by appropriating to management expenses the whojo excess over a fixed minimum, rate. To appropriate an excess of interest at tho rate of, say, 6 per cent., arising from the rent o-f- offices,, would be a transaction standing on a very different footing, as regards safety, from an appropriation of the extra $ per cent. . on. Post Q/Rco Savings' Bank deposits. The point is one, therefore, which", can only be satisfactorily dealt with at a valuation. There., is, however, m the present case another roasDn why the fate of interest assumed m a valuation or m the construction of tables should be somewhat lower than , the rate which we m*y expect will be actually realized. This reason is contained m the fact that the tables do not include nny provision 'for the possibility of adverse flucf uations m the society's experience of sickness or mortality — fluctuations which are likely to be very' considerable m the oase of small lodges, especially m regard to the amount of protracted sickness. Hence, if a society were to .enter on a period of, say, five years with exactly enough funds m hand to meet its liabilities according to the tables, and were throughout the five years to appropriate all interest beyond 4 per cent, to ' the ManagernentFund, Ufollows that, apart from the profits accruing from secessions, there would bo an equal likelihood of asurplus or a deficiency nt their close. Now, the exist ence, of a surplus is not a matter to be deprecated ; but a deficicii'jy is a serious disaster. To -permit the two: resulfif to be equally, probable is.qnita an -inadmissible course. Life insurance offices regard it as axiom that their ought never to be a deficiency at a valuation. One counteracting element hns already Heen alluded to — nnmely, the profit prisiug from secession j, b.ut, as a further and more perfect safeguard, it is deaivablo that tho interest actually earned should exceed (lie interest assumed, so that the excess may compensate for an unfavorable sickness experience, should. such he the society's lot. It. is not an unfrequeut thing for life ins m'a,n.qo pfljoes Ijo realize a r»te of

nterest exceeding by 2 per cent, or 3 per cent, the rate assumed m valuations and m ths computation of the premiums. Thus the Australian Widows' Fund was recently valued at 4£ per cent, at a time when the annual interest was about B£. on the aggregate funds. Such aro the general principles which for- | bid the application to management expenses of interest earned by a benefit fun 1. But m the en=>e of the' Of ago. District of the Manchester Unity of Odd Fellows, there aro circumstances which would make siifh an appropriation, were it to be continue:!, especially disastrous. Tlie rato of contribution which has hitherto obtained is one which all actuai-ie3 are agreed m regarding as totally inadequate to provide the benefits promised. This rate it is understood, will continue to be charged to all members initiated prior to tho Ist July, 1870. Even as regards new memberss, the contributions fo be clmrged are considerably lower than the minimum scale which it is considered prurient for societies to adopt. A rate of interest much higher than 4 per cent, would be needed to nmke these contributions adequate ; hence it would be a most prenicious thing to make 4 per cent, the maximum rate obtainable for the sick and funeral fund. Li=tlv, although no lodges of tho distinct have as yet been valued, a comparison of the fund" m hand with the duration of the lodges, the number of members, and the nature of the benefits, will m many cases afford primu facie evidence ngainst insolvency.