I have limited this paper to the consideration of appreciation or depreciation in fixed interest-bearing securities resulting from a fall or rise in the general level of interest rates and not from any alteration in the intrinsic value of the securities, i.e. there is assumed to be no change in the probabilities that the terms of the contracts will be fulfilled. My object is to discuss how this appreciation or depreciation should be treated in order to obtain the maximum practicable degree of equity between the different generations of policyholders in an office which distributes its surplus by means of a uniform reversionary bonus.

The problem can be most easily discussed by showing the effect on a model office of adopting various methods of treating this appreciation or depreciation. I propose to limit the discussion in the first place to the question of depreciation in an office employing a bonus reserve valuation.