1.1. Profits are essential to the economic viability and indeed the survival of any enterprise. Life assurance companies are no exception whether they be mutual or proprietary, Unless profit—or as it is often termed, surplus—is available for distribution to shareholders and/or policyholders, the reasonable expectations of shareholders or policyholders will not be met: nor will the office be able to accumulate and maintain adequate contingency funds.

1.2. The word profit will be used synonymously with surplus throughout this paper. Profit is defined as the excess during any period of income over outgo, where outgo includes the necessary increase in valuation reserves.