The Finance Act, 1965 (which will be referred to in this paper as ‘the Act’) introduced two major changes into the United Kingdom system of taxation: firstly, it introduced a corporation tax applicable to company profits in place of the income tax and profits tax to which those profits were previously subject; and secondly, it imposed a charge to tax on all capital gains, with certain exceptions, whether these gains accrued to a company or to an individual. The objects of these changes and the various associated arrangements were:

(1) To make the tax system more equitable by bringing into charge certain capital gains, frequently speculative gains, which had previously escaped tax altogether.

(2) To make the tax system more simple in some respects by separating the taxation of companies from the taxation of individuals and by levying corporation tax on a current year basis.

(3) To encourage the retention of profits by companies.

(4) To improve the country's immediate balance of payments by rendering overseas investment less attractive.

The problem of solvency in insurance is at present under a good deal of discussion in various interested quarters, both national and international. It is principally a question of finding criteria for determining the size of the solvency margin which a private insurer must have in the form of free reserves to be considered solvent. A criterion must produce a margin which is both sufficient and suitable: it must be valid not only for a model portfolio but for any portfolio. Consequently, only insurers with the prescribed margin would be considered solvent and authorized to write insurance business. In recent years, particularly because of the directives promulgated by the Common Market authorities, it has largely been a question of the solvency of non-life insurers.

It would be ungracious not to admit in the first lines of this paper that the idea of writing it was generated by the Presidential Address to the Faculty of Actuaries, delivered by J. L. Anderson on 19th October 1964. That address was largely concerned with the problems of senior (but non-technical) management of a life office, and it was at once apparent that those problems differed substantially from the management problems of a partnership.