Investment conditions have changed widely and rapidly in the post-war era; and since the publication of Mr Lewis G. Whyte's textbook, Principles of Finance and Investment, there has been a spate of papers on investment theory, each of them either covering a small part of the subject or setting forth a particular view.

The aims of this paper are:

I. To suggest a balanced and consistent approach to investment principles as they affect funds of actuarial interest.

II. To discuss the application of these principles to particular types of funds.

III. To discuss the characteristics of the securities that are available in present-day conditions to implement investment policy.

These aims may sound comprehensive, but within the limitations of a paper it is only possible to touch on them briefly.

The theory of ‘temporary selection’ is concerned with the variation, for fixed x, of q[x–t]+t the observed rate of mortality at age x during the t+1th year after the issue of an assurance or annuity contract. The classical view is that—apart from chance variations—q[x–t]+t increases gradually with increasing t until the effects of selection have disappeared after which time q[xx–t]+t is a constant depending on x only.

Various reasons have been suggested for the persistence of temporary selection in an observed series of values of q[xx–t]+t. The chief of these are:

(1) The continuing effects of an initial selection on the part of the assurance company or by the annuitant (Morgan, 1834);

(2) The gradual withdrawal from assurance of healthy lives (Higham, 1851); and

(3) Secular improvements in medicals election or in the self-selection of annuitants (Karup, 1903).

Of the three major elements in the formulae for office premiums, mortality has been subjected to refined investigation; interest has been considered closely, particularly since the war; expenses alone have hardly been considered. We have found only four papers on the subject in the whole of J.I.A., three (19, 153; 44, 415; 49, 111) many years ago, and the fourth (69, 50) before the war. There have been a few papers since in T.S.A., notably Mr Pedoe's (4, 485).

Our object is to analyse the expenses of a group of British life offices, so as to provide a reliable basis for comparison of offices, to enable managements to test the efficiencies of their own offices against others, and to provide means for getting standard costs as a tool of administration.