Life offices are now, in the main, large and well-established institutions, with assets which, at market values, would show a substantial margin over balance sheet values. This margin is known as the ‘inner reserve’ or ‘hidden reserve’ because details of it are rarely disclosed, in fact its very existence is seldom brought before the public gaze; this secrecy is specifically allowed by the Companies Act 1948.

The backing given by these large inner reserves and the advantages deriving from the continuity of the office are two of the most important factors in formulating life office policy, and in the choice of actuarial bases of calculation; and yet these factors are almost always taken for granted, a tribute perhaps to the length and strength of the offices' past history.

An important factor in any actuarial problem is the number of lives likely to be involved. It is at first surprising therefore that so little attention is paid to the question of size in our pension fund literature, although a brief consideration of the historical development of pension funds gives some indication of the reason for this situation.

Superannuation provisions were originally introduced for the benefit of employees of the Government in the Civil Service and the Armed Forces. The pensions were allowed to emerge as charges on current revenues and no attempt was made to fund the liabilities. Towards the turn of the last century superannuation provisions were introduced for teachers (consequent upon the Education Act, 1870) and railway staffs, and for the staffs of certain municipalities. The movement grew slowly, although several large firms began to make pension arrangements at this period, and among non-government employers there was a greater tendency to fund the liability for pensions.

The theory of statistics, like other scientific theories, can be divided into three fairly distinct sections; they are (1) the foundations of the theory, (2) the superstructure, and (3) the principles of application. It is, of course, possible to divide the subject in different ways; for example, the word ‘methodology’ is sometimes used to cover part of (2) and (3). But I find it helpful in thinking about the subject to make the division that I have indicated.

It is my purpose to show that actuarial science is essentially a particular application of the theory of statistics, that there is nothing very special about its superstructure and that in its application to practical affairs the universal principles apply. But I first want to make it clear that while I include the combination of compound interest functions with other actuarial functions as part of actuarial science I do not regard finance and investment as part of actuarial science proper. While treating finance and investment as a part of economics I appreciate that they represent an essential ingredient in the equipment of the practising actuary.

The purpose of this note is to consider in a simple way the effect of double taxation relief on overseas investments, with special reference to those of Life Offices transacting business in the United Kingdom. This deserves consideration in practice, because under certain circumstances the spreading of Life Office investment in equities between equities of companies resident in the United Kingdom and companies overseas may be more profitable than confining investments to those expressed in the currency of the United Kingdom. The amount of the relief allowed is of course material in determining how profitable such spreading of investments may be. It is not intended to deal with the many additional considerations such as, for example, the possibility of changes in exchange rates, which have to be borne in mind when investing overseas.