SELECT COMMITTEE OF 1841.--INSTANCES OF DECEPTION.--PUBLICATION
OF ACCOUNTS.--NEW COMPANIES--ASSERTIONS ABOUT THEM--THEIR
IMPORTANCE--SUGGESTIONS CONCERNING THEM.
A select committee was appointed in 1841 to consider the laws relating
to joint stock companies. It concluded its labours in 1843. There was
an evident want of amendment in these laws. For about fifteen years
prior to 1840, the world had been at the mercy of any one who chose to
publish an advertisement, call himself a company, and receive money
for assurances and annuities. Vast sums had been obtained, therefore,
by daring adventurers of the Montagu Tigg school, who launched with
avidity into this branch of business. Besides the loss by the West
Middlesex, nearly half a million sterling had passed from the pockets
of the public to those of projectors; and the following instances will
prove that government were not called upon to interfere without a sad
necessity:--
A family of swindlers founded an office. One of them changed his name,
called himself trustee, and acted as chief manager. Who would believe
that this man, without character and without money, induced several
members of parliament to become directors? because “they thought they
were doing a kindness to the promoter;” allowing their names to be used
as lures to a concern whose shareholders, when it broke up, were found
to be “minors, married women, labourers, and small tradesmen.”
In a second office, an uncertificated bankrupt, its promoter, appointed
himself resident manager. Insurances and annuities to a considerable
extent were effected, and then the company, consisting of eleven
shareholders and directors united, vanished, and, “like the baseless
fabric of a vision, left not a wreck behind.”
In another which had been established many years, great names were
at its head, and great business was done. But whether the terms were
not high enough, or the management was bad, it proved a failure. An
extraordinary career was that of the chief manager. Thinking, probably,
to recover himself, he had speculated in newspapers; he had established
a society in connection with natural history; he called the queen
dowager his patron, and had been honoured by a visit from majesty.
As some of these could scarcely be called sound investments for an
annuity society, he was unfortunately compelled to leave off paying the
unhappy annuitants.
These special cases arose from want of sufficient control. On inquiry
it was discovered that the names of persons who had no existence had
been used in some cases, and the names of persons of substance, without
their permission, in others. That false statements of authority--that
fraudulent prospectuses--that tempting rates of commission--banking
accounts with the Bank of England--and, above all, advertisements
appealing to the cupidity of the public,--had always proved successful.
Owing to the information elicited by the committee, it was deemed
necessary to recommend that any future company should be provisionally
registered, stating every particular of its purpose, its promoters, its
directors, its subscribers; and that a complete registration should be
accompanied by a copy of its prospectus, its deed of settlement, its
amount of capital, its number of shares, the names and residences of
the shareholders, the officers of the company, and a written acceptance
of office. These recommendations were carried out by 7 & 8 Vict. c.
110.; but time has proved that the act has scarcely been successful,
even in mitigating the evils it was meant to prevent. “Arguing from the
experience of the present law,” says the “Morning Chronicle,” “during
the past eight years, it does not appear that its effect has been in
any way to restrain the formation of unsound insurance companies;” and
in one respect it assisted them, as it gave the promoters the power
of quoting a special act of parliament in their favour, thus adding a
spurious stability to their character. In seven years from the working
of the new act the number of projected companies averaged three and
a half per month; the number actually opened, two every month, while
about fourteen yearly were compelled to close their operations. It may
be supposed that the old offices were somewhat surprised as project
after project, each proclaiming its principle to be the very essence
of life assurance, was registered. They made, however, a great show of
business. Their annual reports were startling to the ears of staid,
methodical gentlemen of the old school, who, seeing that their own
policies had not increased with the population, thought, when new
companies declared huge profits and boasted augmented policies, that
the world was coming to an end. The assumptions of some of these new
offices were audacious enough; one actuary asserting that a company
might spend all their premiums and great part of their capital, and
be perfectly solvent. The first year’s business of a society which
started at this period produced 3300_l._; a large sum undoubtedly,
but the first year’s expenses were 3000_l._ out of it. The business
of the second year produced 2000_l._; but all the money paid by the
policy holders was spent, with 15 per cent. of the capital in addition.
Rumours like these--exaggerated perhaps by the terrors of those of the
_ancien régime_--soon spread about, and there was a growing disposition
in the public to regard new offices with suspicion. Of about forty
which had been annually projected from 1844 to 1851, many had given up
the ghost; and though the policies in some cases were transferred to
other offices, yet in those which were not so fortunate there must have
been great evil. For some years a cloud had been gathering; but when
Mr. Labouchere moved that the accounts of the various offices should be
printed, and when, in their naked attire and without the opportunity of
re-arranging them, they were presented to the House, they seemed so at
variance with the boasted success of many, that the public, aided by
the old offices, grew frightened at the picture which Mr. Labouchere
had conjured.
This, however, produced no very apparent results in checking the
formation of others; but the letter of Mr. Christie[26] to the
President of the Board of Trade, together with various leading articles
in the morning papers, in which the Chronicle took the lead, aroused
a spirit of mischief in those who thought themselves aggrieved. “The
object I have in view,” says Mr. Christie, “is a thorough scrutiny
and investigation into the affairs and responsibility of every life
and annuity institution in the United Kingdom, with a view to such
enactments as shall protect extensive public interests from the
alarming prospective evils of fraud and of ignorance.”
There does not appear in this profession sufficient reason for the
torrent of pamphlets which appeared, because all offices engaged in
similar business to that of Mr. Christie should possess a similar
desire. Such, however, was the fact, and when the morning papers
unmasked their battery, the fun grew “fast and furious.” Nothing can
be more desirable than that the balance-sheets of these companies
should be clear and uniform; and it seems reasonable that all offices
should so express their returns. But it should not be forgotten that
these accounts were furnished without any idea of publication. Each
institution sent its statement according to the notion of its actuary;
and as actuaries, like doctors, disagree, not only was there no attempt
to make one balance-sheet resemble another, but the very principle
differed on which they founded their valuations. It was, therefore,
not the fault of the actuary, but of the act itself, in not demanding
uniformity, that they appeared in so many and such varied forms--that
they at once produced suspicion, and that they have made the word
“insolvent” commonly used with regard to these new institutions. But
insolvency is a very awkward term, particularly when applied to a life
assurance office. There is scarcely a banker in existence to whom the
same term might not be applied on almost the same principle, for there
is not one ready to pay all his balances on instant demand. But the
banker knows his contingencies as life assurance offices know theirs;
and to that extent only are both prepared to pay. Both are liable to
runs on them; the latter during an epoch in the public health, the
former during an era in the money market. Being, therefore, a question
of contingency with the new mutual office, we must remember, in
fairness, that it was the same with the old; and that, had they been
compelled to publish their balance-sheets when they commenced, very
unpleasant remarks might have been made as to contingencies.[27]
While this subject was being agitated, some awkward cases arose to
startle the mercantile world and depress the feeling of security
so necessary to the perfect fruition of assurance. Several
companies--founded by authority of the Joint-stock Registration
Act--had arisen and fallen to the ground. One deed of settlement after
another had been proved to be as worthless in effect as that of the
West Middlesex. One series of promoters after another had published
elaborate prospectuses, and failed to meet their liabilities. The
directors of these had been from that class which supplied Quirk,
Gammon, and Snap with their business, and the managers had arisen among
those whose names had graced the bankrupt list, or been arraigned at
the Old Bailey. The following will prove that the law, since 1845, any
more than prior to it, has not been effective, and that it is as easy
to establish fraudulent companies now as it was before the passing of
the act. One director had been keeper of a gaming-house. Another,
calling himself a knight, acted as travelling commission agent. A list
of shareholders, which was published for the benefit of the public,
proved that, though one was a holder of no less than 20,000 shares, the
locality assigned to him was ignorant of his whereabouts. Two others
had been bankrupt, another had been insolvent, others were clerks to
the company, one declared his name had been forged, while another had
been dead for many years. The institution had been enormously puffed,
and the result was that many insurances were effected. But when it
became known[28] that a proprietor of 2000 shares in the company was
also a petitioner in the Insolvent Debtors’ Court, and that at the
very time he was advertised as a proprietor of these shares he had
hardly a coat to his back, the premiums became less. In this awkward
position the claims for losses were met by credit notes at fifty-three
days’ date, which of course were duly dishonoured, and, as a natural
consequence, the company was heard of no more. The following will tend
to satisfy the reader that no exaggeration has been used. “I have,”
says Mr. Hartnoll, “from among the worst cases of assurance companies
brought into existence under the facilities for forming such companies
by the Registration Act, exhibited to you the history of one whose
robberies amounted to 60,000_l._ I have dissected another of these
companies, composed of a low set of vagabonds, whose signatures as
shareholders were procured at a pot-house for pints of beer. I have
given you the name of a third, whose secretary was brought, most
wrongfully according to the verdict, to the bar of the Old Bailey, on
a charge of conspiring to obtain money under false pretences; and of a
fourth whose manager is a mendicant, and whose secretary is a fellow
who ought to become one, in order to prevent his becoming something
worse, I have from the middle class of these companies referred to
one, winding up in Chancery, having ‘fictitious names of subscribers
to the deed,’ and from the purer class of new companies, from no
invidious selection, but almost by compulsion, under public challenge
from parties officially connected with two offices. I have analysed the
accounts of one, which, at the end of three years, had only 14,512_l._
left in every shape and form out of 45,081_l._ received in solid
cash; and of another which, although with every shilling of its funds
gone, and 1754_l._ 10_s._ 3_d._ in debt, continues to publish to its
policy-holders and the world at large the very great fib that it has
made a profit of 6015_l._ 9_s._ 2_d._”[29]
Of course the frauds alluded to above strengthened the hands of the old
companies, and though really worth nothing as illustrations against
the existing offices, were quoted with much delight. The chief thing
they did prove was, that while the Registration Act did not prevent
the formation of bubble societies, it aided such men as Mr. Hartnoll
in discovering them before much mischief could be effected. All these
circumstances, however, drew attention to the new companies, eliciting
a variety of opinion on the subject.
The amount assured in all the life offices in the kingdom is variously
calculated. But probably the information collected by Mr. Brown, who
estimated it at 150,000,000_l._, is nearest the mark. On this sum,
5,000,000_l._,--being about one twelfth of the annual revenue of the
country,--are payable yearly as premium. The vastness of this interest,
its domestic character, its mercantile and its social bearings, are
all important; and as life assurance is making rapid strides in public
esteem, it is probable that where one man now insures for the sake of
his family, two will do it in twenty years’ time; always provided no
check be given to the principle, by the failures of offices, through
extravagant expenses, or through want of business.
There is a general objection on the part of commercial men to see the
Government interfere in mercantile affairs. But this is a question of
degree: the principle is sound to a certain extent, though no farther.
It is sound that the State should not interfere with the detail of
management, but it is not therefore unsound that it should propose some
general law by which publicity may be given to certain accounts--by
which the public may be made aware of their liabilities, and a moral
check established which must be beneficial to all.
The wise provisions of the Banking Act of Sir Robert Peel in 1844 are
a proof that our Legislature does interfere in financial affairs, and
life assurance is only an extended form of banking; the joint-stock
banking company receiving deposits and paying them back, with interest,
on demand; the joint-stock assurance company receiving deposits and
paying them back, with interest, at death. If it were thought desirable
for the Bank of England to publish a weekly statement of its financial
position, it is equally desirable, in many respects, for a life
assurance company,--the argument being, in both cases, the general
good.
An examination of the accounts returned by the various offices gives us
some startling facts. Twenty-five of these, the average term of whose
operations has been three years and three-fifths, have expended in that
time 375,328_l._ out of 462,032_l._, great part of which they have
received for policies granted and annuities promised. Nine of them have
spent all their premiums and 30 per cent. of their capital besides.
Mr. Labouchere distinctly stated his opinion that many were insolvent;
and “My impression,” says Mr. Christie, “nay, my entire conviction, as
to others, notwithstanding the flaming accounts of their prosperity
contained in reports and speeches at annual meetings, is, that they are
rotten, and are in effect, though not in design, fraudulent.”
Such statements as these being publicly made, there appears some ground
for examining the question, and for quieting the minds of those who may
have entered into engagements with the junior offices, so far as a fair
and rational consideration will do so. It may be assumed that none of
the offices now in existence have been opened with a fraudulent intent;
but the necessity which exists of spending their money liberally, and
almost lavishly, to procure business, is almost as pernicious. It is
but just to say that an examination of the tables of the new offices
does not show a low rate of premium; not lower, perhaps, than the
increased value of life will allow, and certainly not lower than the
old offices could well afford to charge.
One unfortunate tendency of the new companies is to give life assurance
a speculative character, when nothing is less speculative in reality.
Yet the extraneous temptations and collateral advantages promised by
most are very mischievous. Men now sometimes insure their lives with
a vague belief that in a few years they will have no more premium to
pay; they quarrel with the fair divisions of old offices, and taunt
their managers with the advantages to be derived from the new. As an
example of the language that is sometimes indulged in, one modern
office promises to set apart a portion of its future profits, whether
such should amount to thousands or to tens of thousands, to hundreds of
thousands or to millions, for the support and future provision of any
person in decay who shall have once, for however brief a space of time,
held a single share in such company. “To become a shareholder,” says
the prospectus, “is as it were to effect at once and for ever a policy
of assurance against want.” The reader is left to judge for himself of
this singular specimen of assurance.
But, independently of the expenses which eat up the premiums, it may
be feared that in an anxious search after business, the examining
physician may not be so rigid in his report as those of the older
established companies; the lives admitted by the directors, therefore,
not being so good as they should be for the ultimate safety of the
office. It has been added, in support of this, that in some of these
companies the mortality has been 40 per cent. more than it should have
been, had proper care been taken. But are we not very ignorant of the
laws which govern disease? It is well known by physicians that the
chances of life in individuals are constantly changing. Mr. Gompertz,
the father of our actuaries, has expressed a belief that it would
be difficult to pick out 10 per cent. of really uninsurable lives
from the entire population. Those which are now doubtful, or even
diseased, to-morrow become sound and insurable; while those accepted
with gladness at the ordinary rates of to-day, become in almost the
same proportion ailing and uninsurable afterwards. The chances of
individual health, be it sound or unsound, are as uncertain as those of
individual life, and no effort having hitherto been made, excepting by
Mr. Neison, to discover the law which governs disease in its relation
to life, it follows that any argument against the new companies based
on the low character of the lives which they assure, may prove, however
specious in theory, very unsound in practice. And the mode adopted
by the old offices of conducting their business has certainly, up to
the present time, been too much in their own favour. By well-grounded
tables they establish the fact that out of 1000 lives, taken at random
among the diseased as well as the healthy, a certain number will die
each year, until all are extinct. But though on this they found their
rates, they are much too shrewd to take their lives at random. They
pick the strongest and healthiest, rejecting all else, and make them
pay premiums founded on the contingency tables of mixed lives. This,
therefore, is also somewhat in favour of the calculations of the new
companies. But there is another important item to be regarded;--the
value of money. The funds of all the offices from 1760 to 1815 were
bought when Consols were low, and the price of the Three per Cents.
ranged from 47-1/4 to 97. During the war there was an eager demand for
money. Exchequer bills, mortgages on large landed estates, allotments
of new loans, were all favourable modes of investment. Even since
money has been plentiful, the large capital of the old offices has
enabled them to gain a higher interest, because money lent in large
sums for a lengthened period will always command a higher rate of
interest than small sums for a short period. Thus one old office
announces, in its balance-sheet, that it is receiving 4-1/2 per cent.
on its investments; and probably other offices, with similar funds, are
similarly fortunate.
The new offices may find a difficulty in this which they have not
estimated, and which may materially interfere with their profits;
although it is more than probable that even this objection is
over-rated, because there are principles which govern the interest
of money, quite as certain as those which govern life, and because
the rate of discount of the Bank of England is no safe criterion
to those who are out of the money market. Their anxiety to forward
their interests will also induce them to exert themselves, and
the activity which pervades business when discounts are low, may
more than compensate for a diminished interest. There is, however,
another feature which must always act somewhat in favour of the
old offices, and that is, their liberality in peculiar cases. Rich
and well-established companies do not always confine themselves to
arithmetical calculations, and they often employ the rule of right
in paying demands which no court of law could compel; partially, it
may be, from proper feeling, but principally from an “enlightened
selfishness.”
If it be thought that life assurance offices should, for the sake of
the public and of themselves, be interfered with by Government, the
next step is to discover the simplest and the least vexatious mode of
dealing with them. And here at once arises the question whether some
difference should not be made between the mutual and the proprietary
company. Assuming that the mutual system possesses every essential
element of safety, it is equally true that there are hazards in the
path of any company depending merely on its premiums, which do not
attend a company with a respectable proprietary. Hundreds were once
ruined by a mutual fire-company; and had the cholera, in 1849, fallen
on the class which does insure as much as on that which does not
insure, none can say to what extent the new and untried companies would
have suffered, or whether they could have paid the policies which
became due. And there is another point which materially affects an
office with a small business. In the first few years of its existence
the estimated mortality will probably ensue. But let us imagine,
for a moment, this mortality seizing those who are insured for large
amounts, instead of those who are insured for small sums; might not the
demands be too great for its capital, even with no excess of mortality,
especially when it is remembered that the expenses of establishing
the society would necessarily have decreased its resources? A company
with a subscribed and paid-up capital may fairly pay largely for
advertisements; but a mutual company, without any independent funds,
has scarcely the right to use their premiums for any other purpose
than to decrease the annual payments or add to the policies. As mutual
offices, therefore, have no other security than their premiums, these
would require to be looked after more circumspectly and closely than
where a capital and a proprietary are answerable to the insured. The
mode in which the funds are invested by mutual offices might be a fair
subject for publication; nor would this be an invidious distinction,
as an irresponsible office has less claim to an equal latitude of
investment, and less right to keep their secrets than a responsible
company.
One element in the success which the old mutual offices have
experienced is attributable to the high rates they charge. Thus, the
premium of an old mutual company at the age of thirty is 2_l._ 13_s._
6_d._; while that of an old proprietary company is 2_l._ 2_s._ There
may be an ultimate equivalent to the mutual insurer, if he live, in
either a reduced premium or an increased policy; but as the former
is too frequently accepted instead of the latter, the family of the
insured do not receive the same benefit at his death which they would
have done, had he paid the same sum to a proprietary office, and kept
up the premiums as he would have been compelled to do.
A life assurance office with a respectable proprietary and a paid-up
capital, is by virtue of the English law of unlimited partnership as
safe as any company can be, so far as the assured is concerned; and as
the chief end and aim of government interference would be the safety
of the policy-holder, it follows that new legislation on this subject
should in fairness only affect new proprietary companies, to prove the
reality of their capital, and so protect the public from such men as
those who have lately been unkennelled. But though a marked difference
may be claimed by the respectable proprietary companies, and though
a distinction might perhaps in strict justice be drawn betwixt those
with a subscribed capital and those which have only their first years’
premiums, less their expenses, to pay the claims against them, it would
perhaps be politic on the part of government to include all; and it
would be still more politic on the part of the old proprietary offices
to state their readiness to concur in any plan which might be for the
benefit of the body corporate, because any legislative measure, to be
effective as well as protective, must be general. While it must be
such as will be readily acquiesced in by the older offices, it must
not be made unpleasant to the new: it must be at once general in its
application and strict in its inquiries. If it appear inquisitive, it
must not be inquisitorial; and, if possible, the common consent of all
should be obtained. The actuaries, who are intelligent and accomplished
gentlemen, must be propitiated, for they are in possession of a
somewhat occult science, having justly the ear, the confidence, and the
respect of their directors. And when it is borne in mind that these
directors embrace, as a body, the first men in the city of London,
that they possess a commercial, social, and, not seldom, a political
consideration, it follows, that to conciliate them is as necessary
to the well-being of any measure, as to conciliate the actuary is
necessary to the co-operation of the directors. There is no profession
in which subordinates are so respectfully regarded, for the actuary is
master of a science in which the director is generally deficient; and
knowledge, in this case, as in others, is essentially power.
If then it would be wise and prudent for government to interfere with
all, and at the instance of all, the next consideration is how to
produce the greatest amount of good with the least amount of evil: and
one of the essential conditions is, the clearest information published
in the briefest form to give a correct estimate of the position of an
office. Tabular statements may prove whatever the actuary pleases, and
may be made to mean anything and mystify anybody. One concise form,
therefore, so clear that he who runs may read, a form which can deceive
no one and which all can understand, will be necessary.
Many methods by which the safety of the public may be attained have
been proposed; but the first to be dealt with are the publication of
the accounts, the form in which they should appear, and the mode of
determining their correctness.
1st. The publication of the accounts, to be effectual, should be
general. Without this the cry of partiality would be raised, and must
be fatal to the attempt. As well as general, they should also be
uniform, so far as this is possible. They should consist of leading
features stated in the simplest and least complex form, admitting,
as far as practicable, of only one interpretation. They should be
certified by the actuary, examined by the directors, and signed by
the chairman, all of whom should be held responsible, under a heavy
penalty, for their accuracy.
2d. These returns must give the exact money position of the office, the
leading principle being an endeavour to show the funds in proportion
to the risks; and as there is a difference in the mode of estimating
future chances, the form adopted by each should be one and the same.
As each office, also, has business special to itself, with its own
peculiarities, its own interests, and its own mode of investment,
any detailed statement might be dangerous, and form the groundwork
for rivals to copy or to criticise. The points of chief note are the
capital, the amount of liabilities, and the annual returns; and if
the endeavour were made to show the funds in proportion to the risks,
instead of endeavouring to procure a large show of business at any
price, the object of ambition would be the accumulation of capital.
3d. The best way of procuring correct information is the next
condition. Falsified returns are not impossible. If any office
should be failing in its endeavours to keep its business together,
having men at its head whose names are unknown save in a petty and
obscure locality, a strong check is necessary; and it seems scarcely
practicable to avoid the appointment of a competent person as an
arbiter of their correctness. Unpopular as this might be at first,
were the appointment placed in proper hands and judiciously carried
out, it would be of immense benefit. It would indeed be scarcely
necessary for the inspector to be a government officer. The established
companies might fairly say, that they have done no wrong, and that a
close espial by a government agent would be derogatory. But were an
inspector of this kind chosen unitedly by the offices, and paid by the
State, the companies having no voice in his dismissal, excepting under
circumstances which ought to command it, there would be less objection.
The necessity for such an officer would arise from the brevity of the
accounts to be published. It would be his duty to see that the data
from which they were formed was true; that the premiums received were
as large as was stated; and that while the investments were as great,
the liabilities were not greater than the report asserted. The power
to examine and compare these returns with the books of the various
companies is a delicate consideration; but as the offices might appoint
the inspector themselves, it would, after all, be only an additional
check by their own officer on their own affairs. The mode of investing
need not be published, as the power of the inspector to demand an
examination would be a sufficient check on immorally-disposed offices.
Nor is such a case unprecedented, as by a clause in the Bank Charter
Act of 1844, commissioners are empowered to search into and examine the
books of those bankers who issue notes.[30]
If it be desirable, as it undoubtedly is, that assurance offices should
be perfected for the sake of the public, it is doubly so that some
check should be placed on annuity companies. It is from them that most
mischief has ensued. In a life office the promoters may have to pay
claims before they have received sufficient assets to meet them. But
an annuity office, where capital is at once placed down for a future,
but postponed benefit, may do irreparable mischief in less than a year.
In this way the public, and that portion of the public, too, which is
the most deserving of care, have suffered, and are likely to suffer.
All the new offices grant annuities, and though it is difficult to
say the exact amount, (their returns being so cleverly or so clumsily
arrayed), yet it is probable that within the last five years more
than 100,000_l._ has been received on the faith of annuities to be
paid by them; and it will be no consolation to the annuitant to be
told that though his annuity must cease, it is caused by unfortunate
calculations and not by fraudulent design. The granting annuities does
not necessarily, although it may naturally, enter into the business
of a life office. For the first century assurance, and annuities were
distinct, and it is somewhat doubtful whether it is quite wise to
allow, at any rate it is dangerous to the public to deal in annuities
granted by new offices which issue policies of assurance as well as
bonds of annuities. The large sums paid down make a show in the assets
of a new company, and the fact that hundreds of people for many years
rest their entire support on the promises to pay of offices which
have been declared by many to be bankrupt, and whose balance-sheets
certainly evince an irregularity out of keeping with all propriety, is
singularly important. It is a cruel government that will not interfere
in an iniquitous system, and the accounts of the annuities, viz. the
yearly amounts to be paid, the estimated number of years over which
they will extend, and the special capital in hand to meet the demands,
should be published separate and distinct from the assurance accounts,
as the banking and issue departments of the Bank of England.
Another proposition has been made, to the effect that no company should
be allowed without a large paid-up capital. “The public safety,” says
the ‘Morning Chronicle,’ “requires that a sufficient capital should
be provided;” and this the same article suggests should be 50,000_l._
“There are special reasons,” adds the writer, “particularly at this
time, why new insurance offices should be required to provide a
sufficient capital. Causes are in operation which may interfere largely
with the rate of interest procurable on first class investments, and it
is not to be overlooked that the increasing facilities of communication
with distant regions, Australia for example, combined with the wide
discretionary powers which it is the fashion for deeds of settlement to
confer, may lead to remote and hazardous investments, full of promise
when entertained, but liable to great and sudden accidents,--accidents
such as insurance offices without any independent resources could never
recover.”
In another portion of the very elaborate articles alluded to[31],
it is added:--“The only real remedy is to take care that the parties
who enter into the several speculations have something considerable
to lose, self-interest will then render them infinitely more prudent
and vigilant than all the inspections and certifications in the world.
With the general requirement, however, of the payment of 50,000_l._ as
capital, might very properly be combined certain improvements on the
present law of a minor character.” “It would be proper also to enact
that after a specified date all persons whose names are with their
consent advertised as patrons, vice-patrons, trustees, or honorary
directors, of any insurance company, shall be deemed to be shareholders
therein.”
How far the suggestion of no office being allowed without a large
capital, should be carried out, is a very serious consideration. A
large paid-up capital does not appear an absolute necessity, although
the faith engendered by it would probably repay the assured, because
the larger the capital, the greater the confidence, and the greater the
power of the subscribers to extend the business, as it does not follow
that all the profits should go to the proprietors. The money invested
would not be idle; it would be the business of the directors to place
it in security at a good interest, and the interest would probably be
greater than the subscribers could obtain elsewhere for their money.
All the old companies, which were once purely proprietary, divide
a portion of their profits among the insured, and nothing can be
fairer or better founded than an office which offers the advantage of
a large paid-up capital, and divides four-fifths or nine-tenths of
the profits among the insured. Still as the entire tendency of the
public has been in favour of the mutual system for the last quarter
of a century, as all authorities have proclaimed it to be the purest
principle of Life Assurance, as innumerable instances of great success
are to be found in its ranks, it follows that an attempt to revert to
the pure, proprietary system would be worse than useless. But with
all the advantages of the mutual system, it is probable that a small
paid-up capital, with responsibility to the extent of the proprietor’s
fortune, would be sufficient for safety: for there is one more point to
be considered relating to the management of a mutual office, which is
too often forgotten. In this the policy-holders have a vote; they know
not when their lives may fall; they are eager to add to the value of
their policies; and the directors feel a pressure from without which
sometimes compels them to give a greater bonus than they ought. This
is the prevailing tendency of the mutual principle, and argues somewhat
against it. In a mixed company, on the contrary, it is the aim of the
directors to maintain their investments intact; they know that what
will destroy the company will destroy them as partners, and there is
a moral power in operation in their case, as there is something very
unlike a moral power in operation in the other.
That there are enough and to spare of companies, none can doubt. That
some are in a position from which their customers would justly shrink
is probable; and that others would be found insolvent if strictly
examined, is to be feared. But, with all this, they are indisputably
beneficial to the cause they represent, as they are spreading its
knowledge, and pressing its necessity, with the earnest spirit of men
whose existence depends on the number of their proselytes.