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 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 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 This, however, produced no very apparent results in checking the formation of others; but the letter 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 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 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 150,000,000l., is nearest the mark. On this sum, 5,000,000l.,—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 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 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 375,328l. out of 462,032l., 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 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 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. 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 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, 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 2l. 13s. 6d.; 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 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 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 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 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 50,000l. “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 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, 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 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. |