Annals, Anecdotes and Legends: A Chronicle of Life Assurance

by of the Bank of England John Francis

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 3300l.; a large sum undoubtedly, but the first year’s expenses were 3000l. out of it. The business of the second year produced 2000l.; 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 60,000l. 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 14,512l. left in every shape and form out of 45,081l. received in solid cash; and of another which, although with every shilling of its funds gone, and 1754l. 10s. 3d. 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 6015l. 9s. 2d.”[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 150,000,000l., 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 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.