Page:The American Cyclopædia (1879) Volume X.djvu/432

 426 LIFE INSURANCE book," published, in 1867 by Mr. Cornelius Walford, a very able and painstaking 'writer on insurance, gives a list of the life insurance offices existing in the United Kingdom at that date, comprising 117, of which 3 were "pro- prietary," 26 "mutual," and 88 "mixed." It also gives a list of 240 companies which had gone out of existence, either by absorption in other companies or by dissolution in the court of chancery, during the previous 23 years. The wrecks within the present century up to this time would doubtless double that list. Of the 240 disappearances recorded by Mr. Walford, 33 companies died in the year of their birth, 102 died under 5 years of age, 105 died over 5 years of age, 35 over 13 years, 9 over 30 years, and 4 over 50. The oldest had attained the age of 77 years. "While half of these de- funct corporations may probably be set down as mere abortions, injurious only to subscribers to the stock, and some of the others may have coalesced, or " amalgamated," to use the Eng- lish term, with other companies, without inju- ry to their policy holders, a considerable num- ber must have perished by grossly incompe- tent or dishonest management. Some of*these failures doubtless arose from want of care- in rejecting bad risks, but the prime cause must have been extravagant expenses of manage- ment the failure to retain and accumulate at interest the excess of the net premiums re- ceived over the actual death claims; or, in other words, from regarding any such excess as " sur- plus." The mischief of these failures is beyond computation. The recent wrecks of the Al- bert and the European, the former comprising by amalgamation 27 and the latter 40 corpora- tions, have inflicted a blow which no business except one of almost absolute necessity could survive. This very great difference has existed from the first between the life insurance com- panies of Great Britain, that what some con- sider a reserve from past premiums necessary to supply the deficiency of future ones, others consider as surplus or profit, and consequent- ly expend or divide it. Even so late as July, 1874, the officers charged with reporting to the president of the board of trade on this subject say : " It will hardly be believed that the board of trade could have had submitted to them, for acceptance under the life assurance companies' act of 1870, valuations in which the future profit, future expenses, and even future com- missions, have been turned into present value, and the whole represented as profit. These ac- counts have been rejected as being manifestly incorrect and misleading, and amended returns requested." This distinction between past and future payments, which is one of life and death, will be plain enough when we come to con- sider the elementary principles of the business. The ease with which life insurance companies have converted probable future profits into as- sets, and the plausible excuses for doing it, have cost the British parliament very laborious dis- eussion and inquiry, to find some method of shielding the public from its disastrous result. But all investigation and legislation up to the act of 1870 seems to have had an effect ex- actly the reverse of that intended. That act has obviously checked the formation of new companies by requiring a deposit with the government of 20,000 ; it has put an end to fraudulent amalgamations by requiring the terms of any union to be submitted to the court of chancery for approval; and it pro- motes honesty of management by requiring an annual statement of all details to the officers of the board of trade. These statements are such as to expose extravagance and give fair warn- ing of any tendency to insolvency. There are said to be 125 companies now existing in the United Kingdom, all but five of which made returns in 1873. The premium income was 10,824,093, amount of insurance outstanding 338,882,752, and the reserve fund 94,260,- 592, with an average interest of 4'41 per cent. The Equitable, which was once the largest in point of funds if not of insurance, having an accumulation of more than 10,000,000, and which has still the largest reserve in propor- tion to its amount, is now the fifteenth in amount of insurance and the fifth in the mag- nitude of its fund. It may expire, but it will not fail. There were 21 companies having over 5,000,000 each insured, and five hav- ing over 10,000,000. The Scottish Widows' had 14,572,154, and the Standard 16,867,- 577. The greater part of the companies are ably managed institutions. The strength of our own more recent but not smaller institu- tions is well known, and it may be interesting to compare the aggregate figures of the two. Referring to the latest official reports on both sides, probably not exhaustive on either, but more nearly so in Great Britain than here, the amounts insured, funds in reserve, and death claims paid within a year, are as follows : COMPANIES. Amount insured. Funds. Death claim). British $1,640,192,519 $512,660 Oil $38,586,658 American 2,086,027,178 360,140,684 27,232,435 Considering that the American companies av- erage a little less than 15 years of age and the British over 32, it will be instructive to com- pare the ratios of funds to amount of insu- rance; also the ratios of death claims to in- surance and to funds : COMPANIES. Ratio of funds to insurance. Ratio of dei to insurance. th claims to funds. British American 31-2 per cent. 17-3 " 2-35 per cent. 1-30 " 7 - 52 per cent. 7-56 " This shows how as the companies grow older the reserve fund must bear a greater ratio to the amount of insurance outstanding, because the death claims will bear a greater ratio. The American ratio of funds to insurance is con- siderably larger than it otherwise would be on