Insurance or Assurance is a contract between two parties, one of whom, the insurer, assurer, or underwriter, undertakes, for a certain consideration, called the premium, to assure or indemnify the other, the insured or assured, against a certain amount of loss from the occurrence of a specified contingency. The deed of contract is called a policy, and the contingency assured against is termed the risk. Such contracts are either for a period, fixed at the outset of the transaction, or for a period terminable on the occurrence of an uncertain event, such as the termination of a voyage, or the falling of a life.
The terms Insurance and Assurance are used somewhat indiscriminately, but to mark the distinction between a contract involving a fixed claim on the occurrence of a specified contingency and a contract for an uncertain indemnity, assurance is more properly applied to contracts connected with life—insurance to those connected with fire or marine risks.
The different kinds of risk in "Life Assurance" contracts may be further arranged under the following heads:
Contracts which are to subsist until the occurrence of an event which must happen sooner or later, such as life assurance for the whole term, the contract being limited only by the occurrence of the event, namely, death;
And contracts which are to provide against the consequences of the same event, either within a specified period, such as assurance for a fixed term of years, or dependent on survivorship, when the death of one or more parties makes the assurer responsible, or terminates the risk in his favour. The first is an assurance certain, the claim being merely deferred. The second an assurance uncertain, the claim being contingent on an event which may or may not happen.
Marine assurance, all writers allow, preceded fire and life assurance, and it is natural to suppose that such should have been the case from the fact that the mercantile adventurer had constant experience of direct loss by shipwreck or disaster, while intelligent men could scarcely avoid being impressed, through time, with the conviction that, out of a certain number of voyages, some were fortunate and others unfortunate. The idea having been once struck that the risk of loss might be shared, assurance appears a natural consequence. Devastations by fire, being at once more easily traceable to their causes, and less susceptible of being brought under the law of average, could not so readily have suggested such an expedient; while, as regards life assurance, the predominance of the selfish sentiment sufficiently explains why insurance against pecuniary loss at sea should have preceded the purely benevolent desire to mitigate to survivors the effects of an untimely death.
In all that has been handed down to us in regard to Phoenician commerce, and in what of the Rhodian code of maritime laws has been preserved in the legislation of Augustus, we find no record of a contract of insurance. The Greeks were unacquainted with the practice; and the Romans knew it only indirectly in the contract of bottomry or loan on the ship and cargo, not recoverable in the event of the ship being lost, a practice which forms the subject of a particular title in the compilations of Justinian, "Dig. de Nautico Fomore."
From several passages in ancient literature, the invention of the principle has been claimed for the Romans. One is from Livy (Hist. 23, 49), where the contractors for delivering corn in Spain during the second Punic War, stipulate that the government should indemnify them against losses by enemy or tempest in the course of their voyages. Another is from Suetonius (Vita Claudii, c. 18), where it is recorded that Claudius granted a similar guarantee during a time of scarcity; and in another quotation generally adduced, Cicero (Epist. ad diversos, ii. 17), mentions to Caninius Sallust his expectation of attaining security at Laodicea against any hazard from the carriage of the booty accruing to him after his victory in Cilicia. None of these passages, however, seem to warrant the conclusion that the practice or the principles of insurance were understood in those times, although the arrangements referred to are suggestive of the principle.
The earlier writers who hold that there are distinct traces of the practice of marine assurance in Roman History are—Locceius (De Jure Maritimo, lib. ii., cap. I); Puffendorf (Droit de la nature et de gens, lib. v., cap. 9); Malynes (Lex Mercatoria, 3d edition, p. 105). Grotius (De Jure Belli et Pacis, 1624), is also referred to as a supporter of the same views. On the other hand, Cleriac (Les us et coutumes de la Mer, 1661), and others deny the correctness of the inference. Among more modern writers Emerigon (Traité des Assurances et des Contrats à la Grose, 1783), and more recently Dr Duer (A Lecture on the Law of Representations in Marine Insurance, &c., New York, 1844), vindicate the claim of the Romans to this invention; but on the other hand, Beckmann, Judge Park, M'Culloch, and Pardessus (Collection des Lois Maritimes, 1828-45), regard the Roman practice as little more than an indemnification or species of bounty, and failing to exhibit any trace of a pretium periculi or premium given to the assurer on account of his promise to make good a loss which fortuitous events might occasion to the property of the assured.
It is after the revival of commerce in the 10th century, that we must look for authorities as to the origin of assurance.
Don Antonio de Capmany (Memorias Historicas Sobre la Marina, &c., de Barcelona, tom. ii., page 383), founding on an ordinance issued by the magistrates of Barcelona in 1435, was the first to challenge for that city the honour of being the birth-place of insurance; but having met with the works of Uzzano and Pegolotti he soon found reason to modify his claims. Uzzano, a Florentine merchant, whose writings are placed about 1400, quotes the rate of assurance from London to Pisa, also from Bruges; and Pegolotti, another Italian author, whose writings appeared before 1350, makes reference to the contract of assurance.
But Mr F. Hendriks, in his valuable contributions to the History of Insurance (Assurance Magazine) quoting from Pardessus shows that the word sigurare occurs with reference to assurance in an unedited document of the year 1318, the Breve Portus Callertiani, enacted by the Pisan republic for its then dependent port of Cagliari in Sardinia. (Collection des Lois Maritimes, vol. iv., p. 566.) M. Pardessus also mentions that "the contract of reciprocal insurance was known in Portugal as early as the second half of the fourteenth century, according to a chronicle of King Ferdinand, who reigned from 1367 to 1383;" and that Sousa (Privileges, tom. i., p. 355) refers to King Edward (of Portugal) writing in his instructions from Lisbon, 10th September 1436, that the merchant vessels of the English, which had been chartered for the Tangiers expedition, had not been insured, owing to the fault of their proprietors, whilst those of the Portuguese, even of the royal navy, were insured." The earliest extant Flemish law as to assurance is dated 1537, but M. Pardessus, in his work above referred to, makes a quotation from the Chronicle of Flanders, from which it may be inferred that insurance was practised at Bruges as early as the end of the thirteenth century; the chronicler further stating that the court of Flanders consented, in 1310, to the establishment of a chamber of assurance in Bruges, on requisition from the inhabitants. At first, this great author inclined to regard the statement of the chronicler with very grave suspicion, no trace of the matter being found in the archives of Bruges, or in any authentic history; and even more recently, although admitting the document to be as old as the second half of the fourteenth century, and the improbability of its authenticity to be diminished in proportion as its antiquity is proved, he still inclined to look on the record with suspicion, the law in question being "unknown at the present time," and the system of premiums insurance to which it alludes, being specifically different from the mutual insurance originated by King Ferdinand for Portugal.
The Roole d'Oleron, and the Consolat de Mar, have been adduced by some as furnishing the origin of assurance, but it seems clearly proved that they did not contain any reference to the premium system of assurance. The Laws of Wisby are equally silent on the subject, no mention being made of assurance in these laws till 1541, when the notice of it appears interpolated in a manuscript in the possession of the University of Greifswalde.
Various French writers, Cleirac being the chief promoter, hold that insurance and bills of exchange both owed their origin to the expulsion of the Jews from France about the beginning of the twelfth century, but we may accept the opinion of Judge Park, that there are no materials for deciding the question, supported as that view is by the fact, that President Montesquieu who mentions that the Jews, upon this occasion, invented bills of exchange, does not say a syllable of policies of assurance.
On the whole, the question of priority seems to lie between Flanders and Italy; but we think that the advocates for its Italian origin might fairly push the discussion a little further, and the following additional remarks will serve to indicate our leaning on the subject:
The maritime commerce of the Italian States appears to have rapidly increased between the early part of the twelfth and the end of the thirteenth centuries, at which latter period it was carried to a very considerable extent. It is extremely probable, that insurance came into use in Italy about that time; and after the advantages attending it came to be understood, it is natural to suppose that it would be transplanted into most of the countries where the Lombards had established their trading companies. Indeed, according to Malynes, they introduced it into England, at an earlier date than in the neighbouring countries on the continent; as a proof of which he says that down to the time in which he wrote (1622), there was, in every policy made at Antwerp and other places in the Low Countries, a clause inserted, that it should be in all things the same as policies made in Lombard Street, in the City of London, the place where the Lombards are known to have first settled and carried on their commerce in England.
In giving the merit of the invention to the Italians, it ought not to be forgotten that in the period of which we speak they had made the greatest proficiency in trade, and in every species of mercantile improvement. In Venice was established the first public bank, and there also was first introduced a funded debt, transferable from hand to hand. Bills of exchange, if not invented by Venetian merchants, were first used by them extensively, and the principles of book-keeping by double entry were there first understood and applied in practice.
Thus, although no direct authority exists to warrant a positive assertion that the Lombards were the inventors of this kind of contract, yet, when it is admitted that in the twelfth and thirteenth centuries they were the carriers, manufacturers, and bankers of Europe, the inventors of banking, book-keeping, &c., that they originated the name of the contract, and carried the knowledge of it to the different maritime states in which they settled, and that it was by them introduced into this country in the thirteenth century, there is much to be said on the side of those who maintain, that in order to support their extensive commerce, these industrious and ingenious people originated the system.
The first English statute as to assurance was the 43rd Elizabeth, cap. 12, in 1601; but as it designates the system as "tyne out of mynde, an usage amongste merchants," the practice must therefore have been introduced into this country at a much earlier period; probably through the Lombards as already referred to.
**Life Assurance**
It is curious to observe that Life Assurance, which has so favourable a bearing on our social and moral welfare, may be said to have originated from the study of the laws of chance, as observed in the experience of the gambler. It will be remarked, however, that the one is the very antithesis of the other. In Life Assurance, the individual is freed from risk by union for mutual protection with his fellow-men. The gambler takes the single risk upon himself, and his average, if he obtain it, can only arise from the duration of his play. In fact, the man who has the opportunity of assuring his life, and does not do it, is the gambler, taking the single risk upon himself.
That the one practice took its origin, however, from the observation of the other, there can be no doubt; the earliest mathematical publication on probabilities, being a little tract of Christian Huygens, written in Dutch, but afterwards translated into Latin, and appearing under the title "De Ratiociniis in Ludo Aleæ," in the Exercitationes Geometricæ of Francis Schooten, printed at Leyden 1657. Two other mathematicians, however, who preceded Huygens, really laid the foundation of the science, although he wrote the first systematic treatise on the subject. We refer to the famous Pascal, and Fermat his friend, a magistrate of the parliament of Toulouse. But as the history of the general doctrines of probabilities is given under that head, we must confine our remarks to the history of that doctrine as applied to the duration of life, and the progress of life computations.
It has been usual to commence the history of life contingencies with the little volume of "John Graunt, citizen of London," who published observations on the bills of mortality in 1662; but Mr Hendriks has given the means of more remote speculation on the subject.
The practice in the days of Herodotus was to reckon three generations equivalent to a century, and the census of Vespasian, as noticed in Pliny, distinguished cases of extreme longevity. But we do not find anything like an observation on the subject until we come to the calculations of the Praetorian prefect, Ulpianus, one of the most eminent commentators on the Justinian Code, who gave a table of the estimated present worth of Life Annuities, with reference to the requirements of the Falcedian law, which rendered it necessary to put a value on liberent and other similar provisions. Ulpianus, however, took no account of interest, so that his calculations are more expectations of life than life annuities, and in that view Mr Hendriks says, "The old Roman jurisprudence gave far more correct views of the comparative value of life at different ages than the modern possessed, in a popular way, until nearly the close of the seventeenth century." Ulpianus' calculations (Pandect, It seems abundantly evident that Ulpianus' estimate must have been based on actual observations in some form, but the Romans must have had a miserable chance of life in old age.
From that period we have nothing to attract attention till the sixteenth century, when Dr (or Sir) Thomas Wilson, who died in 1581, published his *Discourse upon Usurie*, which contains illustrations of endowment transactions on the lives of children, but the life contingency portion seems merely incidentally introduced with reference to questions as to usury.
In 1661, M. Cleirac, the author of *Les us et Coutumes de la Mer*, notices the *Guidon*, "a French production, formerly compiled for the benefit of the merchants trading in the noble city of Rouen." This work is nearly 300 years old, its author's name is unknown, but it is a most curious document, in consequence of the reference it makes to assurance matters. From Mr Hendriks we give the following translation, omitting Cleirac's notes:
1. In other countries, where the bodies of peoples may be captured and reduced to bondage, there are various wages for the insurance of the body and life of men, whether they be of free condition, or slaves, which customs will not be mentioned here, because in France, men of whatsoever nation are of frank and free condition.
2. Notice only will be taken of what is practised in this country by those who undertake distant voyages, as to the coast of Italy, Constantinople, Alexandria, or other like voyages in the Mediterranean and Atlantic Seas, on account of the fear which they have of the galleys, frigates, and frigates of the army of the Turk, or Corsairs, who make a traffic of the sale of Christians, whom they capture as well on sea as on land; which creates occasion for the masters of vessels to stipulate with their merchant freighters, or others, for the restitution of their persons in case they are captured; and this they can do even for the people of their crew.
3. In such a case, the master must, in the policy, estimate his ransom, and that of his companions, at so much per head; declare the name of the ship, the stay or touchings which it will make, the duration of each stay, and to whom the ransom is payable. The insurer is bound to pay the sum insured for the ransom 15 days after verification and certification of the captivity, without waiting for the usual two months' delay; and without other formality of seeing freightage, bill of lading, or charter party, it will suffice to produce the attestation of capture and the policy.
4. Pilgrims going to the Holy Sepulchre of Jerusalem, or on other distant voyages, may effect insurance for their redemption, valued at a given amount. Description shall besides be made of their persons, names, surnames, country, abode, age, and rank; and, moreover, limit shall be made as to within what time they undertake to make and accomplish the voyage: the longest period shall be of three years inclusive, without admitting excuse of illness, or other detention whatsoever. In imitation of the preceding, those who undertake journeys or vows for a lengthened period, or Assurance, by Dr Price, are as follows:
| Ages | Stockholm Life, Dr Price | Expectations Male and Female Roman Life, Ulpianus | |------|--------------------------|-----------------------------------------------| | Birth | 14-25 | 18-10 | | 5 | 31-65 | 37-12 | | 10 | 39-60 | 39-89 | | 15 | 39-74 | 33-43 | | 20 | 29-85 | 30-91 | | 25 | 21-40 | 29-90 | | 30 | 19-42 | 22-98 | | 35 | 17-58 | 21-83 | | 40 | 15-61 | 19-25 | | 45 | 13-78 | 17-17 | | 50 | 11-95 | 15-12 | | 55 | 10-30 | 12-89 | | 60 | 8-69 | 10-45 | | 65 | 7-39 | 8-39 | | 70 | 5-81 | 6-16 | | 75 | 4-09 | 4-39 | | | 60 and upwards | |
The most remarkable feature of these times was the condemnation of, and legislation against, the practice of assurance in many countries. Not only in France was it assumed unrecognizable by law, but in the Netherlands' Ordinance of Philip II., and in the Civil Statutes of Genoa (1588), in which last it is declared that "securities, bonds, or wagers may not be made, without the license of the senate, upon the life of the pope, nor upon the life of the emperor, nor upon the life of kings, cardinals, dukes, princes, bishops, nor upon the life of other lords or persons, in constituted dignities, ecclesiastical or secular. Neither may they be made upon the acquisition, loss, or change of lordships, governments, kingdoms, provinces, duchies, cities, lands, or places" . . . nor upon any other transaction having the species or form of a bond, security, or wager (*vadiumi securitatis, seu partiti*); but all are understood and are forbidden. The 24th article of the Amsterdam Ordinance of 1598 prohibits insurance of the life of any person, and likewise wagers upon any voyage or frivolous purpose; and the Rotterdam Ordinances of 1604 and 1635 repeat the latter injunctions. The 10th article (*Titre IV.*) of the great French Marine Ordinance of Louis XIV., dated 1681, says, "We forbid the making of any insurance on the life of men;" but the 11th article excepts those who redeem captives, and guarantees the price of the redemption assured upon the persons, if the redeemed on his way back perish by other means than natural death.
"Even later than the 17th century," adds Hendriks, "life assurance was regarded in France as obnoxious. In 1783, there remained a spirit of opposition to it. Emerigon, whose work on assurance comprises more than 1300 quarto pages, devotes one page to the subject of life assurance, and that short space to the purpose of attacking the system."
But we must now pass on to a more interesting period, when we are called on to consider the conflicting claims of great names, with reference to the origination and practical application of the doctrine of annuities, as derived from the study of the laws of chance or probability.
John de Wit, the Grand Pensionary of Holland, submitted to the States-General of Holland, in 1671, a treatise on the valuation of life annuities, and, on the basis of that document, it was resolved to grant life annuities for the purpose of raising funds. This treatise Mr Hendriks characterizes as "the first known production of any age treating in a formal manner of the valuation of life annuities," and the scientific world are much indebted to him for the restoration of this document, which was inserted in the Resolutions of the States of Holland and West Friesland of the year 1671, and which had remained as good as lost for 180 years.
In the preparation of this document De Wit was no doubt aided by the preceding labours of Pascal, Fermat, and Huygens, and he had no doubt the advantage of observations on the duration of life among persons to whom the States of Holland had previously granted annuities; but, independently of the originality of the design, we must give him the entire credit of having discovered a correct principle on which the value of a life annuity might be calculated.
De Wit's Treatise is headed "Value of Life Annuities." in proportion to Redeemable Annuities." He commences with pointing out the difference between a "redeemable annuity," as he terms it, at 4 per cent., that is a perpetuity at 25 years' purchase, or perpetual investment at 4 per cent., and a life annuity; estimating the value of the latter in the most favourable circumstances as "really not below, but certainly above 16 years' purchase." He then gives some preliminary observations on the doctrine of chances, and afterwards applies the principle to the calculation of an annuity value at a particular age. His calculations are simplified and explained as follows by Mr Hendriks:
"First, Out of 128 lives, aged say 3 years, 1 is supposed to die in every half-year of the first 100 half-years, or 2 per annum for 50 years, leaving 28 alive, aged 53 years, at the end of the term; out of whom 1 dies in every 9 months, being 0·66 per half-year during the next 20 half-years, or 1·33 per annum for 10 years, leaving 5·66 alive, aged 63 years, at end of second term; of whom I die in every year for 7½ years, being 0·75 per half-year during the next 20 half-years, leaving 5·66 alive aged 73 years, at the end of the third term; of whom 1 dies in every year and a half for 7 years, being 0·33 per half-year during the next 14 half-years, leaving 1 alive, aged 80, at the end of the fourth term; which survivor does not live over another half-year. Secondly, Out of the 128 lives, those who die in the respective half-years between the ages of 3 and 80, will receive an annuity certain in half-yearly instalments, for a term equal in continuance to the number of completed half-years elapsed between age 3 and the date of their death; therefore, the sum of the present values of half-yearly annuities certain, for the corresponding terms multiplied in the number of ages within such respective terms, gives the present worth of all the annuities which will be enjoyed by the 128 lives, 1/2 of which represents the present value of the single life annuity at age of, say 3 years."
We have dwelt at some length on the discovery of De Wit, as it has not been available previously in any account given of the progress of life calculations, our best writers in this country, from the absence of any precise knowledge in regard to it, having passed it over with a slight notice. On the continent, however, the labours of De Wit have been more highly appreciated. The Marquis of Condorcet, in his Discours Preliminaire, gave him the credit of being "the first mathematician who thought of applying calculation to political questions." "It was he who first essayed to fix the rate of life annuities according to the probabilities of life given by the tables of mortality." Upon politics, upon the true interests of nations, upon the freedom of trade, he had very superior ideas to those of his age; and we may say that his premature death was a misfortune to Europe as well as to his country.
We cannot conclude our notice of De Wit without mentioning the name of his fellow-labourer, if we may so term him, the Burgomaster Huddle. We had at one time rather a painful impression left on our mind, arising out of the terms of Huddle's certificate to the report of De Wit to the States-General, and other observations by Mr Hendriks, but we are glad to find, from the correspondence subsequently brought forward, that they were fellow-labourers in the same field, and that Huddle himself was a man of science.
We have now to mention the first published work in which an attempt is made to form Tables of Mortality. We allude to the work of John Graunt, whose name has been already mentioned. It was published in 1662, and is the first book on the subject of life observations, as a distinct treatise. It is entitled, Natural and Political Observations, mentioned in a following index, and made upon the Bills of Mortality, by John Graunt, citizen of London, (afterwards described in the fifth edition as "Captain John Graunt, F.R.S.") A century previous to the publication of this little volume, viz., on 1st January 1562, the first register of burials was commenced in London, the necessity for the inquiry arising from the great mortality occasioned by the plague at that time. From that time the bills of mortality were kept at irregular intervals, according to the appearance and disappearance of the plague, but from 1603 the records were continued uninterruptedly. Graunt paid particular attention to these weekly returns, and, with a sagacious appreciation of their value, reduced the results into tables, "in order to the more ready comparing of one year, season, parish, or other division of the city." He analyses the bills themselves, and draws certain conclusions with great adroitness, giving the first semblance of a table of mortality in the arrangement of deaths in decades. The work passed through five editions, the last under the superintendence of his relative Sir William Petty, who himself paid some attention to the subject, having published Essays on Political Arithmetic concerning the People, Houseings, &c., of London and Paris. Essay concerning the Multiplication of Mankind, and the Growth of the city of London. Observations on the Dublin Bills of Mortality, &c.; and Discourse on Duplicate Proportion, read before the Royal Society 1674.
From this time till 1693, when the celebrated Dr Halley's investigations and calculations appeared, there is little to attract attention. A set of tables were published during this interval, entitled, Tables for Renewing and Purchasing of the Leases of Cathedral Churches and Colleges, &c.; also Tables for Renewing and Purchasing of Lives, &c., bearing the imposing title of "Sir Isaac Newton's Tables;" but we learn from Mr Edwin James Farrer's historical Essay on the Rise and Early Progress of the Doctrine of Life Contingencies in England, that Sir Isaac Newton being then at Cambridge (Lucasian Professor vice Barrow), it appears to have been thought politic to obtain his sanction or imprimeretur as to the correctness of the tables, and "his original cognizance of the work appears to have been to merely confirm the (Q.E.D.) correctness of a single table relative to the established usage of renewing college leases."
In No. 196 of the Philosophical Transactions, 1693, Dr Halley published the result of his investigations under the following title:—"An Estimate of the Degrees of the Mortality of Mankind, drawn from curious Tables of the Births and Funerals at the city of Breslau, with an attempt to ascertain the Price of Annuities upon Lives, by E. Halley, R.S.S."
The Table of Dr Halley is arranged exactly in the same form as the mortality tables of the present day, and shows the numbers living at each age, being the first table of the kind. He proceeded to form annuity values from his mortality table; but as he computed at one rate of interest only, 6 per cent., and the values were given for every fifth year merely, his results were very limited in their application. His mode of construction was not consecutive, he having failed to obtain a general formula for the value of annuities; but if he had made separate calculations for each year of age, he would, no doubt, have discovered the general solution. Dr Halley's formula for annuity values in modern notation (Milne's) is as follows:
\[ A = a^{-1} \{ a(1+r)^{-1} + a(1+r)^{-2} + \ldots \} \]
In specifying the uses to which his table may be put, he thus indicates the calculations of assurances. Use IV.—By what has been said the price of insurance upon lives ought to be regulated, and the difference is discovered between the price of insuring the life of a man of 20 and 50. For example—it being 100 to 1 that a man of 20 dies not in a year, and but 88 to 1 for a man of 50 years of age," &c. It will be perceived that the reference made is to short period assurances, which, as will be shown afterwards, was the practice of the day.
Dr Halley may be designed, then, the discoverer and scientific arranger of what are called Life Tables, but there is no doubt that De Wit preceded him by some years in the elimination of a method by which the true value of a life annuity could be obtained. Halley was more scientific than De Wit, but there is no occasion to place the one above the other; they both made important discoveries and valuable additions to our knowledge, and, without clashing, they may be referred to as the originators of the application of the doctrine of probabilities of life and death to practical uses.
Notwithstanding the progress thus made in ascertaining the values of life annuities at particular ages, the Government continued to disregard such knowledge in their enactments, and in 1694 made the following estimate in a money act, which was passed in that year:
| Single life | 7 years' purchase | |------------|------------------| | Two lives | 8½ | | Three lives| 10 |
Which rates, under another act passed in 1703, were raised, on
| Single life, to 9 years' purchase | |-----------------------------------| | Two lives | | Three lives |
Abraham de Moivre comes next. The first edition of his tract, entitled *Annuities upon Lives*, &c., by Abraham De Moivre, F.R.S., was published in 1724, and passed through several editions, viz., in 1738, in 1750, in 1752, and finally, in 1756. This distinguished analyst improved what Halley had begun, and Mr Farren points out very distinctly, that the formula, generally attributed to Thomas Simpson, by which the value of an annuity at any age may be derived from that at the next higher age, must now be attributed to De Moivre, he having generalized the formula given by Halley. We have not been able to find the passage on which Mr Farren founds his claim in the 4th edition 1752, or in the edition of 1756; but as Mr Farren quotes from the edition of 1724, that is sufficient authority.
The formula may be given as follows, in modern notation (Milne's), and it may be afterwards compared with that of Simpson and of Euler, to whom the discovery has also been attributed:
\[ A = \frac{a}{(1+r)^{-1}} \left( 1 + \frac{1}{A} \right) \]
But the labours of De Moivre are best known from his hypothesis, that the decrements of life are equally and uniformly progressive. He took Dr Halley's observations from the Breslau mortality, and finding that the decrements of life, for considerable intervals of time, were nearly in arithmetical progression, he assumed, that out of a given number of persons born, a certain number of deaths would take place annually, fixing the limit of life at 86 years; thus out of 86 lives, assuming that 1 would die annually, the mortality the first year would be one out of 86; the second year 1 out of 85; and when the lives were reduced to 50, the mortality became 2 per cent, that is, 1 out of 50, and so on. Upon this basis he worked out a system, which, from the uniformity of its series, was easily made applicable to all single life calculations. The results agreed closely with the true values according to Halley, from 30 to 70, and this mode of calculation was so far useful at the time; but the talented author did not succeed in applying the theorem satisfactorily to joint lives. It is quite possible, we think, that an extension or modification of De Moivre's hypothesis, at some future day, may be found practicable, and we are rather inclined to think that the discussion proved favourable to the more complete investigation of the laws and doctrines involved. At any rate we agree with Bailey, that his hypothesis will ever remain a proof of his genius and abilities.
We have only further to direct attention to the fact of De Moivre having proposed questions as to assurance values. See Problems 14th and 15th in his 4th edition.
He also published a paper in the *Philosophical Transactions*, 1754, to determine the value of life annuities when a proportion is required from the date of last payment to the date of death.
After De Moivre, we pass on to Thomas Simpson, who, in 1742, published *The Doctrine of Annuities and Reversions, deduced from General and Evident Principles, with useful Tables, showing the Values of Single and Joint Lives*, &c. Simpson did not think the Breslau Tables of Halley at all applicable to London, and considered Smart's *Tables on London Observations* required correction with reference to the influx of people from all parts up to town. The whole subject is treated by Mr Simpson in a much more perspicuous manner than by any previous writer. His formulæ are general, and adapted to any table of mortality, and although De Moivre portrayed the method of obtaining the annuities on lives at a younger age, from the values at the immediately preceding age, still we must allow that the advancement of the science is more attributable to Simpson than to De Moivre. Simpson's formula is contained in the seventh corollary to the first problem, in his *Doctrine of Annuities*, which declares—"If the value (P) of the joint lives A, B, C, be given, or once computed, the value (K) of the next younger lives A, B, C, &c., whose ages are each, respectively, one year less than those of ABC, &c., may be easily derived. And the result shown is
\[ K = \frac{1}{1+P} \times \frac{QRS}{rQRS}, \text{&c.} \]
QRS, &c., being the numbers found in the table of observations against the next younger ages, and r the amount of L.I in a year." In modern notation this becomes
\[ ABC, \text{&c.} = \frac{(abc)(abe)}{(1+r)^{-1}} \left[ 1 + \frac{1}{(ABC)} \right], \text{&c.,} \]
which is evidently the same as De Moivre's process.
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1 The most important works in the interval are the following:—John Smart—*Interest Table, with an Appendix as to Annuities on Lives*, 1726. In consequence of a suggestion made by Mr Smart in this publication, the ages appear to have been added to the London bills of mortality in 1727-28; and in 1738, after ten years' results had been obtained, he published the first table composed from English data. Richard Hayes—*New Method of Valuing Annuities on Lives*, 1727. The only novelty this work contains is a table of life annuities at yearly ages. The data on which he compiled his tables are not given, and he appears to have formed a table of probability for himself. From an example given of the sale of an annuity, one would almost be inclined to suspect that Mr Hayes some portion of the credit for the origination of the whole term assurance principle, but as he deals with it entirely as an annuity question, we must merely record the step as tending towards the more complete process. An assurance company certainly began an inquiry from the policy holder when an assurance is granted, and in that view the cases are almost identical. This work was reprinted in 1746. In 1728 Mr Hayes, the same author, published *An Estimate of Places for Life, showing how many years' Purchase a Place for Life is worth*. Neither of these works are of much value, but they tend to show that the interest in the subject was increasing. John Richards of Exon.—*The Gentleman's Stewart and Trustee of Monies Instructed*, &c., 1730. The Tables for valuing estates on lives are founded on Dr Halley's hypothesis, and calculated by the method laid down by M. Ab. de Moivre, to 4, 5, 6, 7, and 8 per cent, &c. Edward Law, renc, land surveyor, 1730—*A Dissertation upon Estates, upon Lives*, &c. Gaul Morris, 1735—*Tables for Renewing and Purchasing of Leases, and also for Renewing and Purchasing of Estates, &c.* Weyman Lee, 1737—*An Essay to Ascertain the Value of Leases, of Annuities for Years and Lives, and to Estimate the Chance of the Duration of Lives*. Mr Lee endeavoured to show that an annuity certain for the number of years equal to the probable lifetime of a person was the true value of a life annuity. He of course failed. In 1751 Mr Lee published *A Valuation of Annuities and Leases certain for a Single Life*, in which he endeavoured to defend himself. John Richards, 1739—*Annuities for Lives and for Limited Terms of Years considered*, &c. This was an answer to Weyman Lee, who had attacked his work of 1730. From 1725 to 1740 a number of other works were published as to the value of leasehold estates, church and college leases, &c., but those mentioned above are the most important, and it is quite unnecessary to record the others here. "Subsequent investigations," says Farren, "have indeed revealed to us that Simpson's formulae were capable of improvement, but the principle of relying solely upon the doctrine of mathematical probability in demonstrating life-contingency problems, without being restricted to any particular set of numerical results, is still happily recognised by calculators, and undoubtedly owes its prevalence to the pre-eminent example thus afforded by this celebrated mathematician." It should, however, be mentioned that Simpson's rules being partly deduced from De Moivre's hypothesis, and partly from real observations, are thus rendered of diminished value.
It is perhaps scarcely fair to record the foibles of men of learning, but historical notes such as these would be wanting in completeness if we did not refer to the controversy between Simpson and De Moivre. It is characteristic of the times in which they lived, and if not instructive, is certainly amusing. Mr Simpson appears at a subsequent date to have got into controversy also with Deparcieux, and he complains with some bitterness of Deparcieux having criticized with more severity than judgment the alterations he had made in Smart's table of mortality for London; but Simpson appears to have taken his information at second-hand, and that the views of M. Deparcieux were erroneously reported. Mr Milne, however, considers M. Deparcieux's remarks "to be both candid and just," and gives them at length in the introduction to his Treatise on the Valuation of Annuities and Assurances, vol. i., p. 8. In 1752, Mr Simpson published his Select Exercises for Young Proficients in the Mathematics. That part relating to annuities was separately printed in 1791, and is generally bound up with his Doctrine of Annuities and Reversions. In this last publication, he gives approximations to the value of reversionary sums and annuities upon lives according to assigned order of precedence.
M. Antoine Deparcieux, in 1746, published his Essais sur les Probabilités de la Durée de la vie Humaine. This work contains valuable tables of mortality, derived from the registers of deaths in the different religious houses in France, separating the males and females. M. Deparcieux also made use of the experience of the French Tontines, and by separating the sexes, he ascertained the greater longevity of female life. His calculations of the values of annuities on single lives are made at three rates of interest. Milne considered his tables to be some of the most useful that had then been published, and the values of annuities given by them nearer the truth for the average of England than any others of which he was aware, except in old age, when they were certainly too small. Altogether, he seems to have made a valuable addition to the information of the day. His work attracted much attention on the Continent, and it is understood to have been the foundation of the articles, "Rentes Viagères," and "Vie, Durée de la," in the Encyclopédie. He had a nephew of the same name, who published a quarto volume at Paris in 1781, on annuities certain, entitled Traité des Annuités.
Omitting the minor works of James Hodgson in 1747; George Louis le Clerc, Comte de Buffon, in 1749; Thomas Short in 1750; and Corbyn Morris in 1751, we come to the works of James Dodson, who in 1751 contributed a paper to the Philosophical Transactions, "On the Improvement of the Bills of Mortality;" in 1753, he published a second volume of the Mathematical Repository, which contained solutions of various annuity questions on De Moivre's hypothesis; in 1754, he contributed a paper to the Philosophical Transactions, suggesting an improvement on De Moivre's calculation connected with the payment of a proportion of annuity to the date of death; and in 1755, he published the third volume of his Mathematical Repository, which is entirely devoted to problems relating to annuities reversions, survivorships, insurances, and leases dependent on lives.
These publications of Dodson are highly interesting, and we find considerable prominence given to assurance calculations as distinct from annuities. De Moivre and Simpson gave one or two problems from which assurances might be inferred, or which involved the assurance principle; but Dodson proposed the solution of distinct problems on the subject. All the solutions, however, being based on an erroneous principle, are of little practical value.
Passing over the works of William Kersseboom of the Hague, to be found in the Phil. Trans., May 1753, and of S. Stonehouse (1754), whose new tables, deduced from the London Bills of Mortality, do not differ largely from those of Simpson, and the paper of the Rev. William Brakenridge, in the Phil. Trans. of 1755, we notice the labours of Leonard Euler, who, as Bailey expresses it, "has condescended to illustrate the first principles of this science." In 1760, in a paper inserted by him in the Histoire de l'Acad. Roy. de Berlin, entitled "Recherches Generales sur la Mortalité et la Multiplication du Genre Humaine," he gave a formula, similar to that of De Moivre and Simpson, for ascertaining the value of an annuity at any age, from the value at the age immediately preceding; and by it he calculated a table for single lives, on a table of mortality prepared by M. Kersseboom, founded chiefly upon the registers of the Dutch annuitants, carefully examined for a century backward. His formula is—
$$\frac{m}{\lambda} = \frac{1}{(m+1)} \left( \frac{1}{m} + \frac{1}{m+1} \right)$$
$m$ and $m+1$ being values of annuities upon lives aged $m$ and $m+1$ years respectively ($m$) and ($m+1$) the numbers that attain to those ages, according to the table of mortality, and $\frac{1}{\lambda}$ the present value of £1, to be received at the expiration of a year; being the same formula as given in modern notation, in the explanation of De Moivre's discovery of the process. In the second volume of his Opuscula Analytica, published after his death in 1785, the solution of a question relating to reversionary annuities is given—a much more arduous undertaking, he it observed, than in the present day, when so many auxiliary tables are ready to assist the actuary.
In 1759 the publications of Graunt, Petty, and Corbyn Morris, were reprinted in a work entitled Collection of the yearly Bills of Mortality, from 1657 to 1758 inclusive, together with several other Bills of an earlier date (anonymous); and A Comparative View of the Diseases and Ages, and a Table of the Probabilities of Life, by J. P., Esq., F.R.S. These were supposed to have been arranged by Dr Birch, secretary of the Royal Society, from materials furnished by Dr Heberden; and the Table of Probabilities was calculated by James Postlethwayte, Esq. Mr Farren says, "the publication is, in every respect, worthy of being consulted, especially by statisticians interested in the early history of the London bills of mortality, these being printed at full length, and a very judicious preface prefixed."
We have now to mention the works of an author, whose name is known more extensively in connection with life assurance than probably any other—we refer to Dr Price. He wrote at a time when the practice may be said to have been purely experimental, and with a disinterested desire of protecting the public from erroneous and ill-digested schemes, he did good service to the cause by hastening and guiding its reform. Had he done no more than put an end to many of the bubble schemes of the days in which he wrote, his name would have been deservedly remembered, but he did more, and much more, in the cause. Even the first three editions of his work, which mainly contained a polemic against the errors of the annuity plans then prevalent, was highly suggestive on many other points, especially in showing the necessity of more accurate observations on the mortality of human life, in order to determine with more correctness the value of life annuities. In 1783 a fourth edition of the work appeared, enriched with much new matter. Various tables calculated on the Northampton Observations were contained in this edition, also the Swedish tables, founded on the observations of Mr Wargentin, who was one of the commissioners appointed to take charge of the returns of the annual births and deaths in all Sweden and Finland. The number of the people, sexes distinguished, was returned to these commissioners once in three years, and Mr Wargentin furnished to the Transactions of the Royal Academy an abstract of the returns for nine years, 1755 to 1763, for the whole kingdom, and Stockholm separately. Wargentin died in 1753, but Mr Nicander, his successor, who afterwards continued his observations, maintains that he left similar computations for four periods—(1765-6-7), (1768-9), (1772), (1774-5 and 6)—and that an abstract deduced from these statements was sent by him to Dr Price not long before his death. Dr Price acknowledges his obligations to Mr Wargentin, as well as to Mr Oeder of Oldenburgh, and John Peter Sussmilch, the author of Gottliche Ordnung, or The Divine Decreet in the Variations of the Human Race, with regard to Births, Deaths, &c. (4 edts., 1742, 1761, 1765, 1775).
The chief feature of Dr Price's fourth edition, however, is the introduction of the Northampton Observations and Tables founded on them, which became the basis of the calculations in the Equitable Society, and were adopted by many assurance institutions established during the forty years which succeeded their publication. These Tables at the present day form the basis of the calculations in connection with legacy duties under the 36th Geo. III., cap. 52, and are still considered by various of the older insurance offices. They were framed from the accounts kept at Northampton during the forty-six years 1735-1780, of the ages at death of 4689 persons who were buried in the parish of All Saints. The chief defect in the result is, that the expectation of early life is too small, and of later life too great; but the table has fulfilled its mission; and although it is now properly designated the "False Northampton Table," in contradistinction to the "True Northampton Table," published in the records of the registrar-general, we can still afford to give it its meed of praise, and we have no hesitation in pointing to it as one of those supports which has lent valuable aid in the construction of the vast fabric of life assurance. The inaccuracy of the table we can only touch upon very slightly, leaving those interested to refer to the valuable investigation of the subject by Dr Farr in the Eighth Report of the Registrar-General of England. The Northampton Table of Dr Price was constructed from the deaths alone, on the hypothesis that the population of Northampton had been stationary for nearly a century; but Dr Farr has ascertained the fact, that from the eleventh century, when the Doomsday Survey was taken, down to the present time, the population increased during the whole period; and it is certain that life tables can only be constructed from the deaths alone, if the population be stationary, if the births and deaths be equal, and if the results be not disturbed by migration.
Dr Farr, in illustrating this subject, gives a true life table for Northampton, deduced from the population returns of 1841, and the numbers living and dying at each age in All Saints parish there, which he designates "the True Northampton Table;" and a table constructed from the deaths alone during the same period, which he designates "the False Northampton Table" (being the counterpart of Dr Price's). These he compares together, and with Dr Price's own table, in the following manner. The calculations are made at 3 per cent. interest, without any allowance for expenses or profits:
| Age | After Lifeline at 7 Ages | Value of Life Annuities of £1 at 7 Ages | Annual Premiums to be paid for Life, to insure £100 at Death | Single Premiums to Assure £100 at Death | |-----|--------------------------|----------------------------------------|----------------------------------------------------------|--------------------------------------| | | By True Northampton Table | By False Northampton Table | By True Northampton Table | By False Northampton Table | | 0 | 37-67 | 24-68 | 17-085 | 12-169 | | 10 | 47-57 | 39-54 | 23-390 | 20-615 | | 20 | 58-93 | 33-40 | 21-412 | 18-702 | | 30 | 69-28 | 28-15 | 19-061 | 16-961 | | 40 | 79-59 | 22-83 | 16-555 | 14-825 | | 50 | 89-76 | 17-49 | 13-055 | 11-265 | | 60 | 99-27 | 11-91 | 8-949 | 6-935 |
From these data he draws the conclusion that "the Northampton Table of Mortality by Dr Price does not express the mortality of All Saints parish in the town of Northampton, of the county of Northampton, nor any other town or county either in the past or the present century." We may add, at the same time, that if Dr Price's Table had been properly formed, we believe the results would not have differed from the values now exhibited on observations correctly made; and that it is probable these results, as compared with modern observations, would have led to the conclusion that the value of life in this country has not materially improved during the last century. Without supporting or suggesting the use of the Northampton Table, which, without doubt, is erroneous in its mode of construction, and cannot be continued in use by any society without sooner or later giving rise to a feeling of dissatisfaction; yet we almost regard it as providential that a nearer approach to the truth was not then made, and that the Equitable Society adopted the Northampton data, as it is probable that that institution, if its rates had been little more than equal to the risks, might have become involved in early difficulties; or at least would have failed to inspire that confidence, to which the vast accumulation of its funds, in consequence greatly of its high rates of premium, based on the Northampton data, gave rise. In other circumstances, it is probable that life assurance would have made but slow progress, and its blessings would not have been available to every man, as they now are.
Dr Price gives tables for single lives on the Northampton data, complete at six rates of interest, and on two joint lives at four rates, calculated on combinations of from five to seventy years' interval, which is sufficiently near to be used for all ages by interpolation. To the sixth and seventh editions of Dr Price's work, there are valuable prefaces by Mr William Morgan, actuary of the Equitable Society, whose works we shall have to notice presently, and who in his preliminary observations gives a graphic picture of the state of assurance offices in his time.
The mathematical demonstrations are generally considered the most unsatisfactory part of Dr Price's work, and it certainly is a blemish that, in the later editions, various examples, or rather calculations, proceed partly on De Moivre's Tables, and partly on the Breslau Observations, notwithstanding the publication of his own new tables. Dr Price has also the merit of having been the first to determine the true value of a given sum payable at the end of the year in which any number of lives become extinct, the investigations of Simpson and Dodson both having been erroneous. Bailly also mentions De Moivre as having missed the solution, but with his formula before us, we cannot admit it.
Mr Morgan's earliest work, entitled The doctrine of Annuities and Assurances on Lives and Survivorships, was published in 1779. In his tables and examples the results on De Moivre's hypothesis were still required for illustration, and in the absence of more extensive tables they answered the purpose. On the whole, his book is highly suggestive; and from his plan of checking annuity values, it may almost be said that the first idea of the columnar system is to be found in the method employed by him. The fourth edition of Dr Price's Observations was published in 1783; and in the interval, and subsequently, Mr Morgan appears to have devoted himself to the study of the subject with greater ardour and success than formerly. In 1788, 1789, 1791, 1794, and 1800, he contributed several papers to the Philosophical Transactions, in which he gave for the first time accurate solutions of problems involving values of reversions and annuities according to assigned order of precedence, detecting the inaccuracy of his former rules, which were also the rules of Simpson and others who had gone before him. In 1821, after a lapse of 40 years, Mr Morgan again came forward with a second edition of his work, in which not only much additional matter is contained, but he abandons entirely the hypothesis of De Moivre, and gives the solutions of his questions according to the real probabilities of life. He explains the nature of annuities and assurances on lives, together with the principles on which the calculations are based, giving the rules in words at length, and the demonstrations algebraically in an appendix. In a postscript, he gives a Nosological Table, containing an account of all the deaths in the Equitable Society during twenty years, "among a population exceeding 150,000 persons." These were not the lives assured, but the number of years enjoyed by those lives, and the mode of expression gave rise to some mistakes—Mr Babbage and Dr Young being both misled. Mr Morgan also published in 1828, A View of the Rise and Progress of the Equitable Society.
Prior to the second edition of Mr Morgan's work, M. De St Cyran (capitaine en premier au corps royal du génie), published a work (in 1791), entitled Calcul des Rentes viagères sur une et sur plusieurs têtes, containing various annuity tables, computed from Kerschoom's Tables of Mortality. He also gives values of annuities at 5 per cent., calculated from a corrected copy of the table of mortality of M. Dupré de Saint Maur; and he gives a copy of Deparcieux's Table of Annuities for Single Lives. The algebraical formulæ are not clear, and his values of two and three lives are only approximations. The annuities, as in Deparcieux's Tables, are made payable to the date of death.
In 1781 Carl Chassot de Florencourt published a work entitled Abhandlungen aus der juristischen und politischen Rechenkunst, in which he gives a table of single lives, calculated on Deparcieux's Table of Mortality, but making the annuity payable at the end of every year the life survived, with a table of proportional parts, for additions to be made according to the period the annuitant survived the year.
In 1783 Francis Maseres, Cursitor Baron of his Majesty's Court of Exchequer, published The Principles of the Doctrine of Life Annuities explained in a familiar manner. This work consists of 726 large quarto pages, but although so voluminous, the work is full of information clearly conveyed. He reviews with great acuteness the most interesting points in the advancement of the doctrine, prior to the period at which he wrote. In tabular matter the work is peculiarly rich, and Deparcieux's Tables of Annuities from the French Tontines are extended to 12 rates of interest on single lives (2 to 10 per cent.), and on joint lives to two rates (3½ and 4½ per cent.) the combinations being equal ages—5 or 10 years, and multiples of 10. He also gives, in an appendix, various suggestions and tables connected with a proposed scheme for the better support of poor persons in certain circumstances, by enabling parishes to grant them annuities for life; the tables being divided "for the use of London," and "for the use of country parishes."
Next in order of time, and in order of importance not behind any we have yet mentioned, comes Francis Baily, F.R.S. With his earlier works we have no immediate concern, but his volume on Annuities and Assurances (editions of 1810 and 1813) contains a clear demonstration of the whole theory. He adopts Simpson's notation, and gives solutions in the several cases of contingent annuities and assurances as Mr Morgan had also done. He does not spare censure in expressing his opinions of Mr Morgan's works, but although we do not admire some of the remarks made in his criticism, we cannot help being impressed with the idea that what Baily wrote he truly and honestly felt; and if he does find fault, he is no less ready to praise when he thinks it deserved. His defence of Barrett every actuary must admire. Mr Baily's work is a text-book in the study of the science, and contains extensive tables, calculated on the Northampton data, on the probabilities of living as observed by M. Deparcieux, and on the probabilities of living as observed in Sweden.
In 1806 E. E. Duvaliard published his Table of Mortality for France before the Revolution," in his work on the Mortality of Small-pox, "a work which," says Milne, "would have been of greater authority if he had given us satisfactory information respecting its construction and the observations it depended upon." From the time of Dr Price, however, down to the date we have now reached, there were many other writers on subjects connected, directly and indirectly, with annuities and assurances. For these, we must refer to the excellent Bibliographical Catalogue appended to a work by Lewis Pocock, F.S.A., published in 1842, entitled, A familiar Explanation of the Nature, Advantages, and Importance of Assurances upon Lives, &c.
The next work of historical interest is that of Joshua Milne, actuary to the Sun Life Assurance Society, entitled, A Treatise on the Valuation of Annuities and Assurances on Lives and Survivorships, on the Construction of Tables of Mortality, &c., with a variety of New Tables, 1815. It is to him that we are indebted for the introduction of the observations of Dr Heysham, made at Carlisle from 1779 to 1787. From the data afforded by these, which he believed "to be the only data derived from a fluctuating population, which furnished the means of forming an accurate table of mortality," he calculated tables, and published annuity values at various rates of interest. These Carlisle Tables, along with those on the law of mortality in Sweden and Finland, proceeding from the observations of Mr Nicander, in continuation of the observations given by Dr Price, form his most valuable contributions to the science of life assurance. The following will afford a general idea of the difference between these two sets of Swedish Observations:
| Year Ended | Males | Females | |------------|-------|---------| | During 21 years ended with 1775 (Dr Price) | 33-25 | 35-94 | | During 20 years ended with 1795 (Milne) | 35-60 | 39-11 |
The Carlisle Table has to a great extent superseded the Northampton Table. Most of the offices established before Mr Milne's work was published proceeded on the Northampton data, and still do so, being probably deterred by the complexity of a change; but the great mass of offices now adopt the sounder data of Milne; and those which do not, proceed on tables very similar, such as the Chester, the Equitable Experience, the results of the combined expe- Life Assurance of various life offices published in 1841, or the Tables of the Registrar-General. The only real objection which can be taken to the Carlisle Table is, that at some ages it is very badly graduated, so that particular results are somewhat anomalous. Instance the assurance for one year, at the following ages:
| Age | Single Premiums | |-----|-----------------| | 45 | 1,4377 | | 46 | 1,4385 | | 47 | 1,4178 | | 48 | 1,3529 |
But notwithstanding this irregularity, it is very generally admitted that all subsequent observations have proved the accuracy of its results, and the best proof of this probably is, that all the auxiliary tables published for many years have been founded on the Carlisle data. We admit that it would be possible to have a more satisfactory table; but it is as near the truth as we will probably ever reach—sufficiently near for any practical purposes; and the immense mass of tabular matter which has been computed and arranged on its basis, must always keep it in the first place as the foundation of assurance calculations.
On 29th June 1820, B. Gompertz, F.R.S., read at the Royal Society a Sketch of an Analysis and Notation Applicable to the Estimation of the Value of Life Contingencies; and the paper was published in their Transactions. We will not enter on consideration of the hypothesis of this writer, as our limits do not admit of our discussing the very interesting theory which he propounds. His object is the enunciation of a law of vitality susceptible of being calculated on a certain hypothetical principle,—viz., that the vital energy or power to oppose destruction loses equal proportion of its intensity in equal times.
In 1829, John Finlaison, actuary to the Commissioners for the Reduction of the National Debt, made a report to the Lords of the Treasury, which was ordered by the House of Commons to be printed on 31st March 1829, containing a statement of the facts and arithmetical conclusions deduced, after an investigation of ten years, from the observations on the mortality of the nominees in the various contingents, and sets of life annuities which had been instituted or granted by Government. These observations proved, that at every period of life the female has a decided advantage over the male, removing all doubt on the subject of the greater value of female life.
Some have objected to the results of these observations, amongst other grounds, from the circumstance that they extend over a remote period of time, rendering the data inapplicable to present and future circumstances, if any value is to be attached to the prevailing opinions as to the improvement of life; but after many years' experience of the use of the table, and after applying such checks as were available, we have come to the conclusion that these tables represent, very correctly, the value of the lives of annuitants, and are very suitable for calculations in connection with such transactions. On the other hand, they are quite unsuitable for adoption as the basis of life assurance premiums; and we do not think any office could with safety adopt the Government Tables as their guide in that respect. We believe the National Debt Office are in possession of joint life calculations, on the basis of Mr Finlaison's computations; but as they have thought it proper to retain them for their own use, we are glad to find that Mr Henry (a Scottish actuary) has had the perseverance to compute, and the courage to commence the publication of a complete set of Joint-life Tables.
In 1808 the Government began to grant annuities on the Northampton Tables, and did so for twenty years. The tables since adopted are founded on Mr Finlaison's report. The result of the Government operations in annuities is too extended a subject to enter upon here; but we have pleasure in referring the reader to an able article, On the Financial Statistics of British Government Life Annuities (1808–1853), and on the Loss sustained by Government Assurance in granting Annuities, read before the Statistical Society, 19th May 1856, by Frederick Hendriks, Esq., whose extensive knowledge and indefatigable research are well known to all actuaries.
In 1825, Griffith Davies, the learned actuary of the Guardian Assurance Company, published Tables of Life Contingencies, containing the rate of mortality among the members of the Equitable Society, and the values of life annuities, reversions, &c., computed therefrom. The rate of mortality among the members of the Equitable Society, he deduced from the accounts given by Mr Morgan in his addresses to the general courts of that institution, and in the notes added by him to the later editions of Dr Price's Observations on Reversionary Payments. Mr Davies' calculations were based on a period of fifty-seven years, from 1768 to 1825.
In 1834 the Equitable Assurance Society published a valuable abstract of the accumulated facts in their possession, from which Mr Morgan deduced a table of mortality. The most remarkable fact which these observations showed was the decreasing influence of selection after five, ten, fifteen, and twenty years from the period of admission; and on this important observation there are various interesting papers in the Assurance Magazine. We would particularize the paper of Mr J. A. Higham, On the Value of Selection, as exercised by the Policy-holders against the Company, 1851. We would also refer to Mr Farren's Life Contingency Tables, part i., published in 1850.
Passing over the ingenious speculations of T. R. Edmunds (1832), which bear a considerable resemblance to those of Gompertz already noticed; and reserving the results of the work of Thomas Galloway (1841), on the mortality among the members of the Amicable Society, for exhibition in a tabular form, we may notice the Experience Table compiled from data furnished by seventeen offices, according to the resolution at a public meeting held 19th May 1838. This investigation proved very interesting, and the results so far satisfactory. Should a similar comparison be made on a wider basis at the present time, we believe that the experience of well-constituted offices, in later years, will show that the power of selection has proved stronger than formerly, seeing that family history is so much more fully inquired into; that the medical power of ascertaining certain diseases is so much increased; and that the medical men of the present day are, especially in the country, a much more competent body than formerly.
The following table, extracted from the Report of the Actuaries on the Combined Experience, brings concisely into view the results shown by these different observations:
Table showing the Annual Number of Deaths in Quinquennial Periods of Age, out of 10,000 Persons living at each Age, according to various Tables of Mortality.
| Ages | Northampton | Carlisle | Equitable Experience | Government Annuities | Amicable Experience | Experience of the Offices | |------|-------------|----------|----------------------|----------------------|---------------------|-------------------------| | 20–24| 747 | 254 | 293 | 352 | 197 | 431 | | 25–29| 814 | 459 | 396 | 429 | 628 | 452 | | 30–34| 872 | 547 | 507 | 505 | 654 | 554 | | 35–39| 928 | 634 | 574 | 657 | 675 | 575 | | 40–44| 984 | 721 | 631 | 690 | 757 | 655 | | 45–49| 1,039 | 809 | 709 | 750 | 846 | 750 | | 50–54| 1,093 | 896 | 776 | 810 | 941 | 820 | | 55–59| 1,148 | 983 | 843 | 860 | 1,033 | 915 | | 60–64| 1,203 | 1,070 | 910 | 920 | 1,123 | 1,018 | | 65–69| 1,258 | 1,157 | 977 | 980 | 1,214 | 1,118 | | 70–74| 1,314 | 1,244 | 1,044 | 1,040 | 1,304 | 1,218 | | 75–79| 1,370 | 1,331 | 1,111 | 1,100 | 1,394 | 1,218 | | 80–84| 1,426 | 1,418 | 1,178 | 1,160 | 1,484 | 1,318 | | 85–89| 1,482 | 1,505 | 1,245 | 1,220 | 1,574 | 1,418 | | 90–94| 1,538 | 1,592 | 1,312 | 1,280 | 1,664 | 1,518 | | 95–99| 1,594 | 1,679 | 1,379 | 1,339 | 1,754 | 1,618 | | 100+ | 1,650 | 1,766 | 1,446 | 1,400 | 1,844 | 1,718 |
32 This combination of the experience of the offices gave rise to the calculation of A series of Tables of Annuities and Assurances calculated from a new Rate of Mortality amongst Assured Lives, which was published by Mr. Jenkin Jones in 1843, and to which reference should be made, as well as to the report on the experience of the offices.
We have now to mention, in concluding this portion of our subject, the invaluable records of the nation, which are year by year accumulating new and important facts for our guidance in estimating the value of life in this country. We refer to the tables and results published since 1839 by the Registrar-General, and deduced from the records of births, deaths, and marriages, in England. The Sixth Report is particularly important as containing a life table and various calculations, founded on the national observations applicable to the year 1841, prepared by Dr. Farr. We have had occasion to use these results extensively, having adopted them as the basis of some most important calculations, and as before adopting them we made them our particular study, we refer to them with much satisfaction, as tables well suited as a basis for life assurance transactions. They are graduated so as to give them a preference over the Carlisle observations, but a careful comparison will show how they support the results shown by that table.
Attached to the Twelfth Report of the Registrar-General, Dr. Farr introduced his valuable English Life Table No. 2, compiled from the returns of deaths in the seven years 1838–44, and from the census returns of 1841. The English Life Table No. 1, the result of one year’s observations, and No. 2, the result of seven years’ observations, agree very closely, as will be perceived from the following tables of comparison:
| After Lifetime or Expectation of Life | |--------------------------------------| | 0 | 10 | 20 | 30 | 40 | 50 | 60 | 70 | |---|----|----|----|----|----|----|----| | 1841. English Life Table No. 1 | 40-17 | 47-08 | 39-68 | 33-12 | 26-67 | 20-03 | 13-59 | 8-62 | | 1838-44...No. 2 | 40-36 | 47-47 | 39-99 | 33-21 | 26-46 | 19-87 | 13-00 | 8-55 |
Annual Premium to assure L.100.
| Annual Premium to assure L.100. | |----------------------------------| | 0 | 10 | 20 | 30 | 40 | 50 | 60 | 70 | |---|----|----|----|----|----|----|----| | 1841. English Life Table No. 1 | 25-10 | 15-0 | 11-11 | 7-11 | 4-17 | 2-17 | 1-17 | 0-17 | | 1838-44...No. 2 | 25-7 | 14-5 | 11-1 | 8-2 | 5-1 | 3-1 | 2-1 | 1-1 |
Among other important facts which have been derived from the records of the Registrar-General, we must direct attention to those contained in the Fourteenth Report relative to the comparative effects of particular occupations on health and longevity. The annexed table is extracted from that Report, the several classes being arranged in the order of mortality at the ages 45 to 55.
Mortality per cent.
| Ages | |------| | 25—35—Occupation | 45—55—65—75 | |-------------------|--------------| | 1-015 | 804 | Farmer | 1-199 | 2-490 | 5-530 | 14-802 | | 912 | 1-059 | Shoemaker | 1-503 | 2-869 | 6-505 | 16-446 | | 797 | 1-058 | Weaver | 1-537 | 3-229 | 7-459 | 17-308 | | 763 | 1-046 | Grocer | 1-579 | 2-855 | 4-972 | 12-457 | | 812 | 1-210 | Blacksmith | 1-651 | 3-724 | 7-443 | 16-710 | | 949 | 1-062 | Carpenter | 1-667 | 2-965 | 6-586 | 14-286 | | 1-163 | 1-155 | Tailor | 1-674 | 2-818 | 7-647 | 15-528 | | 979 | 1-933 | Labourer | 1-730 | 2-928 | 6-754 | 17-394 | | 849 | 1-135 | Miner | 1-812 | 3-135 | 6-711 | 15-067 | | 759 | 1-475 | Baker | 2-121 | 3-301 | 6-678 | 15-065 | | 1-129 | 1-633 | Butcher | 2-310 | 4-149 | 6-647 | 15-449 | | 1-383 | 2-015 | Innkeeper | 2-334 | 3-897 | 8-151 | 13-084 | | 948 | 1-236 | All England | 1-787 | 3-031 | 6-396 | 14-055 |
We have now in the course of these remarks, mentioned all the most important observations which have as yet been made in connection with the records of mortality.
The following are additional sources of information, though of less importance than the preceding:
The Government Returns of the different censuses in 1801, 1811, 1821, 1831, 1841, and 1851.
The papers by Mr. Edmunds in the Lancet, as to the method of determining the relative mortality of particular localities, both with complete and imperfect data.
Mr Chadwick’s paper in the Statistical Journal, on the best mode of representing accurately, by statistical returns, the duration of life; and an excellent paper in the same journal, in answer to Mr Chadwick’s paper, On a Method recently proposed for conducting Inquiries into the Sanitary Condition of various Districts, by F. G. P. Nelson.
(The Statistical Journal may indeed be referred to generally, as containing many important papers.)
Dr. Gladstone’s Enquiries into the City of Glasgow in 1831, as to which Mr. Milne promised to publish a Table of Mortality, based on the results of ten years, 1820–1830, but did not accomplish it.
F. G. P. Nelson’s Vital Statistics.
M. Dononcourt’s Expectation of Life in France, calculated approximately from official documents, as published in the Journal de l’Ecole Royale Polytechnique.
The works of Francis Corboux should also be referred to (see Mr Peacock’s list).
Likewise the writings of Dr Young (see same list).
M. Villermé’s valuable papers on the Annales d’Hygiene, in which the mortality of the different parts of a large city were first investigated, showing that the mortality differs very sensibly in the arrangements of Paris will be found interesting.
Report of Irish Census Commissioners, in an article on the health of Dublin, attached to Mr Wild’s paper on the Causes of Death in Ireland.
Reports to the House of Commons, compiled from the Returns of the War Office and Army Medical Department; also Reports on the Health of the Navy.
We have confined our observations hitherto in a great degree to the notice of the works of those earlier authors who have materially contributed to our knowledge by introducing new data, and we may now refer to those authors whose ingenuity has greatly increased the practical application of those data by the invention of new modes of calculation. In making this distinction, however, we cannot strictly adhere to it, as we must include many of the names already mentioned as contributors to our data, who have also greatly advanced our steps in calculation. We may repeat the names of De Wit, Grant, Halley, De Moivre, Simpson, Price, Masses, Morgan, Baily, Milne; but their works have already been noticed at as much length as our space will admit.
We do not hesitate to place at the head of our modern computers, George Barrett of Petworth, Sussex, the original inventor in this country of the columnar system of calculation. His system, when submitted to the Royal Society, unfortunately did not meet the attention it deserved. But its value was fully appreciated by Mr Francis Baily, who published it in the Appendix to his own well-known work on Annuities. He thus describes the method:
"Let A be the life on which the annuity is granted; and let the number of persons living at the age of A, according to any given table of observations, and at 1, 2, 3, etc., years older be denoted respectively by \(a_1, a_2, a_3, \ldots\), \(x, y, z, \ldots\) denoting the number of persons living at the age of the oldest life in the given table, and in general equal to unity. Moreover, let the amount of L.1 in a year, according to the given rate of interest, be denoted by r. This being premised, it is well known (by those who are conversant with the subject), that the value of an annuity on the single life A is expressed by the following series:
\[ \frac{1}{a} \left( \frac{r}{r^2 + \frac{d}{r}} + \frac{r}{r^3 + \frac{d}{r^2}} + \cdots + \frac{r}{r^n + \frac{d}{r^{n-1}}} + \frac{r}{r^{n+1} + \frac{d}{r^n}} \right) \]
\(a\) denoting the number of years from the age of A to the age of the oldest life in the table of observations; and the sum of this series, numerically expressed according to the age of A, forms the common tables of the value of life annuities. But the above series may be expressed more conveniently for our present purpose by the following one:..." which is evidently the same as the former.
In the plan proposed, therefore, A is supposed to be a child just born, or one whose age is equal to 0; and each term of the series (beginning at the end) is to be numerically expressed and arranged in regular order in the same column, at the bottom of which must be placed the numerical value of the common divisor. The collateral column are to be placed the sums of the first one, first two, first three, first four, &c., values in the former column, which I shall denote by z, y, x, &c., and by the help of these two columns we shall be enabled to solve every question relative to life annuities and assurances, not only with less liability to error, but frequently in a more expeditious and easy manner than by the usual method of proceeding."
The following is part of the Carlisle Table calculated on this method by Mr Babbage:
| Age | An | Bn | Cn | |-----|----|----|----| | 104 | 1000 | 1000 | 1000 | | 103 | 900 | 900 | 900 | | 102 | 800 | 800 | 800 | | 101 | 700 | 700 | 700 | | 100 | 600 | 600 | 600 | | 99 | 500 | 500 | 500 | | 98 | 400 | 400 | 400 | | 97 | 300 | 300 | 300 |
Mr Babbage gives the following formulae:
Value of an annuity of L.1 on a life aged v = \(\frac{Bv + 1}{Av}\)
Do, deferred for p years = \(\frac{Bv + p + 1}{Av}\)
Do, for a temporary period q years = \(\frac{Bv + 1 - Bv + q + 1}{Av}\)
Value of an assurance of L.1 on a life aged v = \(\frac{Bv - rBv + 1}{rAv}\)
The value of an assurance on a life aged v deferred for p years is
\(\frac{Bv + p - rBv + p + 1}{rAv}\)
The value of a temporary assurance for p years on a life aged v is
\(\frac{Bv - Bv + p - r(Bv + 1 - Bv + p + 1)}{rAv}\)
Various other problems in assurance and annuities can also be solved by these tables.
Before introducing Barrett, we ought probably to have mentioned John Nicholas Tetens, Professor of Philosophy and Mathematics at Kiel, who first promulgated the columnar method in a work published in 1785, under the title of *Einleitung zur Berechnung der Leibrenten und Aussichtschaften die vom Leben und Tode einer oder mehrerer Personen abhängen mit Tabelle zum praktischen Gebrauch*. This fact, however, detracts nothing from the merits of Barrett, whose discovery was original to himself, and quite independent.
Tetens describes his method thus—"By means of a new auxiliary table, which can be made in accordance with the table of mortality, by which it is to be reckoned, and at the rate of interest proposed for its foundation, the whole labour as well for life annuities as for the mean duration of life, may be reduced to one division. The preparation of that table requires nothing more than an easy addition, when regard is had to the duration of life only; but demands somewhat more trouble if it be extended to the calculation of life annuities. It would not be desirable, therefore, to make it for one single annuity of the kind. But then it gives simultaneously all values of life annuities, as well as all durations for every age at once. I will here annex it, as applied to..."
Sussmilch's Table of Mortality. It is the model for others of the like description."
It is quite evident that these tables are computed on the D and N system, as contained in the works of Griffith Davies. Column C is identical with column D, and column E with column N, with this exception, that the summations are placed differently, agreeing in this respect with the arrangement of Barrett, as followed by Dr Farr.
But though the credit of the actual discovery is undoubtedly due to Tetens and Barrett, there were several other eminent calculators of the last century, who came so near it that another step boldly taken would infallibly have led them to it. The most remarkable of these were Halley, William Dale, De Moivre, and Morgan. Dr Halley's method was entirely columnar, the denominator in his formula being common to all the numerators, as expressed in the following notation (Jones):
\[ \frac{I_{m+1}v + I_{m+2}v^2 + \ldots + I_{m+p}v^p}{I_m} = a_m \]
If he had made a calculation for each age, he would probably eventually have discovered the D and N system; as the result, however, of trial or experiment, if it may be so called, not of real investigation. Dale's work, published in 1772, may be called Arithmetical, but is one of considerable originality. His formula is similar to that of Halley, combining the enumerators, and making one common denominator; thus,
\[ \frac{I_{m+1}v + I_{m+2}v^2 + \ldots + I_{m+p}v^p}{I_m} \]
There is no doubt that he thus produced a D and N column, but unfortunately only applicable to one age. Had he, too, made the calculation for every age till birth, he might have discovered the D and N process. De Moivre, in his Doctrine of Chances, second edition, 1738, p. 212, gives a formula which gives him a primary claim to the method of dealing with discounted decrements. The following is De Moivre's own formula:
\[ A - B + B - C + C - D + D - E + E - F + \ldots \]
A, B, C, D, E, F represent the numbers living at any age, and the differences give the decrements. The method, as applied to reversions, is similar to that of Halley as applied to life annuities, but the general solution was wanting. Mr Morgan, in his Doctrine of Annuities and Assurances, 1779, may be almost said to have discovered the D and N system without knowing it. He uses the discounted values, however, merely as a method of check, and those who peruse his explanations on the subject must feel convinced that he did not know the power of the D and N columns.
The next great impulse was given to the science by Griffith Davies. Without his inventive genius, the system of Barrett might have remained long unimproved, but he remodelled it, and although the principle is the same in both, he has so arranged his tables that they may almost be said to be a new discovery. Mr Davies published his method in his Tables of Life Contingencies, as published in 1825, and more fully in his Treatise on Annuities, also written and printed in 1825, but published only in 1856, after his death, by his executors.
The following extract of a table on the Carlisle three per cent. basis will illustrate the subject:
| Ages | No. Living | D | N | S | C | M | R | |------|------------|---|---|---|---|---|---| | 104 | 1 | 0462| 0000| 0000| 04488| 04488| 04488| | 103 | 3 | 1429| 0462| 0462| 09246| 13730| 18220| | 102 | 5 | 2452| 1891| 2333| 09524| 23266| 41480| | 101 | 7 | 3536| 4343| 6696| 09800| 33070| 74550| | 100 | 9 | 4683| 7879| 14576| 10100| 43170| 117700| | &c. | &c. | &c.| &c.| &c.| &c.| &c.| &c.|
The column D is obtained by discounting the number of living at each age to the beginning of life; thus the number living at 104 is discounted 104 years, the number living at 103 is discounted 103 years, and so on. The column N consists of the continuous summation of the results in column D; and the column S consists of the continuous summation of the results in column M. The column C is obtained by discounting the number of those who die in each year to the beginning of life; thus the one who dies before reaching 104 is discounted 104 years, the number who reach 103 and die before 104, is discounted 103 years, and so on. The column M consists of the continuous summation of the results in column C. The column R consists of the continuous summation of the results in column M.
The principles of the columnar system are very concisely treated in Mr David Jones' work On the Values of Annuities and Reversionary Payments, published under the superintendence of the Society for the Diffusion of Useful Knowledge. The following are extracts:
I. ANNUITIES.
If we call \( x \) the difference between the age \( m \), and the oldest completed by any life according to the table,
\[ a_m = p_{m,1} + p_{m,2} + p_{m,3} + \cdots + p_{m,n} \]
writing for \( p_{m,1}, p_{m,2}, \ldots \), their values \( l_{m+1}, l_{m+2}, \ldots \),
\[ a_m = \frac{l_{m+1}}{l_m} + \frac{l_{m+2}}{l_m} + \cdots + \frac{l_{m+n}}{l_m} \]
If the numerator and denominator of this fraction be multiplied by \( r^m \) (which will not affect the value of the expression) the formula becomes
\[ a_m = \frac{l_{m+1}r^{m+1}}{l_m} + \frac{l_{m+2}r^{m+2}}{l_m} + \cdots + \frac{l_{m+n}r^{m+n}}{l_m} \]
RULE.—Multiply the number of living at each year of age by the present value of L.I., due at the end of the same number of years as the age; then the present value of the annuity at any age, is found by dividing the sum of the products at all the ages above that on which the annuity depends, by the product at that age.
The advantage of the last form of the fraction over the other may be seen by taking as examples the separate ages of 96 and 95 in the Carlisle Table of Mortality.
\[ \begin{align*} a_{96} &= \frac{l_{96}r^{96}}{l_{95}} + \frac{l_{95}r^{95}}{l_{95}} + \frac{l_{94}r^{94}}{l_{95}} + \cdots + \frac{l_{91}r^{91}}{l_{95}} \\ a_{95} &= \frac{l_{95}r^{95}}{l_{95}} + \frac{l_{94}r^{94}}{l_{95}} + \frac{l_{93}r^{93}}{l_{95}} + \cdots + \frac{l_{91}r^{91}}{l_{95}} \end{align*} \]
On comparing the expressions for these two values, we observe that in finding the value at the age of 95, every term is introduced which was employed in finding the value at the age of 96; so that it costs very little more trouble to find the value at both the ages, than to find the value at one of them only, but had the first expression for \( a_m \) been used, the operation employed in finding the value at the age of 96 would not have afforded direct assistance in finding the value at the age of 95. The method which has been adopted has also other important advantages, the preparatory operations being of great use in abridging the labour of finding the values of temporary deferred annuities and assurance.
The following example in numbers, of the value of annuities at 4 per cent. at the Carlisle rate of mortality, will show the process of forming a table of the values of annuities on single lives.
II. ASSURANCES.
The present value of the nth year's payment is found by multiplying the present value of L.I., due at the end of n years, by the fraction which has for its numerator the number who die in the nth year from this time, and for the denominator, the number living at the present age. Let us call \( d_m \) the number who, according to the tables, die in the nth year of their age; then
\[ A_m = \frac{rd_{m+1} + r^2d_{m+2} + \cdots + r^md_{m+n}}{l_m} \]
Multiplying numerator and denominator by \( r^m \),
\[ A_m = \frac{r^{m+1}d_{m+1} + r^{m+2}d_{m+2} + \cdots + r^{m+n}d_{m+n}}{l_m} \]
which may be practically applied in the same manner as the annuity formula.
The following works should be consulted in regard to the systems of Barrett and Davies, and their application:
- Appendix to the Doctrine of Life Annuities and Assurances, by Francis Baily, 1813. - A Comparative View of the Various Institutions for the Assurance of Lives, by Charles Babage, 1826—(Appendix, No. III.) - On the Calculation of Single Life Contingencies, No. I., by Professor De Morgan—Companion to the Almanac, 1840. - On Life Contingencies, No. II., by Professor De Morgan—Companion to the Almanac, 1842. - Account of a Correspondence between Mr George Barrett and Mr Francis Baily, by Professor De Morgan—Assurance Magazine, vol. IV., page 185.
We consider that the columnar, or D and N system, has entirely superseded the old mode of calculation, we have not considered it necessary, therefore, to illustrate the older method; but every student should of course make himself acquainted with it, more especially with reference to calculations proceeding on more than two lives, by the study of Baily, Milne, and Jones.
Additional information as to the columnar system will also be found in the Actuarial Tables of W. T. Thomson, F.R.S.E., 1853, and in the very valuable Tables and Formulas for the Computation of Life Contingencies, of Mr Peter Gray, published in 1849. In conclusion, the names of Edward Sang, Peter Hardy, Samuel Brown, Charles Jellicoe, William Wood, William Orchard, and B. H. Todd, may be selected for special notice from the long list of calculators who have advanced various departments of the science. Much valuable information on the subject will also be found in the Assurance Magazine; the Reports of the Registrar-General; and in the Evidence given before the House of Commons in 1843 on Joint-stock Companies, and in 1853 on Assurance Associations. The evidence on Friendly Societies will also be found interesting.
LIFE ASSURANCE OFFICES.
Before the establishment of assurance offices, it was the practice for individuals to underwrite life risks, in the same way as marine assurance; and looking to the Guidon and the Lanes of Wisby, it seems possible to connect the original suggestion of life assurance, or life indemnity, with the risks of the sea. It is to be assumed that during the period when life assurance was transacted by means of underwriters, probably during the greater part of the seventeenth century, the contracts were all for short periods. A case in point is that of Sir Robert Howard, whose life an assurance was effected for one year, from 3rd September 1697. On the 3rd September 1698, about one in the morning, he died, and a question arose as to the expiry of the risk. Lord Holt ruled that "from the day of the date" excluded the day itself, and the underwriter was made liable. It is quite reasonable to suppose that persons would hesitate to accept the security of private individuals for whole term policies, which could not be acted on till the death of the assured, at, in all probability, a remote period of time.
It is generally supposed that the Mercers' Company were the first to institute a "Widows' Fund," having done so in 1699, on the suggestion of Dr Addison. Another society was established in 1700, entitled "The Society of Assurance of Widows and Orphans." But it was not till the establishment, in 1706, of "The Amicable Society for a perpetual Assurance Office," that assurance of lives, as a scheme or business, may be said to have commenced. The charge for admission and the annual contribution were L7, 10s. entrance-money, and 10s. monthly, or an equivalent sum quarterly, with 1s. additional quarterly in either case for expenses. These payments entitled the nominee to a dividend, dependent on the amount of the claims during the year, which, of course, was entirely a lottery. Before the division at the end of the year, there was a fixed dividend of L1 or L1, 4s. per share allowed to each partner. The numbers were limited to 2000 members on single lives, and no one was allowed to hold more than three shares; nor were any admitted to be partners whose ages were below twelve or above forty-five, and all between these ages were admitted on the same terms.
The original charter was soon found to hamper the operations of the society, and others were obtained from time to time, which modified its original constitution, and enabled it to enlarge the sphere of its usefulness.
The society was reorganized in 1807. This new charter empowered it to raise the number of its members to 8000; and the supplementary charters of 1823 and 1836 enabled it to increase these numbers, first to 16,000, and then to 32,000. The charter of 1836 contains some important changes of system as regards valuation and dividends, inter alia, the actual dividend for every share which should become a claim was increased from L150 to L200, and the society was empowered to effect assurances for specified sums on joint lives, or on the life of the last survivor of two or more persons, or on contingencies depending on life, or any life assurances for limited periods for specified sums.
In 1845 the society obtained an act of parliament "to enable the corporation to lend money upon mortgage for the purpose of investment, and also to confer other powers upon the said society." These other powers were connected for the most part with the mode of transacting business,—valuations, and the divisions of profits,—and had the effect of making the society an assurance office on very nearly the usual plan.
In 1854 a second act was obtained conferring extended powers as to investments.
The "Hand-in-Hand, or Amicable Contribution Society," was founded in 1696, but was then exclusively a fire office.—It now transacts life business. The Sun Office was founded by deed of settlement on 15th June 1810. The Union Office in 1714.
In 1712 the joint-stock mania of that day was at its height. The time of the South Sea bubble succeeded, and of course, in the prevailing mania, assurance schemes were extensively projected—few indeed were carried out, and still fewer were constituted to stand the test of time; but we find two offices of high character and standing in the present day, which trace back their existence to that period,—The Royal Exchange Assurance Company established by royal charter on 22nd June 1720; and the London Assurance Corporation by similar charter of the same date. The business of these offices did not originally extend to life assurance; but on 29th April 1721, the Royal Exchange received a charter for the assurance of lives, and similar powers were obtained by the London Assurance Corporation. The history of the proceedings of those days, connected more particularly with the establishment of these two societies, is recorded by Mr Hendriks in his interesting account of the First Parliamentary Committee of Insurance, &c., and by Mr Francis in his entertaining Annuals and Anecdotes of Life Assurance.
After the institution of the offices just named, life assurance, for nearly half a century, seems to have remained stationary, for, "in the year 1779, the business of assurances on lives (we quote from Mr Morgan) was but little understood and little practised, excepting the society in Sergeant's Inn (the Amicable), which assured lives at all ages under 45 at the same annual premium, and never exceeded L300 on the same life, and the Royal Exchange Office, which made a few assurances for a single year at the general premium, I believe, of L5 per cent."
We now come to the "Society for Equitable Assurances," the well-known London Equitable, which was established in 1762. Thomas Simpson, whose works have been already noticed, Dodson the editor of the Mathematical Repository, and Edward Rowe Moris, an accomplished antiquarian of these days, were the originators and promoters of this the most successful institution of the kind which ever existed. For some years it made little progress; but, in 1769, Dr Price published his Observations on Reversionary Payments, &c., in which he recommended the society to public notice, and from that year, or rather from 1775, when Mr Morgan, Dr Price's nephew, was appointed actuary, we may date the prosperity of this great institution. A detailed history of the society is given in Mr Morgan's View of the Rise and Progress of the Equitable Society, published in 1828. One event, however, in connection with its early history calls for special record, viz., the fact that in 1760 the crown, on the recommendation of the Attorney and Solicitor General of the day, refused a charter to the society. The formal grounds of refusal were three:—1st, Doubts as to the probable success of the undertaking, which, it was argued, would be ruinously injurious to the public interest in the event of failure; 2nd, Disbelief in the principle of the scheme, which was described as depending "on the truth of certain calculations taken upon tables of life and death, whereby the chance of mortality is attempted to be reduced to a certain standard;" this attempt being itself denounced as a mere speculation, never yet tried in practice, and consequently subject, like all other experiments, to various chances, in the execution; 3rd, The fear of doing injustice to the London and Royal Exchange Assurance Companies, which had paid very large sums for their charters.
The following is the present position of the Equitable Society, as shown in its latest published accounts:
**Abstract of General Cash Account of the Equitable Society for the year ending 31st December 1855.**
| Description | Amount | |---------------------------------------------------------------------------|----------| | Received for new assurances and annuity | L3,789 13 6 | | Annual premiums on old assurances | 196,462 12 0 | | Dividends on stock | 112,050 0 0 | | Interest on mortgages | 131,950 5 3 | | Income from Exchequer bills and bonds | 5,623 18 4 | | Entrance money, policy money, extra premiums | 5,226 0 10 | | Committed premiums, and forfeits | | | Cash lent on mortgage, repaid | 198,512 2 6 | | Exchequer bills sold | 60,887 14 2 | | Stock sold | 62,350 0 0 | | Balance from account to 31st December 1854 | 24,605 12 4 |
Total: L801,517 18 11 Life Assurance.
Claims paid on policies within the number of 1,306,870 0 0 the first 5000. .................................................. 1844 Claims paid on policies not included in the number 6,700 0 0
Additions to claims paid ........................................... 1844 Annuities .................................................................. 1844 Income tax .................................................................. 1844 Returns of premiums and forfeits .................................. 1844 Expenses of management .............................................. 1844 Paid for surrender of policies ........................................ 1844 Paid for additions surrendered ..................................... 1844 Interest on mortgage .................................................. 1844 Balance 31st December 1855 ........................................ 1844
Funds, 31st December 1855.
Stock in the Funds .................................................... 1844 L1,795,000 in 3 per cent. consols. .................................. 1844 1,960,000 in 3 per cent. reduced ................................... 1844 Exchequer bonds, L100,000 ......................................... 1844 Cash in mortgage, L3,647,796, 12s. 5d. ......................... 1844
Soon after the establishment of the Equitable Society, in 1762, a great number of assurance societies sprung up, but these institutions were, according to report, "for the most part, gross impositions on the public, proceeding from ignorance or knavery, and encouraged by credulity and fallacy." The abatement of most of these nuisances was due in no small measure to the appearance of Dr Price's Observations on Recessional Payments.
We might follow up this account of the earlier life offices by giving information as to the rise and progress of a few more of the most prominent, established during the 50 years which followed the advent of the Equitable, and still in being, but we must confine ourselves to narrower limits, and merely give the names of all offices since established, and which are still in existence, with the date of their establishments, as nearly as we can ascertain; divided into periods to show the rapid increase of such institutions in later years.
The following English offices, now in existence, were established between 1762 and 1810:
Westminster Society .............................................. 1807 Pelican ...................................................................... 1807 Globe ....................................................................... 1807 Albion ....................................................................... 1807 London Life Association ............................................ 1807 Eagle ....................................................................... 1807
The following English offices, now in existence, were established between 1810 and 1825:
Alliance ..................................................................... 1824 Asylum ..................................................................... 1824 British Commercial .................................................. 1824 Clerical, Medical, and General .................................... 1824 Economic .................................................................. 1824 European .................................................................. 1824 Guardian ................................................................... 1824 Imperial ..................................................................... 1824
The following English offices, now in existence, were established between 1825 and 1835:
Argus ....................................................................... 1833 Clergy Mutual .......................................................... 1833 Crow ....................................................................... 1833 Friends' Provident Institute .......................................... 1833 Mutual ..................................................................... 1833
The following English offices, now in existence, were established between 1835 and 1845:
Albert ...................................................................... 1838 Alfred ....................................................................... 1838 Anchor ...................................................................... 1838 Britannia .................................................................... 1838 British Mutual .......................................................... 1838 Church of England .................................................... 1838 English and Scottish Law ............................................ 1838 Equity and Law .......................................................... 1838 Family Endowment .................................................... 1838 General ..................................................................... 1837 Great Britain ............................................................ 1844 International, formerly National Loan Fund ................. 1837 Legal and General .................................................... 1836 Liverpool and London .............................................. 1836 Medical, Invalid, & General ........................................ 1841 Merchants and Tradesmen .......................................... 1844 Metropolitan ............................................................ 1835 Minerva ..................................................................... 1836 Provident Clerks' ...................................................... 1840 Reliance ................................................................. 1840 Royal Firemen's ....................................................... 1840 Royal Naval, Military, East India, and General .......... 1837 Star ........................................................................... 1843 Victoria ..................................................................... 1838 Wesleyan Provident .................................................. 1841 Western ................................................................. 1842 Westminster and General ........................................... 1836
The following English offices, now in existence, were established between 1845 and 1850:
Accidental Death ...................................................... 1849 Agricultural .............................................................. 1846 British Empire Mutua ................................................ 1846 Cambrian and Universal ............................................. 1846 Catholic ..................................................................... 1846 City of London .......................................................... 1845 Consolidated ............................................................ 1846 Defender ................................................................... 1846 East of England ........................................................ 1849 Engineers, Masonic, and Universal ................................ 1848 English Widows' Fund ............................................... 1847 Gresham ................................................................... 1848 India and London ..................................................... 1846 Indisputable .............................................................. 1848 Kent Mutual ............................................................. 1849 Legal and Commercial .............................................. 1845 London Mutual .......................................................... 1848 London and Provincial Law ......................................... 1845 Medical, Legal, & General .......................................... 1845 Australian Counties, &c., Catholic ................................ 1848 General .................................................................... 1848 Mitre ....................................................................... 1845 Phoenix ..................................................................... 1849 Professional ............................................................... 1847 Prudential Mutual ..................................................... 1848 Railway Passengers' .................................................. 1849 Royal ....................................................................... 1845 Solicitors' and General .............................................. 1846 Sovereign ................................................................. 1845 Times ....................................................................... 1840 United Mutual ........................................................... 1849 United Kingdom Temperance ...................................... 1849
The following English offices, now in existence, were established between 1850 and 1855:
Achilles ..................................................................... 1853 Age ......................................................................... 1851 Anglo-Australian ....................................................... 1853 Ark .......................................................................... 1852 Atheneum .................................................................. 1851 Beacon ...................................................................... 1852 Birkbeck .................................................................... 1852 British Equitable ....................................................... 1854 British Nation ............................................................ 1854 British Protection ....................................................... 1854 British Provident ....................................................... 1859 British Industry .......................................................... 1852 Brilliance .................................................................. 1853 Brunswick ................................................................ 1854 Carton ...................................................................... 1854 Deposit and General ................................................ 1851 Diodem ..................................................................... 1854 Eclipse ...................................................................... 1853 Emperor ................................................................... 1853 Empire ...................................................................... 1854 English and Cumbrian ............................................... 1850 English and Foreign .................................................. 1852 English and Irish Church ........................................... 1853 Era .......................................................................... 1852 Falcon ...................................................................... 1854 Female President ..................................................... 1855 General Accident ....................................................... 1853 General Indemnity ..................................................... 1853 Home Counties .......................................................... 1853 Householders ............................................................ 1852 Hull and London ....................................................... 1855 Justice ...................................................................... 1855 Lancashire ............................................................... 1852 Law Property ............................................................ 1850 Law Union ............................................................... 1854 Life Assurance Treasury ............................................ 1855 Lombard .................................................................. 1853 London and Continental ............................................ 1851 London Exchange ..................................................... 1853 Monarch ................................................................... 1835 National Assurance Investment .................................... 1844 National Mercantile .................................................. 1837 National Provident ................................................... 1835 North of England ..................................................... 1844 Nottinghamshire and Derbyshire .................................. 1835 Preserver ................................................................. 1843 Provisional Clerks' .................................................... 1840 Reliance ................................................................. 1840 Royal Firemen's ....................................................... 1840 Royal Naval, Military, East India, and General .......... 1837 Star ........................................................................... 1843 Victoria ..................................................................... 1838 Wesleyan Provident .................................................. 1841 Western ................................................................. 1842 Westminster and General ........................................... 1836
Abstract showing the existing English Offices, and the dates of their Establishment:
Before 1762 ................................................................ 7 From 1763 to 1810 (47 years) .................................... 11 1810 to 1822 (15 years) [2 Irish] .................................. 15 1822 to 1835 (10 years) ............................................. 20 1835 to 1845 (10 years) .............................................. 34 1845 to 1850 (5 years) .............................................. 31 1850 to 1855 (5 years) .............................................. 77 1855 ....................................................................... 185 The following are the Scotch life assurance offices, and the dates of their establishment:
- Caledonian (Life 1833)........... 1805 - North British (Life 1823)......... 1809 - Scottish Widows' Fund............. 1815 - Edinburgh......................... 1823 - Scottish Union.................... 1824 - Standard.......................... 1825 - Scottish Provincial.............. 1825 - Scottish Amicable............... 1826
Scottish Equitable.................. 1831 Northern............................ 1836 Scottish Provident.................. 1837 Life Association.................... 1838 City of Glasgow..................... 1838 National............................ 1841 Colonial............................ 1846
(15 in all.)
It follows as a very natural question, upon consideration of these lists,—are all these offices properly constituted, and are they worthy of confidence? But such a question is one which it is very difficult to answer. There is one test which, to a certain extent, is a sound one, viz., the period of time during which an office has existed; but even that may fail if an institution has been managed by an unprincipled actuary, or by reckless directors. Indeed the character and ability of the actuary and directors is the surest safeguard, although a test difficult and often invi- dious to apply. Most of the long established companies are undoubtedly conducted on right principles; and although some of them be less prosperous than others, one may with perfect safety assure in almost any of them. As to those more recently established, many of them are no doubt well conducted, and cannot fail of success; but when we regard the utter recklessness with which offices have been formed of late years, it is impossible to recommend caution too strongly to intending insurers. The fact that within the last twelve years 513 offices have been projected, and 228 founded, of which more than one-half have ceased to exist, does not give us much primary confidence in the soundness, speaking generally, of anything new in the way of assurance. Most of the failures seem to have been caused entirely by reckless extravagance in the management.
In 1844 an act was passed for the regulation of joint-stock companies, which required assurance companies to go through certain forms before commencing business, and to comply with certain regulations after their establishment, such as registering their annual balance-sheet, with an account of assets and liabilities; but the act has been found practically useless for the purpose it was intended to fulfil, as it neither places a check on the formation of bubble companies, nor can it enforce its own requirements, if these companies choose to set it at defiance. For some time after the act came into force in 1846, balance-sheets were recorded with fair regularity, but they were for the most part in an unintelligible shape, and where they were understood they showed generally such extravagance and mismanagement, that it created, in 1852-3, a most uneasy feeling as to the future prospects of such institutions, and of life assurance in general. A committee of the House of Commons was appointed in 1853, and voluminous evidence was taken; but, though the danger was recognized, and the worthlessness of the act of 1844 fully acknowledged and explained, government has in the meantime done nothing to mitigate the evil.
The wholesale manufacture of offices still continues, life assurance is scandalized, and one of the greatest institutions of the age is in danger of being brought into disrepute. Special legislation will be required to check the evil, and this seems to be admitted by the government itself, which, in the Joint-Stock Companies Bill of 1856, left the question of assurance societies altogether out of account. The evidence taken in 1853 points out the proper remedies, but, in the meantime, until legislation in some form is pro- posed, no further suggestions can be of any avail.
In conclusion, we would refer to the immense amount of assurance transactions in this country, as showing the extent of the interests involved in that branch of business. We have no precise means of making an estimate of the existing amount of such contracts at the present date; but it was computed that in 1849 the sums assured in English offices amounted to 150 millions, while those assured in Scotch offices in 1852 amounted to 34 millions. We have no doubt that at the present date the amount of life assur- ance in existence in the United Kingdom is upwards of two hundred millions. A considerable number of the life assurance offices have been constituted by special acts of parliament, and a very full list of these acts will be found in Mr Bunyon's Law of Life Assurance, afterwards referred to.
THE CONTRACT OF ASSURANCE.
It is quite superfluous at the present day to occupy much space in attempting to prove the benefits of life assurance, which may be said to be universally admitted. But it is not equally superfluous to explain the principle on which an assurance office is conducted, which we shall accordingly proceed to do.
Let us suppose that a number of persons having relations relying on them for support, wish to make some provision for such dependants in case of death; but, having only an annual sum to dispose of, without capital, can save but little, and that by slow degrees. We will suppose 1000 persons in this situation have discovered that, according to the laws of nature, a certain number of them will die annually, and that these persons enter into agreement with each other to the effect that those who survive shall burden themselves with a certain payment to the representatives of those who may die within the year, the subscription of each to be greater in proportion as his age is more advanced. This would be the very simplest form of an assurance contract; but, for obvious reasons, it is plain that such is not the mode in which the agreement could be practically carried out. The first difficulty, then, that arises, is in fixing the proper payment for the risk of the year to be made by each individual. This part of the transaction requires a calcula- tion to be made by some persons skilled in such matters, proceeding on a table of the probability of life and death, generally known as a table of mortality. We will suppose that L20 is considered a sufficient contribution for each person to secure L1000 to the heirs of those who may die within the year, assuming all to be the same age. This subscription of L20 each for 1000 persons would amount to L20,000; and if 20 persons, the number calculated on, were to die, the sum of L20,000 divided among their repre- sentatives would give exactly L1000 for each. It will be observed that L20 only was paid by each of the deceased members, as well as the survivors; now the benefit to the former is evident; while the latter have had the advantage, by union, of protection during the year. Of course, all re- quired to be in good health and of good habits at the commence- ment of the contract.
This would be an assurance association formed for one year. For the sake of simplicity, we have not taken into account interest of money or expenses of manage- ment, neither have we assumed or provided for any probable variation in the exact number of deaths. If at the end of the year it was wished to renew the contract, an examination would require to be made as to the health of the parties, and a new premium struck with reference to the increased age of each for the next year's assurance. Now, in practice, the renewal of such a scheme from year to year would be attended with great difficulty and hardship in particular cases, as the lives in deteriorated health would require to be rejected periodically, thus vir- tually counteracting to a great extent the benefit of the scheme; and the premiums of the rest would go on in- creasing year by year, till, at an advanced period of life, the annual payment would probably be too heavy a burden to be borne. To avoid these difficulties, it would soon be- come evident that the body of persons referred to could attain their object better by entering into an agreement with each other for the whole term of life. To accomplish this, they would require to pay such an equalized annual rate (beginning higher, of course, than under the annual scheme) as might be equivalent to the annual ascending rates—in short, paying more while young, to prevent the rate increasing when older.
The following table will explain the principle more fully:
| Persons of 20 years of age would be charged, on the ascending plan for an assurance of L1,000, a premium of | For first year | For a second assuring at 1 year older | For a third assuring at 2 years older | For example, after 30 years, the assurance sum would have become | |---|---|---|---|---| | L s. d. | L s. d. | L s. d. | L s. d. | | 7 10 0 | 7 15 0 | 8 0 0 | 29 18 4 | | 11 0 | 11 10 0 | 12 0 | 41 13 4 | | 14 10 4 | 15 7 8 | 16 0 10 | 36 11 8 | | 15 0 | 15 19 2 | 16 19 5 | 108 1 8 | | 37 7 9 | 39 19 1 | 41 15 4 | 180 16 8 |
But instead of this method of assuring for a year only and renewing the contract each year at the premium corresponding to a higher age, it would be found better to pay an equalized, unvarying, annual sum, as shown in the following example:
At 20 years of age the equalized rate would be L17 3 4; these rates remaining always the same.
Now, it is evident, on a comparison of the annual progressive rate with these for the whole term, that under the equalized system persons assured pay more for some years than is necessary to meet the risk; while in after years, when the lives become advanced in age, they pay less—the office accumulating the difference between the premium for the risk of each year, in the earlier years, and the annual payment made on the equalized system, to meet the deferred risk, when the equalized premium, in consequence of advanced age, is less than the year requires.
The income of an assurance office, in its earlier years, consists of—
1. The premiums necessary for the risks of the year. 2. The addition to the premiums for expenses of management. 3. The difference between the premiums for the risk of the year and the whole-term rate. 4. The interest on the fund reserved for the increased risk of future years.
The first and second are legitimate expenditure; the third and fourth form the accumulated fund; but in later years the tide will turn, and this accumulated fund will be required to make the income sufficient to meet the claims.
The profit on assurance business arises from different sources—such as, from fewer deaths occurring than were calculated on; from a higher rate of interest being obtained than that on which the calculations are based; and from the expenses of management being less than the sum provided to defray them; and if a percentage for profit has been added to the rates, that will form another source.
To insurers it is of the utmost consequence to know that an assurance office is carefully accumulating the fund requisite for the risk of distant years. If that fund be squandered or lost, ruin must arrive sooner or latter; and this is the great danger of the assurance system; for a person who joins an office not only assures for one year, but makes annually, in the earlier years, a deposit with the office to meet his payments later in life.
An agreement among a body of persons to form a union for assurance in the manner before described, is called mutual assurance; and some of the largest societies of the day are constituted upon that plan; but as assurance business is also transacted by institutions differently constituted, it will be well, before going farther, to explain the difference in the constitutions of these bodies.
Mutual Societies are bodies of individuals associated in the manner before described, for the purpose of providing capital sums, payable at death, and other cognate provisions, to the representatives of members. The affairs are managed by directors elected periodically from among the assured, and the funds are held to be common property, subject to such reserves and guarantees as may be considered necessary for the future safety of the institution. A higher rate of premium than the risk demands is generally charged, to defray expenses of management and at the same time increase the basis of security.
In consequence of the contributors paying a higher rate of premium than is absolutely required, a surplus fund should arise. From the division of the fund so created the bonus system of the assurance offices has taken its origin. In the earlier years of assurance business, the bonus system was not contemplated, there being great uncertainty as to the value of life and as to the sufficiency of premiums; but as knowledge increased, it was found that, from time to time, a portion of the funds not required to provide for the responsibilities of the office might be fairly and safely divided; and the different modes of dividing that surplus have become at the present day the marked and distinguishing feature in the constitution of each office.
Guarantee or Proprietary Companies are formed of parties who have subscribed a capital, on the security of which the business of assurance is transacted. Formerly this class of offices used only to grant policies for fixed sums, payable at death, guaranteeing the security of the parties by large capitals, but giving them no benefit or advantage from the profits of the business. This was in the earlier days of life assurance; but the guarantee class of offices do now, we believe, without exception, allow the policy-holders to participate more or less in the profits of the business; and some of them, constituted in the best manner, affirm that they are enabled to give even larger benefits than the mutual institutions; while their security is greater, not only from the capital of the partners, but from the more responsible management, the directors being partners and policy-holders. There is much difference of opinion, however, as to the merits of the two classes of offices, and each has numerous supporters. A well-constituted mutual institution properly managed does not, if the premiums are sufficient and the funds are properly accumulated, require a capital, as the premiums should meet all claims; but as in guarantee or proprietary companies the assured are relieved from all anxiety, and the responsible management is in the hands of those who are the obligants under all the transactions of the office, while the assured are allowed to participate largely in the whole profits of the business, there is much to be said in favour of that class of offices; everything, however, depends on the regulations and constitution of the offices themselves. Guarantee as well as mutual offices are widely different in their modes of doing business and in the principles of their constitution. Having, therefore merely indicated that there is a difference, the choice between the two classes, and the selection of a particular office, must be the subject of inquiry and selection by each individual himself.
Before an office agrees to assure a life, there are certain forms to be filled up and regulations to be complied with, so as to ascertain the state of health of the proposer; for unless he is in good health, the office could not undertake the risk with any prospect of advantage, or in fairness to the other persons who have entered as assurers. These forms, which are furnished by the offices, having been completed satisfactorily, and evidence of age furnished, the policy is made out, the validity of that deed depending upon the truth and accuracy of the answers given in making the proposal. If the insurer conceals anything which he knows to be material, it is a fraud; but besides this, in strict law, if he conceals anything which may influence the rate of premium, which the underwriters may require, although he does not know that it would have that effect, such concealment entirely vitiates the policy. Having gone through all the necessary forms, the assurance will be accepted, or declined, by the company. If accepted, a deed will be issued by the assurance office, called a policy, which expresses the nature of the contract and its limitations.
**Stamps.**
The following are the stamp-duties upon policies of assurance on lives (16th and 17th Vict., cap. 59):
| Where the sum insured shall not exceed £500, then for every £50, and any fractional part of £50 | 0 6 | | And where it shall exceed £500, and shall not exceed £1000, then for every £100, and any fractional part of £100 | 1 0 | | And where it shall exceed £100, and any fractional part of £1000 | 10 0 |
The stamp may be either impressed on the paper, or denoted by an adhesive stamp affixed thereto. The expense of the stamp is generally defrayed by the offices.
**The Premium.**
Premiums can be paid in one sum, compensating all ordinary payments, or by a limited number of payments, or by annual payments during life; also in some offices by half-yearly, quarterly, and even monthly instalments. The date at which the premium annually falls due should be carefully noted, as an error in payment, should the office omit to give notice (they are not legally bound to do so), would forfeit the policy in most instances; thirty days, called days of grace, are generally allowed for payment after the regular date of renewal; but a policy forfeited may generally be revived within three months, by producing medical evidence of good health, and payment of a fine. The forfeiture of policies in this way is a point which engages at present the anxious attention of the assurance companies, and we are glad to find that one office has shown a good example, by systematizing its practice in that respect. The following are the resolutions lately adopted by that office (the Standard Life Assurance Company of Edinburgh), and they appear very liberal:
1. That policies of five years' duration, effected for the whole term of life at a uniform rate of premium, shall not be forfeited in consequence of non-payment of any ordinary premium, notwithstanding the expiry of the thirty days of grace; provided payment shall be tendered before the expiry of thirteen months from the date of such premium falling into arrear, reckoning, not from the end of the days of grace, but from the regular date when the premium fell due; and no evidence of health shall be required; but the directors shall not receive payment of any such arrear except with a fine of five per cent. per month on the premiums in arrear. At the expiry of such period of thirteen months, the policy shall be entirely forfeited, and the directors shall calculate the value of such assurance according to the usual practice, and carry the same to a "forfeited policy account," to the credit of the persons who were interested in the assurance so forfeited, to remain there till the end of five years from the regular date when the premium fell due which was not paid. But if no claim shall be made and substantiated for such calculated value within the said period of five years, the same shall be carried into the general funds of the company, for their own use.
2. That all other policies, on which the ordinary premium may not be paid within the thirty days of grace allowed for payment, shall be forfeited, but may be revived by the board of directors within three months from the regular date of such premium falling due, if the directors are satisfied with the explanation given as to the cause of non-payment—the parties proving it to have been an oversight; and if the directors are thus satisfied, medical evidence as to the health of the party whose life is assured shall be dispensed with; but the directors may impose a fine not exceeding ten per cent. on the premium in arrear. If the directors are not satisfied, from the circumstances stated, that the forfeiture of the policy was through oversight, or if the period of arrear exceed three months, the policy may still be revived on evidence of health and habits satisfactory to the directors, provided application be made within thirteen months from the date of the premium falling into arrear, reckoning, not from the end of the days of grace, but from the regular date when the premium fell due; but the directors shall impose a revival fine not exceeding five per cent. per month on the premiums in arrear. The directors to be the sole judges of the evidence relating to health and habits, and entitled to decide accordingly."
It is quite proper that a precise understanding as to the forfeiture of policies should be come to; for it is surely unfair that a person who has been paying premiums for ten, twenty, it may be fifty years, should stand in the position of forfeiting the savings of a lifetime, by omission to pay a sum at a particular period. A forfeiture in such circumstances becomes also a greater hardship, when we know that the office has in its hands probably a large sum, which they would have given the policy-holder to surrender his contract immediately before the forfeiture, or would have lent him on his note of hand, at interest, did he require it.
At the end of this article, the premiums for different kinds of risks on lives of persons of different ages within certain limits are given, which will be found useful for reference. They are net rates, or pure rates, as they are sometimes termed, being the bare result of calculations at Carlisle three per cent., without any additions for expenses or profit. Offices would probably add from fifteen to twenty per cent. in calculating premiums without profits, and twenty-five to thirty per cent. in calculating premiums with profits.
Some mutual offices still charge an entry-money in addition to the premiums, but that practice has now been very generally given up.
The regulation of these annual payments in the earlier stages of assurance business was a matter of some difficulty; and, as previously stated, the earliest offices charged the same premium at all ages, in ignorance of the certainty of the risk increasing with age. The Equitable was the first, it is understood, to adopt a graduated scale.
To afford increased facilities to assurers, some offices are now in the practice of allowing one-half of the premiums for a limited number of years to remain unpaid, as a debt on the policy, bearing interest. Referring to what has already been said as to that portion of the premiums which exceeds the risk of the year, it is evident, on consideration, that the offices are safe in this practice, so long as the sum lent, or allowed to remain unpaid, is only a portion of the premium applicable to future years. The system, within limits, is quite sound, although some persons, ignorant of the principle, have condemned it; and it suits the circumstances of some parties not to pay at first more than is necessary, having the prospect at the same time of bonus benefits, which may reduce the debt allowed to accumulate.
In consequence of the heavy pressure of the income-tax, more especially on persons deriving their income from their own personal exertions, and liferenters, the government, by the act 16th and 17th Vict., cap. 34, made provision for a reduction in favour of any person "who should have made an assurance on his life, or on the life of his wife, or should have contracted for any deferred annuity on his own life, or on the life of his wife." This provision was temporary, but has been renewed from year to year. Limits of Policy as to Residence.
Persons assured are generally allowed to travel and reside within the limits of Europe, and to pass from one part of Europe to another, by sea or land, in decked or steam vessels. Before steam-navigation was so extended, and so safely conducted as at present, persons were only allowed to cross the channel and land within certain limits, such as between the Elbe and Brest. No office now keeps up such restrictions; yet when any person holding a life assurance has occasion to leave the country, he should refer to the particular clause embodied in his policy, and get the necessary license if required.
Some offices, in the praiseworthy desire to extend their liberality, make no charge for voyages to any part of the world, limiting any extra charge to residence in particular countries. This, however, has a good deal of the show of liberality without the substance, as very few persons undertake voyages without intending to settle or reside abroad at least for a temporary period.
Residence in North America, within certain limits, including all British North America; the Cape of Good Hope, as also Australia and New Zealand, are generally considered nearly as healthy as Great Britain, and moderate rates of extra premium, if any, are usually charged for these climates. The East Indies, West Indies, and southern part of the United States, require higher rates of additional premium.
One office, the Colonial, established in 1846, has published rates for most climates, and by systematizing foreign rates, has done a great deal of good by the introduction of more liberal terms and conditions for foreign residence or occasional travel.
But the most important change made in assurance practice for many years was introduced in 1850 by the Scotch office already referred to, resolutions having been adopted under which policies after five years may be relieved of all conditions as to foreign residence, the person assured proving that he has no intention of residing abroad. This change was suggested from the observation of the very small amounts paid for foreign residence, compared with the whole business of the various companies, and the evident conclusion, that it was absurd to maintain a rule reducing the value of a policy, in a large degree, for the purpose of keeping in check a few persons who might have occasion to leave the limits of Europe. The plan has been quite successful, and has added a large percentage to the value of policies.
It would have been probably more correct in principle, if some small extra payment—1s. or 6d. per cent, per annum—had been demanded on account of this whole-world license; but there is sometimes an error in trammelling a large movement, such as that referred to, by some trifling restrictions for the sake of strict adherence to rule, and the office did wisely in giving the extended license as a free gift. It of course excludes those whose professions or occupations are likely to lead them abroad.
The Interest of one person in effecting a Policy on the life of another.
If an assurance be effected by one person on the life of another, the assurer is generally required to declare and prove that he has a sufficient interest in the life to warrant his taking out a policy to the extent proposed. The object of requiring such evidence is to prevent merely speculative assurances, but the offices generally are satisfied as to the bona fide nature of the transaction on the representations of respectable parties, without requiring what in legal phrasology would be termed proof.
By the act 14th Geo. III., cap. 48, it was enacted "That in all cases where the assured hath an interest in such life or lives, event or events, no greater sum shall be recovered or received from the insurer or insurers than the amount or value of the interest of the insured in such life or lives, or other event or events."
This clause in the statute was brought to bear in an action raised in 1805 by Messrs Goddall and Company against the executors of the Right Hon. William Pitt. They had effected an assurance on Mr Pitt's life to cover a debt, but after his death his debts were paid by the nation, and the assurance office declined to pay the assurance, on the plea that the interest of the assurers had ceased.
The assurance office received a verdict in their favour, to which the law was considered to entitle them, but both the act and decision were based on an erroneous view of life assurance, which not being a contract of indemnity, is not a contract into which the element of damage, dependent on the payment or non-payment of a debt, enters. It is quite right, in order to prevent merely speculative assurances, that an interest should exist, and it is the duty of the offices to satisfy themselves on the point before issuing a policy; but when an office has accepted an assurance, the question of interest should never afterwards be raised, unless the policy has been obtained by fraudulent means otherwise.
This case of Goddall v. Boldero (Pitt's executor), was the leading case as to interest under a life assurance policy for half a century; but the offices seldom availed themselves of the precedent which it formed. It has now been overruled, on the ground that the decision was "founded on a mistaken analogy, and wrong," by the unanimous decision of six judges sitting in the Exchequer Chamber, in the case of Dalby v. The India and London Life Assurance Company (see Smith's Leading Cases, vol. ii., p. 213), delivered 2d December 1854. By this decision the continuance of any portion of the interest required by the statute, when the policy is effected, is no longer necessary; but an interest in the life of the assured at the date of contract is still necessary.
See also the case of Law v. The London Indisputable Life Policy Company, 15th January 1855.
Surrender of a Policy.
It is the practice of the offices to return to the policy-holder who wishes to abandon his assurance a portion of the premiums paid; and the justice of such a return is evident from what has been stated under the previous head as to the composition of an annual premium under an equalized rate. Persons assured ought to be allowed to surrender their policies at any time after joining the society, where a policy is with a mutual office, or "with profits" in a guarantee or proprietary company; but in the case of a policy without profits, which is a fixed contract, the office may make any conditions they choose. We have said that in mutual offices surrender value should be allowed from the first, and we have assumed the profit scheme of guarantee or proprietary offices to be in the same position as a mutual fund. But while we are of opinion that surrender value should be allowed from the first, we do not think that the difference between the short-period rate of premium and the whole-term rate should be exactly the measure of it. We think it quite right that a large percentage should be deducted from the pure value of the policy, not only on account of expenses, but on account of the withdrawal of the party from the scheme. The office has no power to turn out the lives that have deteriorated, and it is but just that the lives retiring, which may be assumed to be good, should pay a fine for the permission to retire.
A table of the values of policies from various ages and periods, is given in the appendix, Table III., p., but these are pure values, and a considerable deduction from them would be made by an office in accepting a surrender. They will serve so far as a guide as to the value of a policy, but application must be made to the office for the real terms of surrender, if required. The values given do not embrace the values of bonus additions.
Most offices generally lend the value of a policy, at a moderate rate of interest on its security, which often prevents the necessity of surrender, and in many instances, when a policy is of some standing, it becomes a valuable fund of credit.
Death of the Assured and Claim upon the Office.
Evidence of death, when that event occurs, is required by the company, and each has its particular forms. The cause of death is required to be certified as well as the event, and it is of general importance that in that respect the return should be as accurate as possible, as it enables offices to keep full records of their casualties, which will become, and has already proved to a certain extent, a most valuable source of statistical information. The primary object, however, in requiring the cause of death to be stated is,—In order to ascertain that the particular disease of which the person died did not exist when the assurance was effected,—that is, within the knowledge of the party; and that the party did not die by his own hand or the hand of justice.
It is certainly due to assurance offices to state that the number of cases in which they have disputed claims is very limited, and that in almost every instance there was good ground for their refusal to settle. We must admit, however, that some of the recent changes in the practice of offices, by which they bind themselves not to dispute, are highly important, and are a movement in the right direction which cannot fail to extend the practice of life assurance. We think it unfortunate that those who originated the practice of declaring all policies to be indisputable contracts from the commencement, should have carried the principle so far. It is surely wrong, both on principle and with a due regard to public morals, that the office should be bound to pay a claim which had palpably arisen from fraud. Probably the originator of the idea considered the popularity of the measure more than its true effect—its business-creating power more than its justice. We do not withhold our commendation of the principle, but we cannot admit that there should be no limitations. It is quite proper, however, that all questions as to the basis of the contract, should be closed after a certain period, and that it should not be in the option of an office to raise questions at any time; indeed, it is probably more to the advantage of the offices themselves than to the public that such should be the case, as it will infallibly tend to the extension of the system. The appearance of an office binding itself not to dispute policies, was followed by the adoption of a similar resolution on the part of various other institutions subsequently founded, but we are not aware that any of the older and substantial offices have adopted the principle in the form in which it originated, that is, indisputability from the commencement of the assurance. Some offices declare that policies are indisputable except in case of fraud, meaning thereby, that no error or unintentional mis-statement will be taken advantage of, but this still leaves the door of dispute open for the whole term of the contract. On the whole, we are disposed to approve the principle now acted on by most of the Scotch offices, and originated by the Standard Life Assurance Company, that after five years all policies shall be admissible to a select class in which they shall be indefeasible, the whole clauses of the policy as the basis of the contract being deleted, and the company binding themselves to pay the sum assured, if the annual premiums be paid—all which is expressed in a certificate or supplementary policy. Under this system a probationary period of five years is held to be sufficient to answer the purpose in view, and it is surely reasonable that such a period should be allowed.
These are all highly important changes in the contract of assurance, and if the legislature would only do their part to prevent the waste and extravagance which abounds under the present excess of competition, the life assurance system of this country would form one of its proudest attributes of greatness.
It has been the practice among some offices to require proof of age at death, if not previously afforded. This we conceive to be most unjust; it ought to be given or required at the commencement of the contract and ought never to be delayed till a claim arises. One case has come under our notice lately, where proof of age was required thirty-two years after the policy was effected. The gentleman had been in the service of the Hon. East India Company, and it was discovered that in some official declaration to them he had made himself out four years older than stated to the office. The representatives of the deceased could procure no evidence to show that this was wrong, though they felt morally convinced it was so, and were obliged to submit to a large deduction from the sum assured. Still the case, although hard enough on the representatives, might have been worse, as the policy could have been reduced altogether, on the ground of misstatement in the original proposal.
The only other points under this head which we think it necessary to notice, are the assignment of policies and the clause as to suicide, which we take together, because they have some bearings on each other.
In England the offices bind themselves to pay to the executors, administrators, and assigns of persons assured, while in Scotland the expression is, heirs, executors, and assignees, now although both contemplate payment to assignees, it is no less true, that, according to the law of England, policies are incapable of assignment, as choses in action, that is, things of which the assured has not the possession, but only the right to recover. The claim, however, can be made good in a court of equity.
In Scotland, a policy is legally assignable, but to convey it effectually, formal words of assignment and conveyance must be made use of, and due notice given to the office. An unlimited assignment would not stand good against the competing interest of creditors, or of a later assignment intimated before an earlier one, and its particular date is of great importance.
"In order to render an assignment indefeasible in England," Mr Bunyon (from whose works much accurate and valuable information on this subject may be obtained) says, "notice of the assignment to the insurers is requisite, and it is in all cases proper that the policy should be delivered to the purchaser. In this manner, although he cannot have the legal interest or right to one transferred to him, he will perfect his security or purchase, so far as the nature of the case will permit, and will obtain, at least as against all subsequent purchasers, a right, as it has been expressed, in rem. Until notice has been given, the vendor, moreover, has it in his power to defeat the assignment by surrendering the policy, or the bonuses which have accrued therein to the office." "But when notice has been given, the insurers will become quasi trustees for the assignee; and that, although there may have been no acknowledgment of the notice in any other act equivalent to the acceptance of a trust by them."
We are almost afraid to venture any remarks on the suicide clause in policies. In the case of policies of five years' standing, admitted to a select class of assurance, as already referred to, it is taken out of the contract. When a policy is held by third parties, by assignment or otherwise, it is also delete, according to the practice of most offices; but when policies are held in the name of the individual himself, the clause of forfeiture is held to apply. Some offices modify its effect by agreeing to return all the premiums paid; others, by allowing the value of the policy to the representatives of the deceased, but all this is not satisfactory. If a man destroys himself, knowing what he is doing, and more particularly if he were to effect the assurance in contemplation of suicide, it is quite right that the claim should not be paid; but if he does not know what he does when he murders himself, it is clear, we think, that the claim should be paid, even if it stands in the party's own name; but we would draw this further distinction, that if a person be evidently insane, and be not properly watched by his friends, or put under proper superintendence, the claim should not be admitted, even although the party did not know what he was doing when he committed suicide. In the policies of some offices there is generally a clause of arbitration, which is a great advantage to the assured, the company binding themselves to submit all disputes to the decision of two neutral persons and an umpire.
We have said very little hitherto on this head, and we do not intend to enlarge upon it; each office will be found to display its own system, with all the attractions which characterize it, and we are not called on to offer any opinion as to the practice of the different institutions. As the systems are widely different, they cannot all be based on justice; but they may, at the same time, be just in the view that each office generally sets forth distinctly what it purposes to do in its prospectus, so that the party proposing to assure knows the system he is connecting himself with.
The practice of giving bonus arose, as already explained, from the Equitable Society finding that its funds were more than adequate to meet the demands upon them. The following bonus table of that society, the only one we will particularize, shows the extent of the benefit which assurers have derived.
| Date of Assurance | Addition made in 1791 | Addition made in 1792 | Addition made in 1800 | Addition made in 1809 | Addition made in 1819 | Addition made in 1829 | Whole Addition | |------------------|----------------------|----------------------|----------------------|----------------------|----------------------|----------------------|---------------| | Before May 1st | £0.00 | £0.00 | £0.00 | £0.00 | £0.00 | £0.00 | £0.00 | | in the year | | | | | | | | | 1791 | 10.00 | 4.00 | 5.00 | 20.00 | 47.10 | 72.10 | 117.00 | | 1792 | 20.00 | 4.00 | 18.00 | 45.00 | 62.10 | 117.00 | 179.00 | | 1793 | 30.00 | 16.00 | 42.10 | 111.00 | 117.10 | 114.00 | 471.10 | | 1794 | 20.00 | 14.00 | 40.00 | 112.00 | 112.00 | 112.00 | 456.00 | | 1795 | 10.00 | 12.00 | 37.10 | 105.00 | 112.10 | 110.00 | 449.10 | | 1796 | 10.00 | 35.00 | 60.00 | 102.00 | 110.00 | 108.00 | 425.00 | | 1797 | 8.00 | 32.10 | 57.10 | 99.00 | 107.10 | 106.00 | 410.10 | | 1798 | 6.00 | 30.00 | 55.00 | 95.00 | 105.00 | 104.00 | 396.00 | | 1799 | 4.00 | 27.10 | 52.10 | 93.00 | 102.10 | 102.00 | 381.10 | | 1800 | 2.00 | 25.00 | 50.00 | 90.00 | 100.00 | 100.00 | 367.00 | | 1801 | 22.10 | 47.10 | 87.00 | 97.10 | 97.00 | 96.00 | 352.10 | | 1802 | 20.00 | 45.00 | 84.00 | 95.00 | 95.00 | 96.00 | 340.00 | | 1803 | 17.00 | 42.10 | 81.00 | 92.10 | 84.00 | 82.00 | 327.10 | | 1804 | 15.00 | 40.00 | 78.00 | 90.00 | 92.00 | 92.00 | 315.00 | | 1805 | 12.10 | 37.10 | 75.00 | 87.10 | 90.00 | 90.00 | 302.10 | | 1806 | 10.00 | 35.00 | 72.00 | 85.00 | 88.00 | 88.00 | 290.00 | | 1807 | 7.10 | 32.10 | 69.00 | 82.10 | 86.00 | 86.00 | 277.10 | | 1808 | 5.00 | 30.00 | 66.00 | 80.00 | 84.00 | 84.00 | 265.00 | | Before the 8th of December | 2.10 | 27.10 | 63.00 | 77.10 | 82.00 | 82.00 | 252.10 | | On or after the 8th of December | 27.10 | 63.00 | 77.10 | 82.00 | 250.00 | 1809 |
* If the Policy is dated as or after the 1st of May, the whole addition prior to 1801 will be £3 less than it is stated to be in the last column.
† A prospective addition of £2 per cent to be computed on the sums assured will be made for every year's premium paid and become due after the 31st December 1849, upon policies entitled to additions, but in the event only of their becoming claims before the next investigation.
Following the example of the Equitable, it is now the practice of all mutual assurance offices to divide profits among their members, and all proprietary offices have a bonus scheme. The reason, however, for such accumulations and divisions has somewhat altered since the Equitable promulgated the system; high rates of premium were originally demanded by the early societies, from want of information as to the value of the risk undertaken; and higher premiums than are requisite for the risk are now required, in order to give confidence, and to provide against any incidental occurrence which might derange the calculations. The result, under good management, is of course a surplus fund, divisible as profits.
We have already mentioned the sources from which profits arise, and we have indicated the necessity of accumulating a reserve fund for the deferred risks of an office, the amount of that fund compared with the value of the obligations, being the only proper test of the condition of the institution; we are also of opinion that the mode of ascertaining the position of an assurance office—that is, the investigation of its affairs with reference to profits—is a much more important matter than the mode of dividing the fund when ascertained; but beyond these general indications of our views, we cannot enter on the subject of Investigation. For similar reasons we must decline to enter on a discussion of the various plans or schemes in accordance with which the profits of life offices are divided. They are very various. Some make reveresory additions to the sum assured; others pay a share among these benefits. Some again give those who have been longest assured the greatest advantage; while others divide according to the amount of premiums paid, or assume the value of the policy as the basis of the bonus. Each office, of course, Life assurance has been more extensively cultivated in Great Britain than in other countries; but we also find a large number of institutions for the purpose of assurance in foreign countries, more particularly in Germany and America.
We have it not in our power to give a full list of these offices, but the following are some of the more important institutions:
**Austria**
- The General Annuity Fund for Widows and Orphans in Vienna - The General Provident Fund in Vienna - The Assurance Company of Milan - The General Assurance Company in Trieste, established 1836; adopted life assurance - The Mutual Assurance Company, for Life Assurances and Annuities, in Vienna - Azienda Assicuratrice in Trieste
**Germany**
- The Life Assurance Bank for Germany, in Gotha - The German Life Assurance Company in Lubeck - The Leipzig Life Assurance Company - The Hanoverian Life Assurance Company - The Berlin Life Assurance Company - The Munich Life Assurance Company - The Brunswick General Assurance Company - The Frankfort Life Assurance Company - The Hannoveria Life Assurance Society, established at Hamburg - The Life and Annuity Assurance Company Janus in Hamburg
**France**
- L'Union - La Compagnie d'Assurances Generales sur la vie - La Nationale - La France - Le Phoenix - Caisse des Ecoliers et des Familles - Caisse Paternelle (Tontine Association) - La Concorde - L'Economie - L'Equitable (Mutual) - La Minerve (Tontine Association) - La Prévoyance - Société Civile des Nu-propriétaires
**Denmark**
- The Life Insurance and Annuity Society at Copenhagen
The American life assurance companies are numerous, and we are afraid some, especially of recent date, are omitted in the list which follows:
**America**
- New York Life Insurance and Trust Company - The Mutual Life Insurance Company of New York - New England Mutual Life Insurance Company, Boston - New York Life Insurance Company - The Mutual Benefit Life Insurance Company, New Jersey - State Mutual, Worcester, Massachusetts - Connecticut Mutual Life Insurance Company, Hartford County - Eagle Life and Health Insurance Company, New Jersey - American Mutual Life Insurance Company of Newhaven County - Union Mutual Life Insurance Company of Maine - Trenton Mutual Life Insurance Company, New Jersey - Penn Mutual Life Insurance Company, Philadelphia - Natural Life Insurance Company, Montpelier, Vermont - Hartford Life and Health Insurance Company, Connecticut - United States Life Insurance Company, New York - United States Life Insurance, Annuity, and Trust Company, Philadelphia - Manhattan Life, New York - Charter Oak, Hartford, Connecticut - Mutual Life Insurance Company of Baltimore - Howard Life Insurance Company of New York - United States Mutual, Landable, and Provident Association, Philadelphia - Knickerbocker Life Insurance Company, New York The following shows in abstract the amount of business transacted by the offices established in the state of New York during the year 1854, being the latest returns at present available. Some British offices do business in the United States, but as it is necessary to invest 100,000 dollars in the state of New York, there is a wholesome check upon foreign companies. In Canada and New Brunswick similar laws are about to be introduced:
**Life Insurance Returns.**
| Description | Amount | |---------------------------------------------------------------------------|--------------| | Aggregate assets of eleven Company's amount to $6,727,273 72 | | | Income from 1854 from all sources ... 2,592,982 10 | | | Gross amount at risk on whole-life and short-term policies | 72,431,797 32 | | Number of policies issued in U. S. in 1854, 5583 | | | Amount insured thereby | 15,923,647 09 | | Cash premiums received in 1854 | 1,798,378 37 | | Notes taken for premiums | 205,210 52 | | Expenses as far as returned, 1854 | 200,441 13 | | Losses paid | 880,932 31 | | Accrued and unpaid, 1854 | 257,100 00 | | Premium notes and loans on policies estimated as assets | 1,596,284 82 |
**OTHER KINDS OF ASSURANCE.**
Life, fire, and marine assurance were, till within a few years, the only assurance systems adopted in this country; but there has been of late an anxiety to extend the application of the principle; and we now have companies formed to afford protection against many various kinds of risk. Some will no doubt succeed, but as they are all still in their infancy, and almost altogether experimental, little information, in the shape of data, being available on which to found calculations, they will require much cautious management. The following are the most prominent of the schemes which have appeared:
- Insurance against railway accidents. - Insurance of passengers by sea and land; also against general accidents; with compensation in cases of non-fatal injury; likewise assurance of the baggage and effects of passengers. - Insurance on emigrants, covering the risk of voyages, localities, gold diggings, &c. - Insurance of health, against total disablement from any cause. - Insurance against specific diseases, such as blindness, insanity, paralysis. - Insurance of the lives of persons afflicted with disease. - Insurance, or guarantee of fidelity in situations of trust; such transactions being sometimes combined with life assurance. - Insurance of plate-glass windows. - Insurance against losses by hail storms. - Insurance against defective titles, where the title, though good for holding, is unmarketable by reason only of such defects. - Insurance of the value of mortgaged property. - Insurance or guarantee of debts. - Insurance of dividends, and compensation from embarrassed estates. - Insurance or guarantee of rents, securing punctual payment whether the property be or be not occupied. - Insurance against loss by theft; for the efficient prosecution of the offenders; and for the detection and prevention of crime. - Insurance of live-stock, for the purpose of securing the farmer against the diseases and casualties to which live-stock is exposed. - Matrimonial insurance, providing portions to persons who may marry, and making provision for them at certain age if they do not marry. - Insurance on infants, to take effect after a particular age.
(W. T. T.)
**EXPLANATION OF THE TABLES.**
The Tables subjoined have as their basis the Carliole table of mortality, and three per cent. compound interest without any additions whatever. They are constructed in a manner scarcely requiring explanation, and may be used readily by inspection, according to the cases required; yet, for the sake of those who may not be acquainted with the subject here treated, a few examples as to the application of the Tables will not be out of place.
**Table I.** contains the single and annual premiums required to secure an assurance of £100, payable at death or any other period.
Example.—To effect an assurance of £100, payable at death of a party, age 25 next birthday, the single premium required is £31 : 17 : 11 (25.8945, in the table), or the annual premium for the same is £1 : 14 : 1 (1.7029, in the table).
To effect an assurance of £100, payable at the death of a party, age 25 next birthday, provided he dies within 5 years from the commencement of risk? Answer: single premium = £3 : 13 : 7 (=3.678); annual premium during the 5 years, = 10s. 10½d. (=791).
**Table II.** contains annual premiums required to secure an assurance of £100 at death, in case they are to cease on the party attaining a certain age. The first column shows the number of annual payments to be made by the assured, the next column specifies the age of the assured, and in the third column are to be found the respective premiums. The first column is mutual to the whole breadth of the table.
Example.—To effect an assurance of £100, payable at the death of a life, age 25 next birth-day, the annual premium to cease on his attaining the age of 65? Answer: £1 : 16 : 9 (=1.835), as found in the column headed: [To cease of age 65] opposite age 25.
**Table III.** shows the value of a policy of £100, after its having been in force for some number of years—for instance, a policy of £100, opened in the year 1840, on life aged 25, is worth £1 : 0 : 8 (=1.0031) in the year 1855, £3 : 1 : 10 (=2.9935) in the year 1860, or £7 : 11 : 6 (=10.5726) in 1855 and so on, as is to be found in the line corresponding with age 25, under their respective headings.
**Table IV.** contains the annual premiums required to secure an assurance of £100, payable at the death of the first of two lives.
Example.—The annual premium for an assurance of £100, payable at the death of the first of two lives, A and B, aged respectively 30 and 45, is £3 : 18 : 3 (=3.913), as found in the line corresponding with [age of A 30], and the column headed [A + 5 = B],—i.e., the difference of the two given ages being 15 years. In like manner the annual premium for an assurance of £100, payable at the first death of two lives, ages respectively 25 and 30, is £2 : 17 : 4 (=2.864), as observed in column headed [A + 5 = B], and the line answering to [age of A] 25.
**Table V.** is precisely analogous with Table IV., except that the former is for an assurance of £100, payable at the death of the second party, and the premiums are to continue up to the year in which that event takes place.
**Tables VI.** and VII. contain the single and annual premiums for an assurance of £100, payable at the death of a life B, provided he be survived by another life A.
Example.—The single premium to affect an assurance of £100 payable, provided B aged 35 be survived by A aged 25, is £31 : 7 : 1 (=31.352), as found in Table VI., column B 35, opposite A 25, and the annual premiums for the same assurance—continuous to B's death—is £1 : 17 : 8 (=1.882), as observed in the same column and line of Table VII. ### TABLE I.—Shewing the Single and Annual Premiums for Assuring £100 for Life or for a limited Period. Carlisle 3 per Cent.
| Year | For 1 Year | 5 Years | 7 Years | 10 Years | |------|------------|---------|---------|----------| | | | | | |
### TABLE II.—An Assurance of £100, by Limited Annual Payments.—Carlisle 3 per Cent.
| Year | To Commence at Age 75 | To Commence at Age 65 | To Commence at Age 60 | To Commence at Age 55 | To Commence at Age 50 | |------|-----------------------|-----------------------|-----------------------|-----------------------|-----------------------| | | | | | | |
### TABLE III.—Value of a Policy of £100, according to the number of years elapsed from the commencement of Risk.—Carlisle 3 per Cent.
| Year | After 1 Year | After 3 Years | After 5 Years | After 7 Years | After 9 Years | After 11 Years | After 13 Years | After 15 Years | After 17 Years | After 19 Years | After 21 Years | After 23 Years | After 25 Years | After 27 Years | After 29 Years | After 31 Years | After 33 Years | After 35 Years | |------|--------------|---------------|---------------|---------------|---------------|---------------|---------------|---------------|---------------|---------------|---------------|---------------|---------------|---------------|---------------|---------------|---------------|---------------| | | | | | | | | | | | | | | | | | | |
### TABLE IV.—Annual Premium for a Joint Life Assurance, payable at the first death of two lives, A and B.—Carlisle 3 per Cent.
| Age | A + G | A + S | A + 10 | A + 15 | A + 20 | A + 25 | A + 30 | A + 35 | A + 40 | |-----|------|------|-------|-------|-------|-------|-------|-------|-------| | | R = A | R = B | R = C | R = D | R = E | R = F | R = G | R = H | R = I | ### TABLE V.—Annual Premium for an Assurance of £100, payable at the last death of two lives. Premiums to continue up to the last death.—Carlisle 3 per Cent.
| Age | A + 0 | A + 5 | A + 10 | A + 15 | A + 20 | A + 25 | A + 30 | A + 35 | A + 40 | |-----|-------|-------|--------|--------|--------|--------|--------|--------|--------| | 16 | 756 | 851 | 968 | 1092 | 1225 | 1375 | 1537 | 1715 | 1915 | | 17 | 719 | 826 | 954 | 1090 | 1235 | 1395 | 1567 | 1755 | 1965 | | 18 | 682 | 794 | 934 | 1080 | 1235 | 1405 | 1587 | 1795 | 2015 | | 19 | 646 | 759 | 910 | 1065 | 1225 | 1405 | 1605 | 1825 | 2065 | | 20 | 610 | 734 | 891 | 1050 | 1215 | 1405 | 1615 | 1845 | 2095 | | 21 | 575 | 710 | 873 | 1035 | 1200 | 1405 | 1635 | 1875 | 2135 | | 22 | 541 | 687 | 856 | 1020 | 1190 | 1405 | 1665 | 1915 | 2175 | | 23 | 508 | 665 | 840 | 1005 | 1180 | 1405 | 1695 | 1965 | 2225 | | 24 | 476 | 644 | 825 | 990 | 1170 | 1405 | 1735 | 2025 | 2275 | | 25 | 445 | 624 | 811 | 975 | 1160 | 1405 | 1775 | 2085 | 2325 | | 26 | 415 | 605 | 798 | 960 | 1150 | 1405 | 1815 | 2145 | 2375 | | 27 | 386 | 587 | 785 | 945 | 1140 | 1405 | 1855 | 2205 | 2425 | | 28 | 358 | 570 | 773 | 930 | 1130 | 1405 | 1895 | 2265 | 2475 | | 29 | 331 | 554 | 761 | 915 | 1120 | 1405 | 1935 | 2325 | 2525 | | 30 | 305 | 539 | 749 | 900 | 1110 | 1405 | 1975 | 2385 | 2575 | | 31 | 280 | 525 | 738 | 885 | 1100 | 1405 | 2015 | 2445 | 2625 | | 32 | 256 | 512 | 727 | 870 | 1090 | 1405 | 2055 | 2505 | 2675 | | 33 | 233 | 499 | 716 | 855 | 1080 | 1405 | 2095 | 2565 | 2725 | | 34 | 211 | 487 | 706 | 840 | 1070 | 1405 | 2135 | 2625 | 2775 | | 35 | 190 | 476 | 696 | 825 | 1060 | 1405 | 2175 | 2685 | 2825 | | 36 | 170 | 466 | 686 | 810 | 1050 | 1405 | 2215 | 2745 | 2875 | | 37 | 151 | 456 | 676 | 795 | 1040 | 1405 | 2255 | 2805 | 2925 | | 38 | 133 | 447 | 666 | 780 | 1030 | 1405 | 2295 | 2865 | 2975 | | 39 | 116 | 438 | 656 | 765 | 1020 | 1405 | 2335 | 2925 | 3025 | | 40 | 100 | 430 | 646 | 750 | 1010 | 1405 | 2375 | 2985 | 3075 |
### TABLE VI.—Single Premium for an Assurance of £100, payable at the death of B, provided he is survived by A.—Carlisle 3 per Cent.
| Age | R 10 | R 15 | R 20 | R 25 | R 30 | R 35 | R 40 | |-----|------|------|------|------|------|------|------| | 16 | 756 | 851 | 968 | 1092 | 1225 | 1375 | 1537 | | 17 | 719 | 826 | 954 | 1080 | 1235 | 1395 | 1567 | | 18 | 682 | 794 | 910 | 1065 | 1225 | 1405 | 1587 | | 19 | 646 | 759 | 891 | 1050 | 1215 | 1405 | 1605 | | 20 | 610 | 734 | 873 | 1035 | 1190 | 1405 | 1615 | | 21 | 575 | 710 | 856 | 1020 | 1180 | 1405 | 1635 | | 22 | 541 | 687 | 840 | 1005 | 1170 | 1405 | 1665 | | 23 | 508 | 665 | 825 | 990 | 1160 | 1405 | 1735 | | 24 | 476 | 644 | 811 | 975 | 1150 | 1405 | 1775 | | 25 | 445 | 624 | 798 | 960 | 1140 | 1405 | 1815 | | 26 | 415 | 605 | 785 | 945 | 1130 | 1405 | 1855 | | 27 | 386 | 587 | 773 | 930 | 1120 | 1405 | 1935 | | 28 | 358 | 570 | 761 | 900 | 1110 | 1405 | 1975 | | 29 | 331 | 554 | 749 | 885 | 1100 | 1405 | 2015 | | 30 | 305 | 539 | 738 | 870 | 1090 | 1405 | 2055 | | 31 | 280 | 525 | 727 | 855 | 1080 | 1405 | 2095 | | 32 | 256 | 512 | 716 | 840 | 1070 | 1405 | 2135 | | 33 | 233 | 499 | 706 | 825 | 1060 | 1405 | 2175 | | 34 | 211 | 487 | 696 | 810 | 1050 | 1405 | 2215 | | 35 | 190 | 476 | 686 | 795 | 1040 | 1405 | 2255 | | 36 | 170 | 466 | 676 | 780 | 1030 | 1405 | 2295 | | 37 | 151 | 456 | 666 | 765 | 1020 | 1405 | 2335 | | 38 | 133 | 447 | 656 | 750 | 1010 | 1405 | 2375 | | 39 | 116 | 438 | 646 | 745 | 1000 | 1405 | 2415 | | 40 | 100 | 430 | 636 | 735 | 995 | 1405 | 2455 |
### FIRE INSURANCE.
It is impossible to estimate too highly the value and importance of insurance, and the benefits conferred on mankind by the invention, whether it be considered in its original character as a protection to the merchant who adventured his property on the bosom of the treacherous deep—against its many perils—or, in its more modern applications, as a guarantee against loss by fire, and its further interesting adaptation to the assuring of life. Considering that maritime insurance was well known, and insurance on life understood and practised, to a certain extent, in several mercantile countries by the middle of the sixteenth century, it appears extraordinary, when we call to remembrance the devastations and distress occasioned by fire in this country, that some means should not have been adopted at an earlier period to render such calamities less ruinous to individuals, particularly when a plan, which appears eventually to have formed the basis of the present insurance companies, was suggested so early as 1609.
In that year, a person proposed to Count Anthony Gunther von Oldenburg, that, as a new species of finance, he should insure the houses of all his subjects against fire, on their paying so much per cent annually, according to their value; but the prospect of gain so tempting to most persons could not induce the Count to adopt the plan. He thought it good if a company was formed of individuals to insure each other's houses, but he doubted that it could by him be "honourably, justly, and irreproachfully instituted without tempting Providence—without incurring the censure of neighbours, and without disgracing one's name and dignity," adding that "God had without such means preserved and blessed, for many centuries,..." the ancient house of Oldenburgh, and He would still be present with him through His mercy, and protect his subjects from destructive fires." This plan appears not to have been again thought of until the fire of 1666 had laid the city of London in ashes.
In consequence of this calamitous event, the citizens began to see the importance, and indeed necessity, of erecting their buildings of a material less susceptible of fire than hitherto; also of adopting a regular system of precaution against future accidents, as well as of devising some scheme for mutual pecuniary protection and relief. Various proposals were accordingly submitted to the Court of Common Council of the city of London, between 1669 and 1680, for the mutual relief of such as might have their houses destroyed by fire—the most notable and acceptable of which was by one of their own body, Mr Deputy Newbold. But if we may judge from the length of time that elapsed ere the worshipful committee made their report to the court, we should conclude the adopting of the proposal to have been attended with serious difficulties, and in verification of the old proverb that "delays are dangerous," during the period between the first presentation of Mr Newbold's proposals to the Lord Mayor, and the final report of the committee to whom the matter was referred by the Court of Common Council, several private individuals associated themselves together, and submitted to the good citizens of London a "design for insuring houses from fire," and on the 16th September 1681, a notice or advertisement was issued from their "office, on the back side of the Royal Exchange," offering to insure brick houses against fire for sixpence, and timber houses for twopence in the pound—being at the rate of £2 : 10s. per cent for brick houses, and of £5 per cent for timber.
Subsequently, on the 13th October 1681, the Court of Common Council did "agree and resolve to undertake ye insuring all houses within this city and liberties from fire, and execute ye same with all expedition," and thereafter "resolved forthwith to engage a sufficient fund, and undoubted security by the chamber of London, in lands and good ground rents, for the performance thereof." Much amusing pamphleteering and advertising in the Gazette took place between the advocates of the corporation scheme, and the "interested" in the said insurance office on the back side of the Royal Exchange.
The journals of the Court of Common Council in 1681, 1682, and 1683, record the signing of many policies, and bear amusing evidence of the zeal and prudence of the fire insurance committees in promulgating the benefits of the corporation scheme, and combating the antagonistic pamphlets issued by their competitors.
As the fruit of this pamphleteering agitation, the subject was brought under the most serious consideration of the court on the 13th November 1682, as appears by a minute of that date; when the court evinced a much greater anxiety to relinquish than they had to undertake the design, and directed the discharge of existing contracts, with the repayment of the money which had been advanced.
Notwithstanding this resolution, however, contained in the foregoing minute, we find several policies subsequently passed the common seal, on the 6th March and 3rd May 1683.
After this, the city discontinued issuing policies, and having had a quo warranto brought against their charter, every exertion was used to obtain a surrender of the existing policies, and thus release the city lands from the incumbrances thereon.
The last matter taken into consideration was the petition of Mr Newbold, the author of the design which turned out so unsuccessful for remuneration, for the time, trouble, and expense he had been at, which was referred to a committee who reported on the 13th October 1696, and on the 8th December following it was "resolved to give him the benefit of making two persons free of this city by redeeming, paying to Mr Chamberlin in the city's use of forty-six shillings eight pence a-piece, the said persons to be first presented and allowed of by this court."
This was the fate of the "City's Design and Undertaking for the insuring of Houses from the evil of Fire." The "interested" in the rival office became, of course, greatly elated, and their success led to the formation of several other companies or mutual insurance societies, for protection against fire.
In 1696, the Hand-in-Hand Fire Office was established by about 100 persons, who afterwards formed a deed of settlement, enrolled in Chancery January 24, 1698. This office is remarkable at the present day for its age, and is the only surviving one of those of that period.
Up to the year 1706, the protection afforded by fire insurance societies was limited entirely to houses (buildings), but in that year the Sun Fire Office was projected by one Charles Povey, for insuring merchandise and household goods (as well as houses) from fire; and was the first office to extend the benefits of insurance beyond the confines of the metropolis. This office has for very many years stood proudly first on the list in amount of business. The property insured by the Sun Fire Office alone, in 1855 (as per the Government duty returns), amounted to nearly one hundred and twenty-seven millions sterling. The Union Fire Office was established in the reign of Queen Anne, 1714. The Westminster Fire Office in 1717. The Royal Exchange and London Assurance Corporations in 1721. These are offices of the first class; enjoying most deservedly the entire confidence of the opulent and discerning mercantile community of London and of the public at large.
Every subsequent generation has witnessed the establishment of additional fire insurance companies, hundreds of which have never reached maturity. The companies recognised by the Government at the period in which we write (1866), in England, Ireland, and Scotland, are 72 in number—insuring in the aggregate more than 894 millions of pounds sterling worth of property—besides 63 millions of agricultural produce.
In 1782, during the premiership of Lord North, the large amount of business transacted by the then offices tempted his lordship to propose the first tax upon prudence in the shape of a duty of 1s. 6d. per cent on the amount of property insured. The growing necessities of the State in times of war caused a gradual augmentation, until at the present time the duty is 3s. per cent per annum, and yields a revenue of £1,341,242, as per the following Government official return:
There is also a stamp duty of 1s. on each policy.
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1 The following from the London Gazette will sufficiently explain the principle on which the societies were founded:
"There having happened a fire on the 24th of the last month, by which several houses of the Friendly Society were burnt, to the value of £965, these are to give notice to all persons of the said society that they are desired to pay at the office in Falcon Court in Fleet Street their several proportions of the said loss, which comes to five shillings and one penny for every hundred pounds insured, before the 12th of August next." By far the greater number of the above are joint-stock companies, who insure at their own risk and for their own profit, and are represented by agents in all the principal towns of the kingdom; the remainder are joint-contribution, or mutual insurance societies, in which every insurer participates in the profit or loss of the concern.
The advantages of fire insurance are too well known to require any very elaborate description. A manufacturer or private individual can, by the payment of an annual sum (premium) proportioned to the risk, secure himself against loss in the event of his manufactory or dwelling-house, or their contents, being destroyed by fire.
It is almost impossible to form a correct classification of the risks undertaken, nevertheless, the experience of many years has enabled the old offices to arrive at tolerable data for fixing the rates of premium for the great variety of risks they are called upon to undertake. They are generally divided into common, hazardous, double hazardous, and special—the rates varying from 1s. 6d. per cent per annum for a private first class dwelling-house, to 42s. per cent per annum for a sugar refinery or drying stove. The more fragile and costly contents of a house, such as china, glass, mirrors, and pictures, are charged a higher rate of premium than the ordinary articles of household furniture, as being more susceptible of damage in the event of fire, whilst books of accounts, written securities, bills, bonds, ready money, and gunpowder, are deemed uninsurable.
The government duty of 3s. per cent per annum is exigible on all alike, without reference to the rate of premium—public hospitals and agricultural produce and implements excepted, which are specially exempted from this impost, although why the agriculturist should be thus favoured it is difficult to comprehend.
The conditions on which an insurance is granted are in all cases printed upon the policy, and form a part of the contract, being in general so well defined as seldom to require submission for judicial interpretation.
1. Candour is imperative on the part of all persons proposing for insurance. Any misrepresentation in describing the building, or goods, or the process of manufacture carried on, whereby the same may be charged at a lower rate of premium than they otherwise would be, invalidates the policy; and if any alteration be made in the state of the building or process of manufacture after the insurance is effected, the insured is required to give due notice thereof to the insurers, otherwise he forfeits all right of recovery under his policy.
2. The party effecting an insurance against fire must have a bona fide interest in the property insured, to enable him to establish a claim against the insurance company; and a trustee, mortgagee, reversioner, factor, or agent, is held to have sufficient interest to effect a policy of insurance, provided the nature of such interest be distinctly specified at the time of effecting the insurance.
An insurance on the same property in any other office, must be named in, or endorsed on, the policy, and in the event of loss, each office pays a rateable portion thereof.
It frequently occurs, however, that various parties have separate interests in the same property, in which case each may insure his own interest without communication with the others.
3. A separate sum must be insured on each building, and on the contents of each, unless the insurance is specially rendered subject to the conditions of average, as in mercantile policies, the operation of which is—that the assured is entitled to recover such a proportion only... of a loss as the sum insured bears to the value of the property; so that, if a merchant insures for £5000 only, when his merchandise collectively in all the places named in the policy is worth £10,000 at the time the fire happens, he can only call on the insurance company for half the amount of loss.
4. Fire insurances are not in this country subject to the law of average, as in marine assurance (unless otherwise stipulated, as in the foregoing mercantile case), and the amount insured is payable to its full extent, provided the ascertained loss or damage is equal to the sum insured; but in foreign countries all policies are subject to average.
5. The offices now generally hold themselves liable for loss occasioned by lightning and gas explosions—which concessions have been forced on them by the competition of new offices; also for losses occasioned by incendiaries, the offices having a right of recovery from the county, in the event of a conviction of the incendiary. There is a general exemption from liability in the case of fires occasioned by invasion, foreign enemy, civil commotion, riot, or any military or usurped power, and under this condition the Sun Fire Office was exonerated from the loss occasioned by the disgraceful proceedings of the mob in 1780 (the Gordon Riots).
The offices are also very justly exempt from loss arising from the natural heating of hay and corn, always the result of gross carelessness.
6. Policies of insurance may be effected for any period. If for a year (which is most customary), or for a term of years, by a single payment, it is usual for the office by way of indulgence, to allow fifteen days after each year or term of years for the payment of the premium for the next period, in succession; and, provided the premium be paid within that time, the insured is considered within the protection of the office.
7. A policy of insurance is not in its nature assignable, nor can it be transferred without the express consent of the office. When, however, any person dies, his interest remains in his executors or administrators respectively, who succeed or become entitled to the property, provided such representatives respectively procure their right to be endorsed on the policy.
8. The prompt and liberal manner in which claims are met by the fire offices of this country generally, is highly creditable to the nation. There is, however, too much reason to believe that frequent frauds are perpetrated by individuals insuring to a large amount property of trifling value; and it is an undoubted fact that fraudulent and excessive claims are of constant occurrence—these have been very much increased by the competition and keenness for business which have existed among the offices for very many years. Many offices make it one of their conditions that the statement of loss shall be supported by the oath or affirmation of the claimant, declaring, at the same time, that if any false swearing, fraud, collusion, or wilful mis-statement shall take place, either by the assured or on his behalf, the whole right of recovery shall be forfeited.
The effect or power of this clause was tried in the court of Kings' Bench in the month of March 1832, in an action brought by a person of the name of Freidlander, a jeweller, against the London Assurance Company, where the verdict was given for the defendants, which was, in fact, declaring that, although the plaintiff could prove a loss to a certain extent, he had forfeited all right under his policy in consequence of the fraudulent claim he had set up.
On the oath of a suspected claimant very little reliance is to be placed, as it is borne out by the experience of all offices, that if a man will make out a fraudulent claim, he will not be very scrupulous in swearing to its correctness.
9. When a loss occurs, and there is no suspicion of any unfair practice on the part of the insured, it is the custom, as it is the duty, of the offices to be generous, liberal, and prompt in their settlements. It is beyond doubt that many fires are wilfully caused for the purpose of defrauding the insurance companies, the greatest check to which would be that the duty of coroner for each county, city, or district, should extend to a full inquiry into the cause or origin of every fire that occurs of any consequence, viz., when a house or tenement is destroyed within his jurisdiction; in fact, for an inquest in all respects similar to those held in cases of violent or accidental death.
This plan was suggested by the writer of this article 24 years since, and a few years ago adopted by the coroners for London and Middlesex, but as the authorities—sad, strange to say, the insurance companies themselves—discouraged it, by refusing to pay the customary fee to the coroners, this most wholesome check to one of the worst of crimes was abandoned. Insurance companies much need the protection of the law in cases of fire, and none could be more effectually given than that which an inquest would afford; not, of course, to be held in trivial cases, such as foul chimneys, &c., but whenever a fire extends to the destruction of a house or tenement.
The case of Smithers, in Oxford Street, London, in 1832, may be here mentioned as in point.—This man was executed for the double crime of arson and murder. His object was, by burning his premises, to defraud the insurance company, but in doing this he sacrificed the lives of his lodgers, and thereby caused an inquest to be held to inquire into the cause of the death of the parties, which led to his conviction. Now, had it not been for the loss of human life, this man would in all probability have escaped the just vengeance of the law, and the insurance company have had to pay him his iniquitous and fraudulent claim.
In the majority of cases, a fire does not involve a total loss, and the insurance company is liable for the actual amount of loss or damage sustained—not exceeding the sum insured by the policy, which is the maximum beyond which no claim can extend. The offices generally reserve to themselves the power of reinstatement—a wholesome and unobjectionable provision.
(F. G. S.)
MARINE INSURANCE,
A contract by which one party, the "insurer" or "underwriter," engages for a stipulated premium to protect another party, the "assured," against loss arising from certain perils, or sea risks, to which his ship, goods, or other interest, may be exposed during a specified voyage, or period of time.
The policy of insurance, or instrument which contains the contract, is a printed form, with spaces left blank for policy insertion, in writing, of the particulars of the agreement. The form in general use appears to have been originally introduced with the earliest practice of marine insurance in this country. Although worded in a confused and ambiguous manner, its meaning has been fully defined by a series of legal decisions on every debatable point; and in all cases the written conditions are held to overrule any of the printed clauses which might appear to be inconsistent with them.
The stamping of policies is at present regulated by the Stamp unrepealed provisions of the 35 Geo. III., c. 63, and by Acts. The most important of the former are those which declare all policies not duly stamped to be void, prohibit the affixing of stamps to policies after signature, and exclude all unstamped policies, or agreements for insurance, from the evidence admissible in courts of law. The 7 Vict., c. 21, fixes the stamp duties as follows:
1. On Voyage policies—For every £100 insured, and for every fractional part of £100—
| Premium Does Not Exceed | Rate | |-------------------------|------| | 10s. per cent. | 6d. | | 30s. | 1s. 4d. | | 40s. | 2s. 6d. | | 50s. | 3s. 4d. | | 60s. | 4s. 6d. |
2. On Time policies—for every £100, and for every fractional part of £100—
| Time Does Not Exceed | Rate | |----------------------|------| | Six months | 2s. 6d. | | More than six months | 4s. 6d. |
And no time policy is allowed to be made for a longer term than twelve calendar months.
3. On every policy of mutual insurance, not being a time policy—for every £100, and for every fractional part of £100—
| Fractional Part | Rate | |-----------------------|------| | | 2s. 6d. |
If the separate interests of two or more distinct persons be insured in one policy, the stamp must cover each fractional part of £100 in the amount of such separate interests, as if it were a full sum of £100. The penalty on any person, broker, or underwriter, engaged in effecting or subscribing policies not duly stamped, is £100.
In practice it is usually desirable to conclude an agreement for insurance at once, lest some subsequent intelligence should induce either party to recede; and it is customary for the underwriter to sign a slip or short memorandum of the insurance, until the stamped policy can be completed. But such memorandums, however obligatory in good faith, are not legally binding.
In order to give validity to the contract, it is necessary that the assured have a right of property, or "interest," in the thing assured. A policy without interest is held to be a mere wager; and it is declared by the 19th Geo. II., c. 37, that policies bearing the words "interest or no interest," or "without further proof of interest than the policy," or "without benefit of salvage to the insurer," or any policies made by way of gambling or wagering, shall be null and void. The expected profits of a sea adventure may be included in the value of the property for insurance; but an unwarrantable or fraudulent over-valuation of the thing insured renders the policy void, even in respect to the value actually proved.
A valued policy is one which contains a specific valuation of the interest insured. This valuation forms an essential element in the adjustment of all claims under the policy, and cannot be set aside except on the ground of fraud. The burden of proof, in any averment of fraudulent over-valuation, lies on the underwriter.
An open policy is one in which the value of the interest insured is not specified. In claims under such policies the assured must prove the value of the thing insured. The value of a ship for insurance is what she is actually worth at the commencement of the voyage, including all her stores, provisions, and outfit, money advanced for seamen's wages, and costs of insurance. The difficulty of proving a precise value in the case of ships is sufficiently obvious; and to avoid disputes, policies on them ought always to be valued, as it is the usual practice to do. The value to be proved under an open policy on goods is their first cost, including the expenses of shipment, with any portion of the freight that may have been prepaid, and the costs of insurance. The value to be proved in open policies on freight is the amount of the manifest, or freight list, excluding such freight as may have been paid in advance, but including the costs of insurance.
When the value proved under an open policy falls short of the sum originally insured, the difference, which is technically termed an over-insurance, is treated as a deduction to be made from the amount of the policy. On this footing a proportionate part of the premium is returnable to the assured, who, on his part, can make no claim on the underwriter for loss or damage, beyond the value of his interest as actually proved. If, on the other hand, the value proved exceed the amount of the policy, the assured is regarded as "his own underwriter" to the extent of such excess; and the amount of loss or damage, if such has arisen, is apportioned on this footing between the parties relatively to their several proportions of the total value.
A "short interest" arises when only a part of the short interest insured has been exposed to risk; as when some portion of the goods specified in the policy have not been loaded on board of the ship. This case is treated in the same manner as that of over-insurance, from which indeed it does not essentially differ.
Double insurance takes place when the same interest has been insured twice or oftener. If this be done for fraudulent purposes, the policies will be void; but it frequently occurs, either through mere inadvertence, or from the want of definite information on the part of the respective persons concerned in the transaction. In such cases, the usual practice is that all the underwriters make a return of premium, in proportion to the amounts of their respective subscriptions, for the excess of the sum insured above the actual value of the interest; the liabilities of the several underwriters under the different policies being of course proportionally diminished. To this rule, however, there are two important exceptions. One of these occurs when two or more persons insure the same thing, in order to protect the distinct interests which they may individually have in it; the other, when the circumstances are such that a claim for loss might have been brought against one set of underwriters before the other set had become liable at all.
Re-insurance is illegal in this country, unless the original insurer become insolvent or die.
The risk on the ship, in voyage policies, commences at and from the place specified in the policy, and continues till she arrive at the destination specified, and have been there moored twenty-four hours in good safety. On goods the risk begins with their loading, and ends with their discharge, at the specified ports. On freight the risk usually commences with the shipment, and terminates with the landing of the goods; but if there be a contract of affreightment, under which the goods have been provided for shipment, the risk is held to commence as soon as the ship is in readiness to take them on board.
After the risk has once commenced, the whole premium is earned, even although the voyage should not be prosecuted, and the actual risk of the insurers be thereby confined to the mere lying of the ship at the port where the insurance was to commence. But if the risk should not commence at all, or, in technical phrase, if the "policy should not attach," the premium must be returned to the assured.
If the ship should deviate from the regular and usual course of the specific voyage insured, without necessity or reasonable cause, the underwriter is thenceforth discharged from all liability under the policy. The insurance becomes void as soon as such deviation begins; and consequently, it is quite immaterial whether a subsequent loss of the ship should happen during the actual deviation, or after the ship had returned to her course, the insurer being no longer concerned. It is also immaterial whether the assured was or was not cognisant of the deviation. A mere intention to deviate will not vitiate the policy; but if the ship have sailed on a different voyage from that specified, the insurer is discharged, although the loss should happen before reaching the point of divergence in the two voyages. An unjustifiable delay in the prosecution of the voyage operates as a deviation. The causes which justify deviation are such as to unfit the ship after she has been disabled, to avoid an enemy or an impending storm, or to save the lives of seamen in distress.
In all voyage policies it is an implied condition of the contract that the ship shall be seaworthy at the commencement of the risk. By this is meant that the ship shall be in a fit state, as to repairs, equipments, crew, and all other respects, for encountering the ordinary perils of the voyage insured, at the time of sailing on it. Seaworthiness is a condition precedent to the contract; and, therefore, where the ship is originally unseaworthy, the underwriter is discharged, even although the loss should result from causes independent of the particular deficiencies constituting the unseaworthiness. It is not material whether the assured is or is not cognisant of the defects rendering the ship unseaworthy; and this rule applies indiscriminately to the owners of the ship and the proprietors of the goods on board. But there is no engagement that the vessel shall continue to be seaworthy after the voyage has been commenced. The burden of proof, in any averment of unseaworthiness, lies on the underwriter, unless where the ship, without adequate cause, becomes leaky soon after sailing.
It has very recently been decided in the English courts that in time policies the warranty of seaworthiness is not implied. This principle has been partially affirmed by the House of Lords, in the case of Gibson v. Small (3d June 1853, 21 L. T. 241), where it was held that when the actual condition of the ship could not be known by the owners, in consequence of her being at the time in a distant part of the world, there was no implied engagement of her seaworthiness at the commencement of the time policy. But it was left undecided whether the seaworthiness of the ship would be implied in a time policy, taken at the commencement of an outward voyage. Lord St. Leonards thought it would—Lord Campbell thought otherwise. It has now been decided by the Court of Queen's Bench, in the cases of Thompson v. Hopper, and Fawcett v. Sarsfield (March 1856), that there is no implied warranty of seaworthiness in any time policies whatsoever. This view of the law, it must be confessed, is entirely new; for no distinction between voyage and time policies, in respect of the implied condition of seaworthiness, is adverted to by the writers usually recognised as authorities, such as Marshall, Park, and Arnold; nor was any such distinction made in practice previously to these legal decisions. The ground of this distinction is explained to be that "a time policy is to be construed, as an ordinary contract in writing, by the terms thereof; and not as a contract for marine insurance, subject to the rules of law relating thereto;" it being assumed that these rules were laid down for voyage policies, and were not adapted for time policies. It is further said that underwriters on time policies may protect themselves from the consequences of the law as now laid down, either by inserting an express warranty of the seaworthiness of the ship in their policy, or by charging a premium proportional to the additional risk. This is no doubt true; yet we venture to say that a private remedy of this nature is scarcely an adequate remedy for what certainly appears to be an anomalous state of the public law. It seems to be equally impolitic and inequitable that the owners of an unseaworthy ship should be allowed to recover their insurance, provided only they have effected it by a time instead of a voyage policy, while the shippers of the goods on board of her (who cannot insure their property otherwise than for the voyage) are not allowed to recover theirs. The circumstance, too, that it is the owners of the ship, and not the proprietors of the cargo, who have the power to regulate the ship's condition as to repairs and equipments, gives all the more force to the consideration just stated. But the principle of this distinction between voyage and time policies seems itself to be as open to objection as this particular result of it; as it may probably be found to affect various other points besides that of seaworthiness, and thus give occasion to disputes and litigations on matters hitherto regarded as conclusively settled.
The contract of insurance being pre-eminently one founded on the assumption of perfect good faith between the parties, it is the duty of the party wishing to effect the policy to make a true disclosure of every circumstance likely to affect the underwriter's estimate of the risk. The concealment or misrepresentation of material facts, or the representation of anything not consistent with the facts, will render the policy void. This rule holds good even where the concealment or misrepresentation may have resulted from a mistake, without the intention to deceive. If the underwriter has actually been deceived, whether wilfully or by mistake, the risk is different from that understood and intended to be run; and on this ground he is discharged. The materiality of a concealment or misrepresentation depends, not on its eventual influence on the result of the risk, but on its immediate influence on the judgment of the underwriter at the time of effecting the insurance. The loss may arise from causes totally unconnected with the facts concealed or misrepresented, but the policy is nevertheless void, because a true disclosure of the facts at the time of effecting it might have led the underwriter to decline the insurance altogether, or to accept it only at a higher premium. If an agent be employed to effect the insurance, he is bound to communicate to the underwriter, not only all the material facts disclosed to himself by his principal, but also any other material facts which may have come to his knowledge from other sources. If either the principal or the agent fail to communicate such facts, the policy will be void. Should any material fact come to the knowledge of the parties wishing to effect the insurance after they have sent away an order to have it effected, they are bound to intimate such fact without delay, so that the underwriter may be informed of it (if there should still be time) before he has accepted the risk. The suppression of information tending to show that the ship was overdue, or that there were rumours current as to her having met with some accident (even though it afterwards appeared that these rumours were unfounded), are instances of concealment fatal to the validity of the contract. It has also been held that a policy was void because the agents employed to effect it failed to inform the underwriters that their principal had instructed them to wait the arrival of the ship for a certain number of days before acting on the order to insure. If an agent has received orders to insure by express, or by telegraph, that circumstance ought to be mentioned to the underwriter. Misrepresentations of the terms on which other underwriters have agreed to accept the insurance, will be fatal to the validity of the contract, as well as misrepresentation of the risk itself. It may be observed generally that every circumstance represented to the underwriter ought to be at least substantially true. A mere expression of opinion or expectation does not of course amount to a positive representation of facts; but the opinion or expectation expressed must itself be genuine, as if it appeared that it had been only a pretence, or inconsistent with anything within the actual knowledge of the assured at the time, the policy might be vitiated. When an express warranty is given, its terms must be literally complied with, otherwise the policy will be void. The chief distinction between a warranty and a representation is that the former is always inserted in the policy, while the latter is never so inserted; and the effect of this is, that while a representation affects the contract only in so far as it may be found to have been material to the risk, a warranty precludes all questions as to materiality, its express terms superseding any such inquiry.
The perils insured against are described in the printed form as the "adventures and perils of the seas, men-of-war, fire, enemies, pirates, rovers, thieves, jettisons, letters of mart and counter mart, surprisals, takings at sea, arrests, restraints, and detainments of all kings, princes, and people, of what nation, condition, or quality soever; barratry of the master and mariners, and all other perils, losses, and misfortunes that have or shall come to the hurt, detriment, or damage of the said goods, merchandizes, and ship, &c., or any part thereof." It may be observed that, as a general rule, the underwriters are liable only for such losses as are proximately caused by the perils insured against. For the remote consequences of these perils, such, for instance, as the loss of markets through delay, they are not responsible. But, on the other hand, if a loss has been proximately caused by a peril insured against, the underwriters are not relieved from liability, although such loss may have been remotely occasioned by the acts or negligence of the assured or his agents. The reason for this rule, as given by Lord Bacon, is that "it were infinite for the law to consider the causes of causes, and their impulsions one on another; therefore it contenteth itself with the immediate cause."
Losses resulting from breaches of the revenue laws, or of the law of nations, or from illegal voyages generally, are not covered by the policy. The risk of "thieves" applies only to plunder committed by open violence, and does not cover losses by theft in the ordinary acceptation of the term. The illegal acts of the master and crew, if committed without the privity of the owners, will amount to barratry, so as to render the underwriters responsible for them; but if the master be also owner of the ship, none of his acts will be held as barratrous. If the assured be the subject of a foreign State, underwriters in this country will not be liable for the acts of that State, unless it appear from the form of the policy, or from the circumstances of the case, that they meant to insure against such risk. Losses by the ordinary wear and tear of the ship, or by the natural deterioration or decay of perishable goods, are not chargeable to the underwriters.
The printed form of the policy declares that "in case of any loss or misfortune, it shall be lawful to the assured, their factors, servants, and assigns, to sue, labour, and travel for, in, or about the defence, safeguard, and recovery of the said goods and merchandizes, or ship, or any part thereof, without prejudice to this insurance: to the charges whereof, we, the assureds, will contribute, each one according to the rate and quantity of his sum herein insured." The object of this clause is to permit the assured to take measures for the recovery of the property without losing any right of abandonment he might have in the circumstances. Although the language of the clause is only permissive, it is a settled rule that the assured is bound so to labour for the recovery of the property. The best practical rule for the assured to follow in cases of partial loss or damage, is to act in the circumstances as a prudent man would do if uninsured.
An important clause in the printed policy is what is called the memorandum, which is as follows:—"Corn, fish, salt, fruit, flower, and seed, are warranted free from average, unless general, or the ship be stranded. Sugar, tobacco, hemp, flax, hides, and skins, are warranted free from average under five per cent. And all other goods, also the ship and freight, are warranted free of average under three per cent, unless general, or the ship be stranded." The effect of this clause, as interpreted by legal decisions, is to free the underwriter from claims for particular average (or partial damage), or from such claims if under the rates specified, unless the ship be stranded. But if the ship be stranded, he is liable for such claims, whether caused by the stranding or not. For losses of the nature of general average, the underwriter is liable whether the ship be stranded or not, and whether the amount be over or under the rates mentioned in the memorandum.
It is frequently a matter of some difficulty to determine whether a ship has been stranded within the meaning of the memorandum. A mere touching or striking, whether on a rock, bank, reef, or other object, will not constitute a stranding, unless the ship settles down and remains fixed for some definite time. The amount of damage sustained is not material to the question either way. Where a vessel takes the ground in the ordinary and usual course of the navigation in a tidal river or harbour, on the ebbing of the tide, or from natural deficiency of water, this is no stranding. It is essential to a stranding that the ship should take the ground by reason of some unusual or accidental occurrence. A voluntary stranding, to save the ship from sinking, is within the meaning of the memorandum, although the ship should be run into a tidal harbour for the purpose.
When an absolute total loss occurs, the assured is entitled to recover the amount of the policy without giving notice of abandonment. When the subject insured, without being wholly destroyed, is so seriously injured, through the perils insured against, that its recovery might involve greater expenses than its eventual value would cover, it forms a "constructive total loss," and the assured is entitled to give notice of abandonment to the insurers, and to claim the amount of the policy. (See Abandonment). It is only, however, when the circumstances seem to involve a virtual loss, as distinguished from a deterioration of the property, that notice of abandonment can be competently given; and unless the abandonment be accepted (which it seldom is), the ultimate state of the facts will alone determine the question, whether it can be insisted on. The principle upon which losses are settled when abandonment is validly made, is that the underwriter becomes the proprietor of the subjects abandoned on payment of the sum insured. The effect of an abandonment of the ship is to transfer the ownership to the underwriters, so that whatever freight she may thereafter earn belongs to them; and although such freight is thereby lost to the original owners, the insurers of the freight are not liable to them for loss in respect of it, because it is lost only by their own act of abandonment, and not by the perils insured against. When goods are so damaged by the perils insured against that they are necessarily sold at any place other than the original destination, they are constructively lost, and the underwriter is liable for their insured value, under deduction of the nett proceeds of the sale. But this rule is not applied to goods warranted "free Marine from average unless stranded," if there has been no stranding of the ship; it being only in that event that the underwriter is responsible for damage to such goods.
A constructive loss of freight occurs when the ship is prevented by any peril insured against from completing her voyage, or when the goods on which the freight is to be earned have received such damage that they cannot be conveyed to their destination; but if the ship can proceed with other goods, the freight earned for these must be deducted from the claim for loss.
Partial loss or damage, arising from the perils insured against, is usually, though somewhat loosely, designated by the term "particular average." Under this head are included the damages suffered from the accidental or voluntary stranding of the ship, or by her getting into collision with another vessel, by lightning, fire, hostile attacks, or the violence of the sea under any extraordinary circumstances. Damages to the ship's upper works, sails, spars, and rigging, are included under particular average, if occasioned by the direct force of the sea; but if caused merely by the force of the wind they are treated as wear and tear, and are not chargeable to the insurers.
The loss of anchors and cables parted from by the vessel riding hard, or by the anchor hooking to any object at the bottom, is regarded as wear and tear; and the same rule applies to the repairs of the ship consequent on her becoming leaky through working and straining in a heavy sea. The general principle upon which damages of the nature of particular average are distinguished from those falling under the class of wear and tear, is that the former must be caused by the immediate operation of some extraordinary accident, while the latter are only the ordinary incidents of navigation, and as such are not within the scope of the underwriter's contract. But the practical application of this principle is a matter of much nicety, and must usually be left to the judgment of a professional average stater.
In adjusting claims for particular average on ships, certain deductions are made for the difference between "new and old," unless the ship be on her first voyage, either outward or homeward, or the repairs be only temporary. On this footing one-third is deducted from the costs of the materials and labour required for the ship's repairs, excluding, however, the charges for dock dues, surveyor's fees, or similar necessaries, which are allowed in full. No deduction is made for anchors (unless in so far as they may be fitted with wood), and the deduction for chain cables is only one-sixth. When a ship has to be recoppered at the expense of the underwriters, the practice is to allow in full the difference of price between old and new metal, to the extent of the weight of the old copper stript off; and if any sheets have been lost by being rubbed off, the cost of replacing these is further allowed, under deduction of one-third. If the ship has not been stranded, the underwriters are not liable for claims for particular average, amounting to less than three per cent on her insured value, independently of the accessory expenses, such as survey fees, &c., which are not taken into account in making up the three per cent. Two or more averages occurring in the course of a voyage, may, however, be taken together to make up three per cent on the value of the ship, so as to render the insurers liable.
Particular average on goods occurs when they arrive at their port of destination damaged by sea water, or by average on its effects in heating or otherwise deteriorating them, although in actual contact only with other portions of the cargo. The amount of compensation recoverable from the insurers for such damage is regulated by comparing the gross market price which the goods would have produced, if landed in sound condition, with the actual gross price obtained for them in their damaged state, and by charging to the insurers the same rate of deterioration on the value insured, with the addition of the extra charges specially occasioned by the damage, such as surveys, &c. By this mode of adjustment the assured recovers either more or less than the actual depreciation of the goods, according as the insured value may exceed or fall below the sound market value at the port of destination; but as the latter value generally includes freights, duties, and other charges, besides profits, it is in most cases in excess of the insured value, and to the extent of such excess the indemnity of the assured is incomplete. The equity, however, of this mode of adjustment is obvious, when it is considered that the insurer receives his premium only on the value insured, and ought therefore to be liable only in respect of that value, while at the same time the gross market values of the goods in their sound and damaged condition furnish the only true criterion of the actual depreciation, because these are the only values with reference to which, ultimately at least, purchasers could be influenced. As already indicated, claims for particular average on goods must amount to three per cent or upwards, or in the case of the goods specified in the second clause of the memorandum, to five per cent or upwards, otherwise the underwriters will not be liable unless the ship has been stranded; and it is only when there has been a stranding of the ship that the insurers are liable for any such claims on the goods specified in the first clause of the memorandum, or on other goods specially warranted "free of particular average."
The subject of general average has been treated in a separate article, under the head of "Average," to which the reader is referred for information respecting this class of claims on insurers. On the general subject of marine insurance, the best book of reference is Arnould's Treatise, which embodies everything of essential importance in the earlier works of Marshall and Park, besides embracing the leading cases decided in the law courts up to a comparatively recent period. Amongst the minor works bearing on the subject, Steven's Essay on Average, Bencecke on the Principles of Indemnity in Marine Insurance, and Baily on General Average, deserve special mention.