MODERN INSURANCE COMPANIES.

While recent revelations in the law courts have not tended to increase confidence in the management of life-insurance companies generally, the public- mind has just received a shook in regard to the more modern com- panies by the publication of a Parliamentary return exhibiting the manner in which they do business; the disclosures in the blue-book ex- plaining how it is that so many companies have recently been compelled to " wind up," or to amalgamate with other companies in order to carry on their trade at all. The law requires that every insurance company, of whatsoever kind, fully registered since the passing of the Joint-Stock Companies Act of 1844, shall register their accounts with the Registrar of Joint-Stock Companies. As usual, the law is defective-there are no means of enforcing this provision, and no form of balance-sheet is fixed : the results are, that companies do not make returns unless they please ; and when they do, they frame their accounts in any way they think most convenient to themselves, and often with an eye to deceive the uninitiated -nay, at times they send in accounts utterly unintelligible to any one. There is one check upon the refusal to render any account : if in the Par- liamentary return "No account registered" appears under the name of a company, the very worst suspicions are created as to the position of the concern; so that if a company is not absolutely rotten, one may expect some sort of accounts to be rendered after a reasonable interval.

On the 4th March, Mr. Brotherton moved for a return of the accounts of Insurance Companies from the 19th March 1852, in continuation of a preceding return. The blue-book issued in consequence of this motion contains the dates of complete registration of 195 companies, for life, fire, and marine assurance, with the accounts of those companies which have rendered any. There are no accounts for seventy-one; several of these are reported to be already defunct, amalgamated with other offices, or in process of winding-up ; in many cases the companies were registered so recently that no accounts could be expected.

The City writer in the Times has performed a public service, involving no small amount of labour, in extracting as far as possible from a mass of confusion the totals of receipts and expenditure of the various Life-Insur- ance Offices that have made returns, and has calculated the percentages of expenditure to receipts and capital. We extract the results yielded by a portion only of the companies. The first column of the following list shows the percentage of expenditure on premiums and interest received ; the second, the percentage of expenditure on premiums, interest, and

157.49 158.24 57.90 294.00 183.24 247.87 207.49 ... .. ... . • ...

• • • .. • • • • • . • . • • 90.69 31.42 35.14 103.24 128.98 93.14 119.91 . • • • 30.07 104.21 • • . • 86.90 56.88 • • .. 49.87 443.68 • .. • 117.78 81.73 ... • 79.45 95.53 .. • • 84.70 ... • 67.47 334.36 •

80.05 367.71

• 146.08 134.06 • • • • 108.38 71.93 • • • • 68.48 90.53 • • • . 74.12 97.63 • • • • 16.49 219.48 ....

80.04

Of fifty-four Life-Insurance Companies, thirty spent more than they received for premiums and interest, and six spent more than they received from premiums, interest, and capital paid-up ; these were the Briton, the Catholic, Law, and General, the Deposit and General, the Home Counties, the Official and General, and the Professional. The highest percentage of expenditure compared with trade receipts was exhibited by the Home Counties-443.68, the accounts extending over only one year ; the lowest by the London and Provincial Law-34.64, the ac- counts extending over nine years. The highest expenditure compared with the entire receipts, including paid-up capital, was that of the Official and General-146.08 ; this company has ceased to exist: the lowest was that of the Unity-16.49, the accounts extending over one year. The living principle of life-assurance is certainty-a man pays a yearly sum during his life in order that at his decease his family may have a provision : sharp practice by offices which have attempted to escape paying the amount of pOlicies has frequently given a shock to the practice of life-assurance, from casting a doubt upon the certainty of the provision which the assurer thinks he is making. This Parliamentary return, and one that preceded it, have raised a doubt far more extensive in its nature in regard to many companies : what if; after a number of assurers have been paying for years, at their decease the company is discovered to be insolvent ? The only safe plan on which a new life-office can be opened is by having an ample capital, not merely "subscribed," but, in large part at any rate, paid-up. If the scheme fails, what business has been got can he transferred, by payment out of capital, to a more stable com- pany, or the premiums could be returned to the assurers : of course the shareholders would suffer ; but what right has any man to attempt to make profits without bearing his risk of losses ? Now what do the Parliamentary returns exhibit in very many cases ?-companies starting with avowedly a very small capital, or with a large nominal capital of which only a trifling percentage is paid-up. If the scheme can be carried on for a good many years with tolerable success in acquiring business, and with much prudence of management, the life-office may eventually take its place among the sure establishments : but suppose that business does not rapidly come in, spite -of large expenditure in endeavouring to get it, what must be the upshot?-we know what it has been in many cases,- a crash, a winding-up, loss to all engaged in it ; whereas the loss should have fallen only on shareholders. But perhaps there is a vast nominal capital "in the hands of shareholders" : would a prudent man pay money year after year on the chance of the amount of his policy being eventually liquidated from that fund ? Perhaps a person of either sex has been induced to deposit the savings of a life in such an office for the purchase of an annuity ; is capital "in the hands of shareholders" a proper fund on which such a person should depend for the regular pay- ment of the annuity ? An examination of these accounts shows that the directors and managers of Many new offices spend the money of their customers as fast as they get it, while the principle of life-assurance business is that the greater portion of the receipts should be put out safely to use, accumulating the principal and gathering interest to meet the policies when they become claims or to pay annuities : too often the

capital paid-up. Age Atheneum British Empire Mutual British Equitable

Catholic Law and General

Deposit and General English and Cambrian English and Irish Church English Widows Fund Gresham Ho'me Counties Indisputable Mitre National Provincial Oak

Official and General

Professional Solicitors and General Times Unity Wellington

modern.principle appears to be, get as many premiums as possible, and 'end them in "preliminary expenses," "furniture," "management," ,m advertising," "directors' fees, "rent and taxes," " commissions," " dividends to shareholders," and so on; and take no heed of accumu- lating a fund to meet claims. It has been urged that in its early years a life-insurance company must incur great expenses in establishing a busi- ness, and that the business when established-or if established-will be worth the money expended on it. No doubt, there is a good deal of truth in this, though it is possible to get custom by too costly means : but suppose there is no wasteful expenditure, there must be risk ; and whose should be the risk ?-surely the shareholders. The variety of modes in which the companies make out their accounts is something surprising. While some of them make a fair statement of their liabilities, entering on the debit side the amount of the insurances into which they have entered and taking credit on the other for the esti- mated future payments of the policy-holders, the majority say nothing whatever on the subject, which is indeed a delicate one with some of them. One company puts down its assets at 47,8761., and says. that its liabilities are "None" : yet this company in the same year received up- wards of 15,0001. for life-premiums and for annuities. Another com- pany, receiving 52521. as premiums in a year, puts down "balance-- being gain" 5591. 9s. 104, spending the rest in management and pay- ment of claims. This company whose "gain" is 5591. has a paid-up capital of only 51521. Several offices make a flourish by putting down on each side of their accounts the nominal capital, of which a very small portion is paid-up-in one case, 16,4451. out of 400,0001, Others, again, balance their liabilities, or make a handsome balance on the right side, by counting upon the capital " in the hands" of shareholders • if claims came in inconveniently thick, would these large sums "in the hands " of shareholders be very readily got out of their hands ?-a serious question for assurers. To show how accounts may be rendered and yet no light thrown on the position of a company, one case may be mentioned : an office renders two accounts in each year ; one gives the " total receipts as per cash-book," and " total expenditure and investments as per cash- book " and " balance at bankers " ; the other, total liabilities and total assets-very explanatory ! It is most important that the ratio of " ex- penditure ' and "investments" should be known-this method of ren- dering the accounts completely foils the inquirer. There is a great -uni- formity in one particular of the accounts : no matter what the position of the company, you will seldom fail to find " directors' fees" figuring among the expenditure.

We borrow from the Times the following table exhibiting the transac- tions of nine Fire-Insurance Companies. The first column shows the period over which the accounts extend ; the second, the receipts during that period for premiums, interest, &c., less reassurance, &c. ; the third, the fire-losses ; the fourth, the expenses of management and commis- sion to agents ; then follow the dividends paid to shareholders ; the last column is very interesting, telling the proportion of expenditure to receipts.

Royal

Yrs. Deceipts. U371,957 . Losses.

£221,767

Expenses. Dividends.

. £74,253 . £55,203 .

Total.

£351,223 .. 94.42 Manchester 3 148,615 76,701 .. 32,982 . , 30,500 .. 140,183 .. 94.32 Equitable 41 114,075 .. 80,253 .. 48,487 ..

4,340 133,080 116.66

Lancashire 3 98,135 .. 65,333 .. 37,289 .. 6,840 .. 109,462 111.54 Unity 3 59,521 35,244 .. 69,073 10,789 115,106 193.39 British Empire

Mutual 3 15,567 .. 10,152 .. 11,518 .. - 21,670

139.20 National Pro-

vincial

11 7,705 .. 6,011 .. 9,031 .. • 621 15,663 203.28

Lincolnshire

2 4,774 .. 557 .. 2,610 .. 250 .. 3,417 71.57 Times 1 4,575 .. 5,227 .. 8,827 .. 575 .. 14,629 .. 319.76

824,924 501,245 294,070 109,118 904,433

It will be observed that in six out of the nine cases a larger amount has been expended than has been received : the difference has been made up out of capital. The nine offices had the following amounts of capital paid-up. The second column shows the total of funds invested and in hand, including duty due to Government and some other items.

Paid-up Capital.

Funds.

Royal £277,515 £372,394 Manchester 100,000 189,271 Equitable 49,608 33,002 Lancashire 144,840 146,482 Unity 138,032 86,903 British Empire Mutual..

8,601 26,000 National Provincial .... 18,471 Lincolnshire 8,709 10,344 Times

13,310

4,880

The case of companies insuring against loss by fire or other cslamities is rather different from the life-insurance companies. It is bad enough when there is not a sufficient amount of paid-up capital or accumulated premiums to meet losses, but not so bad as in life-assurance. Insurances from fire-losses are almost universally merely from year to year, and the premiums are not heavy : if a fire-office failed to meet a claim, of course it would be a great blow to the single insurer, but every other insurer in that office could immediately secure himself by insuring in another and more sebstantial company-his loss could not be more than a year's pre- mium; but by the failure of a life-office he might incur the loss of many premiums, or his family might be left destitute. Of course fire-offices and kindred companies ought to have ample capital, and to accumulate a considerable portion of their premiums to meet leases, which could only be averaged over several years. Take an instance from the blue-book. A company exists for insuring against loss by hail-storms : their re- ceipts from premiums are from 40001. to 50001. a year ; their losses in four years were 9961., 24821., 7261., and 3481. respectively-a very great variation each year ; perhaps some year great storms may swell the claims very much beyond the highest item given above ; but to meet such a contingency, beyond a proprietors' fund of nearly 60001., and a balance of undivided profit of more than 30001., there is a reserved fund of 67181. This company, with a very modest yearly expenditure for management, has paid only 4 per cent to its shareholders, and has provided for a rainy day-or at any rate for a stormy one : it is one among the few new companies that appear to have acted on sound principle and with a wise economy.