§ MR. STEPHEN CAVE
, in rising to call the attention of the House to the failure of the Albert and European Life Assurance Companies, and to move—That, in the opinion of this House, it is the duty of Her Majesty's Government to institute a searching investigation into the causes of those failures,said, that before moving the Resolution of which he had given Notice, he might, perhaps, be allowed briefly to explain the circumstances which induced him to ask hon. Members to give their attention to the subject, as well as his reason for withdrawing the Bill which passed a second reading some time ago, and substituting the Motion now before the House. When in 1868 he thought it his duty, as Vice President of the Board of Trade, in consequence of representations which had been made to him respecting the condition of certain widely-extended life assurance companies, to place upon the Notice Paper of the House a Motion for inquiring into the mode in which this important business was carried on, he was encountered by a storm of indignant protests. For these he was pre- 381 pared, knowing that to some companies such, an inquiry would be fatal; and that others in a very different character, to whom such investigation would be of unmixed benefit, would unite in remonstrance in consequence of the disinclination felt by the mercantile classes to have what they termed their private affairs overhauled by Government officials. He was met by the menace that if he persevered in his Motion, Amendments and riders would be moved to include banks and sundry other trading firms. It was asserted that he had picked out the class of business which least needed investigation; that while bankers and merchants had gone down by the hundred, not an assurance office had ever failed, not a policy had been, when due, unpaid. That was not wholly accurate even then; but there was a certain plausibility in the argument. It was quite true that in the case of private firms it was extremely difficult for the public to know whom they were trusting, and what amount of capital there was to meet engagements. But, although the failure of a bank caused great misery and inconvenience, yet beyond the partners or shareholders there was not usually, except in the case of fraudulent dealing with securities, the widespread ruin occasioned by the collapse of a life assurance company. In these days people seldom left large balances bearing a low rate of interest, or none at all, at their bankers; but invested their surplus money in some of the multifarious stocks and shares, more or less safe, which are always ready to absorb the savings of the country. Then, again, if a bank began to lose its reputation the remedy was simple; its customers ceased to trust it, and withdrew their money, and that could be done alike at any period, as easily at the end of many years of confidence as at the end of one year. A man of 80, who had trusted a bank all his life, could withdraw his confidence as easily as a man of 25 who opened an account last week. In cases of a more speculative character—such as Overend and Gurneys, Barned's Bank, and others—the brunt of the calamity fell upon shrewd men of busines, who had with their eyes open been tempted to disregard the maxim that large profits meant great risks; or even to accept those risks for the sake of the profits. How different was this with assurance 382 offices, where the heaviest losses fell upon the least adventurous and most prudent; where each year as it rolled on necessarily and enormously increased the loss, for if a dividend of 1s. in the pound only was recovered, how much greater the loss of the provident man who had been paying premiums for 30 or 40 years than his who began a year or two ago? Once in the toils there was no escape without loss; and even the dividend which might be recovered had not the power of purchasing future provision which the same sum had in former years. The hardest case of all was probably that of the man who had invested his disposable capital in a deferred annuity either for himself or others—a kind of engagement latterly entered into over and over again by the managers of the Albert and European, at a time when they must have known that there was not the remotest chance of its fulfilment, just as if a tradesman should receive orders and take payment for goods of which he had none to sell. The Vice Chancellor, in making the order for winding-up the European, mentioned a case, as occurring within his own knowlege, of the widow of a barrister, for whom her husband's friends had purchased an annuity in that office, and who was now destitute; benevolence having only momentarily tantalized her with the hope of permanent provision. Many cases of equal hardship had been brought to his own notice. Notwithstanding the reproaches heaped upon him, he should probably have persevered in his Motion in 1868, had not the time of the House been occupied with business of more general interest than a question which, to the majority of Members, appeared rather theoretical than practical, for the discussion of which there was no particular pressure. Had there been an inquiry it was hardly too much to say that millions might have been saved, and the ruin of some 50,000 families at least partially averted. That was not to be. In a less degree the same might be said of the Bill he introduced in the following year, as a private Member, when the opposition, covert and open, direct and indirect, which he encountered broke down the Bill and himself together before the end of the Session. It needed, in fact, a great calamity like the fall of the Albert, which occurred that autumn, to open people's eyes, and enable 383 an adequate measure to float over the obstacles of interested opposition. In 1870 he had the satisfaction of passing a Bill which was styled in a pamphlet by some one who saw, he presumed, the hope of his gains gone, "A Trap for the Unwary," for the repeal of which all policyholders were urged to petition, just as two years ago the directors of the Eurpean offered rewards for the discovery of maliciously-disposed persons who dared to suggest doubts of the perfect solvency of their office. The Act of 1870, though it might probably still be improved, was generally admitted to give the assured the means of protecting themselves against fraud to a far greater degree than they have ever had before, without unduly interfering with the legitimate freedom of action of sound and honest companies. He should be wanting in fairness did he not bear willing testimony to the invaluable assistance given him by Mr. Pattison in the preparation of the Bill, and to the careful and complete manner in which the arduous duties imposed by the Act upon the Board of Trade have been performed; and he was sure the President of that Board would allow that this success was mainly due to the zeal and industry of one of the many excellent permanent officers of that Board—Mr. Malcolm—a relative of one of the Members of that House. Meantime great disasters had occurred, under circumstances which he ventured to think removed them from the ordinary category of commercial failures, and demanded the interposition of the House to insure that which public opinion demanded, and the Judge who tried the case recommended—namely, such an inquiry as might, by the exposure of what he hoped were unparalleled malpractices, prevent their recurrence. The Albert and European, with their many associated offices, had utterly failed, and the dividend likely to be received by the policyholders was a miserable mockery. Under ordinary circumstances it was well known that the failure of an established life assurance office ought to be an impossibility. Were there, then, any extraordinary circumstances to account for these disasters? Were the tables of mortality falsified by pestilence or war? The Indian Mutiny, with its numerous victims, chiefly of the insuring class, was a severe trial to some offices, but 384 fatal to none. No such cause could be even alleged at this time. Like the Royal George, these offices went down in a calm sea, with a clear sky; not from outward shocks, but from internal mismanagement. Nor was it from the kind of mismanagement which dragged down so many trading firms in 1866—namely, unfortunate or speculative investments. He had heard the downfall of these offices attributed to the system of wrecking. He had yet to learn how the system of wrecking, which meant the artificial destruction of credit for the purpose of causing a run upon a bank and depreciation of shares, could be brought to bear upon an insurance office; except, indeed, by the assured conspiring to die in numbers beyond the average. The actuaries engaged in investigating the affairs of these societies made no such suggestions; on the contrary, the appalling deficiency was attributed by them to deliberate misapplication of the funds, in respect of which the managers were trustees for the assured. The banker who appropriated the securities intrusted to him by his customers was not more guilty than the managers of an assurance office who expended the reserve which was the sole security of the policyholder, in extravagant payments on account of management, negotiation, and dividends. He should have imagined that few people in these days would have favoured that system of remuneration which was formerly the ruin of so many West India properties—namely, payment in proportion to gross receipts. Such, however, was the system of the European; and, if the House allowed, he would read an extract from a letter giving a graphic description of the way that system was worked. The letter was from a barrister of high standing, the Recorder of an important city. He writes—I attribute the ruin of these companies to the vicious system of remunerating the manager by a percentage upon all new policies. Hence the anxiety for amalgamations, no matter whether the offices were solvent or insolvent. As an instance within my own knowledge of the pernicious system of forcing new policies, I will mention the following:—Every year, some time in May, all the agents of the company from all parts were invited to London, and were entertained at a grand banquet, usually at the Crystal Palace. Their expenses to and from London, and whilst there, were paid by the funds of the company. Mr. Lake presided over several hundred guests. I went on one occasion, and a sumptuous affair it 385 was; but this was not all. After dinner, the chairman, in complimentary speeches, distributed purses of money to a number of the agents, according to their success in getting policies. These varied from £50 to much less sums. But I affirm that some thousands of pounds were distributed among the agents present in this way.He could imagine at the conclusion of the last of these Thyestean banquets, at which the unhappy shareholders and policyholders had been devouring their own reserve, the chairman rising like Moore's Prophet of Khorassan, lifting the glittering veil, displaying the hideous condition of the society in its true deformity, and exclaiming to the horror-stricken guests—Ye would be dupes and victims, and ye are.Scandalous as these proceedings were, and extravagant as were the expenses thus incurred, they were dwarfed by the amounts lavished on amalgamation, with its attendant charges. Mr. Pattison said in his report—Among the causes of insolvency, the most pernicious has been the transfer of the businesses of other insolvent companies, to which, notwithstanding their insolvency, the European has been induced to pay large sums by way of purchase.When they were told of this yoking together of the dead and the living, and of clever men of business paying more for this fatal operation than would have been sufficient for one of a beneficial character—when they heard of a suspense account of beween three and four hundred thousand pounds which, though treated as an asset for the payment of bonuses, had been almost wholly lost in carrying out repeated amalgamations—they could not wonder at the demand for such an investigation as the power of compulsion given in the Bill which he had been obliged to withdraw, could alone secure, without which, as the Report of the Commissioners on Friendly Societies showed, such an inquiry was practically of no avail. Having said that, he need hardly observe that he regarded the Motion for the substitution of a Parliamentary Committee as a hostile Motion, calculated to prevent all really useful investigation of this gross case. When he introduced the Bill of 1870 to the House he mentioned many cases of extreme hardship arising from the failure of the Albert. Did time and the patience of the House admit, he could add largely to that disastrous catalogue from a mass of letters which had reached 386 him in reference to the European. Here was the case of a lady who had effected a policy in the original European in 1821 for £800, and had, up to October, 1871, paid £1,185 in premiums, and had now the prospect of perhaps 8d. in the pound on that amount. The hardship was increased by the transfer of the business to another company of the same name, owing to which policyholders might be unaware of the change. Another correspondent wrote that he was obliged under his marriage settlement to insure 20 years ago, and had paid £1,840 when the crash came. Now, he was compelled by the trustees to renew his insurance, and in consequence of the difference of age had to pay £192 15s. to insure the same amount for which he formerly paid £91 15s. Some of the hardest cases arose, as might be expected, from the transfer of the Naval and Military to the European. He had received two letters from colonels of distinguished regiments. One says—On joining my regiment in India in 1853, I insured for £2,000. I paid Indian premiums, and when we went to the Crimea, war and climate risk, when the secretary wrote that he intended amalgamation with the European, I protested, and demanded a return of my premiums. I received a reply, and not a polite one, that policyholders had no voice in the matter. It appears from the statement, that the directors knowing their insolvency, continued to accept premiums and rob the public.The other writes—I had to pay Turkish risk, then a war risk for two years, then an extra premium for China anp Japan, and now I have little to expect. My case is one of many; but it may illustrate the loss, and the good you may do by bringing to light those disgraceful transactions, and establishing a better security for the future.The concluding sentence would receive the approbation of the Chancellor of the Exchequer:—It is much to be regretted that Government has not established a naval and military assurance for officers of all branches of the service. It would encourage thrift and saving, and there would not be so many sad cases of officers leaving their children without provision. A Government guarantee at the present moment would be most acceptable, when so many are suffering from the failure of the European, and know not where to turn for security.That was the real object of the inquiry he proposed—not the benefit of the unfortunate shareholders and policyholders of the Albert and European, as some hon. Members seemed to think the other day, and which he admitted would be a 387 very questionable application of public money. They were past praying for, and whatever might be the result of such an investigation would not receive a shilling more; therefore they could not be called upon to defray the cost. But the real object was to ascertain whether some better security might not be devised for assurers than even the Act of 1870 gave them. The right hon. Gentleman at the head of the Government, from his remarks the other night, seemed to think so, and, moreover, to agree with the Chancellor of the Exchequer. That was not the time to argue that point; but those who favoured such a scheme as Government monopoly in life assurance might be assured that it could not be adopted without some such an inquiry. But, perhaps, it was not generally known that the European enjoyed something very like a Government guarantee—that Government sanction and patronage were liberally bestowed upon that society, of which very good use was made in advertisements, especially in India and the colonies—and he thought that alone necessitated an inquiry in a matter in which successive Governments and Parliaments had been so deeply implicated. On the 19th of April, 1859, an Act was passed authorizing the acceptance of the guarantee of the European, instead of other security, from persons in public offices and employments. The Government took better care of itself than of the public, for a reserve fund was ordered to be set aside by way of special security for Government guarantees. So far, perhaps, no great objection could be taken beyond a general objection to the monopoly. But this was not all. Power was given to the Treasury to appoint Inspectors to examine the accounts of the society—a power which they had no right to accept without effectually using it—the society being also required to deliver to the Treasury every year a list of shareholders and the balance-sheet. The society was not blind to the advantages thus obtained. At one annual meeting the shareholders were congratulated on having the advice of the Government actuary in their amalgamation with the British Nation; at another, on the offer of the Treasury "to satisfy the Court of Session in Scotland respecting the financial condition of the European Assurance Society." The effect on the public 388 mind was well shown in an extract from The Insurance Record of June, 1865—There is one peculiar and distinguishing feature attaching to this society, which is that it is the only society authorized by special Act of Parliament to guarantee the fidelity of Government officials. Of course, Government do not grant these special privileges, without being thoroughly convinced by official investigation of the soundness of its finances, and not only so, but we believe we are correct in stating that prior to the last meeting the Government deputed some of its staff to inspect the condition of the European, and that they expressed themselves thoroughly satisfied with their investigation. Surely, then, nothing more need be said as to the status of this office.On the face of every prospectus appeared in large letters—"The European is the only society specially authorized by Parliament to guarantee the fidelity of Government officials." Nor was distinguished patronage withheld. At the head of the Naval and Military and East India departments appeared as Patron Her Most Gracious Majesty; as Vice Patrons, whatever that might mean, His Royal Highness the Commander-in-Chief, the Adjutant General, the Quartermaster General, the Military Secretary, two successive Presidents of the Board of Trade, a noble Earl who had filled many high offices of State, and others. A late permanent Secretary to the Treasury was at one time chairman, and afterwards trustee. Five weeks before the failure a surplus of £95,000 was reported upon the accounts taken on the 31st of December, 1869, by no less an authority than the Government actuary; and that in the face of the warning of several actuaries two years before that the society was insolvent to the extent of many hundred thousand pounds. In the little volume which he held in his hand, not only were the exceptional advantages which he had enumerated set forth with due prominence, but the most affecting motives were added to win people to assurance. He saw—and what a mockery it now seemed—a quotation from Professor De Morgan, formerly consulting actuary of the Albert—There is nothing in the commercial world which approaches, even remotely, the security of a well-established life office.Here was a picture of a man who had neglected to insure his life—Imagine the situation of a man who, suffering under slow decline, feels his energies daily failing and his resources day by day decreasing. With 389 the prospect of speedy dissolution he knows that all who are dependent upon him—the victims of his neglect, must go forth to seek their bread amid the closed hands and stony hearts of the world.That pathetic description was from Why is not Life Assurance universal? by Henry Lake. He saw the name of Henry Lake as manager of the European. If he were the same person, he might witness the misery he described among many thousands who had only too closely followed his advice. Why was not life assurance universal, indeed? Why had life assurance fallen off in one year 10 per cent? And why was it still falling off, notwithstanding the increase in the population and wealth of the country? The answer might be given in two sentences—deficiency of Albert, £972,000; deficiency of European, more than £1,000,000. Her Majesty's Government had remitted the income tax on premiums with the excellent intention of encouraging provident habits. Surely, therefore, it should inquire why that intention had been so signally frustrated, and into whose pockets those untaxed premiums had found their way. In accordance with what he believed, and still believed, to be the general wish of the country, he had introduced a Bill for the appointment of a Committee, with full powers to investigate the matters to which he had alluded. The death of a near relation unhappily prevented his being in his place on the day fixed for the second reading of the Bill; and though the House was good enough to allow the second reading in his absence, yet it objected, and he could not complain of the objection, to his going into Committee without explaining the nature and objects of the Bill. The House knew the difficulty a private Member had to recover an opportunity once lost in advancing a Bill through one of its stages. That difficulty, however, might have been overcome, had it not been for the Resolution of the House, which forbade the bringing on of Opposed measures after half-past 12. The Bill for a long time was unopposed, but subsequently the Amendment to which he had alluded appeared on the Paper. The hon. Member who placed it there had good reasons, no doubt, for doing so; and, of course, he had a perfect right to do it. But he had already ex- 390 plained why he felt bound to regard it as a hostile Amendment, and it had, at any rate this result—that it effectually prevented the Bill coming on at the only time that there was any chance of bringing it on. Consequently, he thought it better not to let it encumber the Order Book any longer, but to leave the matter in the hands of the Government. The Government had facilities which a private Member had not, and he could not help thinking that it would be a public misfortune if this great scandal should be lightly passed over. He was, as a general rule, opposed to anything like a private inquisition; but this was surely a case wholly exceptional. It had been asked, why could not the liquidators do all this? The answer was, that the liquidators were appointed to collect and distribute the funds among the policyholders as economically as possible, whereas the proposed inquiry was wholly for public purposes. Nor could the inquiry be conducted by the Arbitrator or the Court of Chancery. He was as unwilling as anyone could be to add to the burdens of the country; but he was sure that the small sum which the investigation would cost—not more, he was informed, than from £3,000 to £4,000—would be well laid out. He thought it was the duty of the Government and Parliament to order it to be so laid out. He did not pretend to apportion the blame of these unparalleled disasters among either individuals or classes. Whether the directors and actuaries were guilty of fraud; or, of what was almost as criminal in such cases, of incapacity—whether the negotiators knew that they were conducting transactions fraught with ruin to all but themselves, or were misled by actuarial reports—how far the Government was responsible for having lent its name to a private company, without exercising adequate supervision and control—would be the duty of a Commission of Inquiry to decide. He had arrived at the conclusion of his remarks. If these were to be the last words he should ever have the honour of addressing to the House, he should think them well employed in urging the House to insist upon a solemn inquiry into these proceedings, so scandalous in themselves, so disastrous to multitudes of innocent people, and so damaging to that upon which Englishmen had been in the habit of 391 priding themselves—the character of their public and commercial men. The right hon. Gentleman concluded by moving the Resolution of which he had given Notice.
§ MR. BARNETT
, in seconding the Motion, said, he thought the right hon. Gentleman had made out a very strong case in support of the inquiry for which he asked. The tale of ruin and disaster, including many cases of hardship and privation arising therefrom which had been brought under his special cognizance, was certainly a melancholy one, but it possessed features of considerable interest. The practice of life assurance, which it was very important to encourage among people with limited incomes, and which for many years had grown up and increased throughout the country had certainly suffered a check by reason of the failure of the companies alluded to in the Motion of the right hon. Gentleman, and that was surely a fact of melancholy interest to those who desired to encourage habits of prudence and forethought in the ranks of the people. Everyone could understand when the crash came the great dismay that fell on that class of persons who had endeavoured to provide a fund for their families, and who had believed that the Albert and European Offices were as safe as any in the country. All knew that insurance offices if well conducted must be successful. But, in regard to the offices in question, there had been some exceptional causes for their failure, and it was the duty of the Government to inquire into them, and to ascertain why so many amalgamations of an improvident nature had been allowed to take place. With regard to the European Office, the exceptional circumstance seemed to have been a reckless entry upon what were called amalgamations—a payment of exorbitant prices for businesses which produced very poor returns. It appeared from a printed document he had seen recently, that up to the year 1865 the European Office lost no less than £327,000 in carrying out 40 amalgamations, which seemed to have been conducted on a wholesale scale—for instance, it took over one office, the British National, that had already absorbed 26 offices. These facts ought to be inquired into, and he hoped the House would assent to the Motion. With regard to the Albert Office, the figures were not so astounding, but 392 even that office expended the large sum of £274,000 in incorporating 10 other offices with itself. On the question of liquidation being the most satisfactory mode of dealing with societies such as those absorbed into the European he would mention that one of them, known as the Waterloo Life, Education, Casualty, &c., Safety Office, with a nominal capital of £400,000, but with not quite £20,000 paid up, when it was wound up in 1862, after an existence of 12 years, with liabilities of £31,000, the costs of the liquidation were £6,036 8s. 6d. That circumstance was not much in favour of the process of liquidation. It might be said that the particular Motion before the House was unusual; but the circumstances which led to it were unusual also. The sort of patronage which the European Society received from the Government rendered it still more desirable that an inquiry should be instituted. There could be no doubt the European Office had made much capital out of its connection with the Government, whatever that connection was, for it had impressed the minds of the simpler part of the public with a belief in its superior merits with regard to security. All, however, that the Government did, he believed, was to accept the guarantee offered for persons holding official situations, having first taken care to ascertain that there was a fund to meet those particular risks. It might be urged that cases of this kind showed the desirability of Government undertaking the business of life assurance, but he for one sincerely deprecated such an idea, believing that the Government ought not to interfere with private enterprize. The right hon. Gentleman now at the head of the Government, on introducing the Government Annuities Bill of 1864, which established the Post Office assurance system, said it would not be rational for the State to interfere with assurance business properly so called, and he hoped the right hon. Gentleman still entertained that opinion. Connected with assurance there was, in fact, a certain amount of speculative business which it would be highly improper for the Government to undertake, unless they were likewise prepared to conduct breweries and other business establishments, a state of things which would never be tolerated in this country. The profits of the old companies had been made by gradual ac- 393 cumulations, and to this circumstance he attributed in some measure the proceedings which had led to the late disasters, as speculators, who thought they might arrive at great riches by some happy short cut, had been induced to establish offices, and to dispose of them to other persons who were in a hurry to get rich. He had heard of negotiators, secretaries, and others who had received large sums by way of compensation, whether rightly or wrongly he would not pretend to say; but, at all events, such proceedings made a great hole in the funds of the societies, and tended to induce other persons to act in a similar way. Although he seconded the right hon. Gentleman's Motion, he did not mean to say that the general system of assurance was unsafe, but only that there were some cases in which inquiry ought to be instituted.
To leave out from the word "That" to the end of the Question, in order to add the words "in the opinion of this House, it is the duty of Her Majesty's Government to institute a searching investigation into the causes of the failure of the Albert and European Life Assurance Companies,"—(Mr. Stephen Cave,)
§ Question proposed, "That the words proposed to be left out stand part of the Question."
§ MR. H. B. SHERIDAN
said, his hon. Friend (Mr. Barnett) had sneeringly referred to the Waterloo Safety Insurance Company, which, notwithstanding its title, had failed; but The Insurance Directory showed that there was another "Safety" Company which had come to an untimely end, although it was supported by the names of such eminent men as Viscount Goderich, M.P., Mr. Henry Gurney, Mr. Thomas Brassey, M.P., Mr. John Williams, M.P. for Macclesfield, Mr. Richard Cobden, M.P., Mr. Joseph Locke, M.P., Mr. Charles Gooch, M.P., Mr. John Bright, M.P., and Mr. Wilson, the Chairman of the Anti-Corn Law League. If an office supported by such eminent names had failed, surely it could not be matter of surprise that another, supported by less influential gentlemen, should have been unsuccessful. He was sure the right hon. Gentleman (Mr. Stephen Cave) would be the last person to give a false complexion to facts, if they had come under his notice; facts were available which 394 showed that these two companies did not fail from their own insolvency, but that they were ruined and wrecked by organized combination, but for which they would now have been paying their policies. Perhaps, it was not surprising that the right hon. Gentleman still clung to the notions which were prevalent last year as to the causes of the failure of these companies, when there were all sorts of reports as to their character and that of the persons connected with them, reports industriously circulated by those interested in the complete destruction of the companies. The right hon. Gentleman had asked for inquiry. He (Mr. H. B. Sheridan) himself never was an office-bearer in these companies; but he knew something of their transactions, and in the absence of any of the directors, and in the public interest, he wished to make a few remarks. He also desired inquiry, and would support the right hon. Gentleman in asking for it, but it should be vigorous and speedy; it should not be instituted through the slow process of a Royal Commission, but it should be undertaken by a Committee of 15 Members of that House. The right hon. Gentleman had alluded to the Government having sanctioned the European by accepting its security for guarantees, but the Treasury accepted all companies that would comply with their conditions, and those conditions were complied with by the British, the Birchin Lane, and a military company. There was no doubt that the European, favoured by the Colleague of the right hon. Gentleman, had its fair share of business; but it had no monopoly. The right hon. Gentleman, in what he did, asked for a direct reversal of the decisions of the House on the subject of the guarantees which had been given. As he had already said, he did not object to inquiry, and hoped that inquiry would take place; but when it was proposed to institute an inquiry into a gigantic failure in the City, involving a loss compared with which the losses incurred by these two companies were comparatively insignificant—a failure in connection with which some hon. Members were mentioned by name as concerned in the issue of preference stock and shares—the Government declined to undertake it, and said that if they instituted such an investigation, there would be no end to the demands which would be made upon them in respect of land companies, 395 banks, and other concerns. For these reasons, the Government declined inquiry in the case of the London, Chatham, and Dover Railway Company. The right hon. Gentleman had assumed, as an article of faith, that the proceedings of these two companies were improper in the last degree—that the conduct of the directors and officials, from the first—and particularly with reference to amalgamation, was tainted and questionable—that amalgamations were effected with companies that were rotten, or improperly constituted, or bubble companies. Those were very grave charges when brought against the character of public officers, and it should be remembered that those who were thus impugned embraced Members of both Houses of Parliament. The right hon. Gentleman, however, had not in support of the charges, brought forward a single fact; he had not instanced a single case of wrong-doing; but he had contented himself by assuming that the fact of failure was in itself a sufficient proof of irregularity, although commercial failure was no startling novelty; and it would be easy to make up a long list of failures involving losses far exceeding those incurred by the failure of insurance companies. Why, the right hon. Gentleman himself two years ago succeeded in passing an Act to remedy the grievances connected with insurance companies, and, having provided all the remedy he thought necessary, what consideration induced him now to demand further inquiry? Such an imputation was most unfair. The right hon. Gentleman had spoken of these companies as if no explanation had been offered, and no investigation had taken place. Now, immediately after the Albert Company failed several eminent men were called in, who inquired into the matter, and made a report to the shareholders. The shareholders made an inquiry themselves. Then, a large meeting was held, and a Committee of Inquiry was appointed. That committee sat for a long time, and investigated everything connected with the amalgamations of the company. Then legal proceedings were instituted, and a bill was filed in Chancery against the directors, charging them with fraud. Under that bill the closest scrutiny took place with reference to the Albert Company. All its officers, its minutes and books were subjected to a close scrutiny 396 and inquiry. And what was the result? The Judge declared that there was no ground for charging the directors or officers with wrong-doing, and the bill was dismissed with costs. After that, Lord Cairns was appointed arbitrator, armed with power to inquire and punish, and he had shown no desire to shrink from the responsibility which had been cast upon him. Then, an inquiry had been made by the liquidators, and every means had been taken to ascertain if there were even any technical irregularities; but it appeared that there was no ground for any such imputation. But that was not all. The associated companies had fallen into the hands of liquidators and solicitors, who had an interest in finding out any wrong act, and all they had done tended to show that no wrong had been done. Surely, it could not be said that no inquiry or investigation had been made into the affairs of these two companies, seeing that the case of the Albert had been made the subject of seven or eight investigations since its failure, and that its affairs were still sub judice, and that the case of the European had been inquired into by several committees of investigation, and had formed the subject of several bills in Chancery, in the course of the hearing of which its affairs had been thoroughly sifted, they being also still sub judice. It was, therefore, most unfair to speak of these companies as if no inquiries had ever been made into the causes of their failure. From what had been stated the House would suppose that the directors of these companies were persons having no position or standing, who, finding themselves at the head of rich institutions, had run a mad course of commercial profligacy, with the sole object of spending the money of the unfortunate shareholders. But was such the fact? Then, with respect to the European, anyone would suppose from what had been said that the description above given would more directly apply, but the contrary was the fact. The European had amalgamated with 11 companies, which had a number of other companies associated with them. Of these 11 companies nine were amalgamated under the direction of Gentlemen some of whose names he would mention—the right hon. Milner Gibson, Mr. J. Heywood, M.P., the right hon. G. A. Hamilton, M.P., Mr. R. Swift, M.P., Mr. T. Barnes, M.P., Mr. Cheetham, M.P., Mr. 397 G. A. Muntz, M.P., Mr. R. Spooner, M.P., Mr. W. Wickham, M.P. Those were names well known not only in that House, but throughout the country, and they were not "dummy" men, but acting members of the European Board, men who had been Members of Governments, who occupied high positions in society, and who had invested large sums in hard cash in these undertakings. Those men were governed and controlled by Mr. Hamilton, a Colleague of the right hon. Gentleman opposite in more than one Conservative Government, and Mr. Hamilton was at the head of affairs when all these amalgamations were considered and decided upon. Was it right, then, to say that such men were young men who knew nothing of what they were about, and who rushed into mad and complicated speculations, such as most men would shrink from when they contemplated them? There was not an atom of truth in any such notion. When Mr. Hamilton left the chairmanship of the company and became Permanent Secretary to the Treasury he was succeeded by Mr. William Wickham, a Member of that House, who was succeeded in turn by Sir Frederick Smith, the Conservative Member for Chatham, who was still the phantom of a chairman, doing the best he could to watch over the interests of the policyholders in the winding-up. What was the case with reference to the Albert Company? The names of the members of the Board were not so distinguished as those in the case of the European Company, but undistinguished as they were, they held £50,000 worth of shares not given to them, but paid for bonâ fide, and not only did they hold that amount, but their relations held an equal amount. Among those directors were to be found the names of Lord Claud Hamilton, M.P., Mr. J. H. Loyd, M.P., Admiral Carnegie, Lord Ranelagh, Mr. J. C. Cobbold, Mr. C. Frere, Mr. Bonamy Price, the Hon. F. Berkeley, M.P., Mr. C. Hopkinson, Sir Charles Duke, the hon. R. Bourke, the hon. F. Walpole, and others. Those were names that ought to inspire that House with confidence. Up to the year 1863 the Albert with its amalgamations had been declared sound and solvent, and in that year the great actuary, Professor De Morgan, examined its affairs, and upon his report 398 a bonus was declared. Subsequent to that time the Albert had only one amalgamation and that was with an office presided over by a Member of the present Government, who was anxious to amalgamate his office with the Albert, and who made all the inquiries necessary as to the responsibility, the solvency, and the soundness of the institution. That Gentleman took Professor De Morgan's valuation and opinion, and submitted them to impartial and independent actuaries, and he came to the conclusion that the Albert was sound, and that, as chairman of the other office, he might amalgamate it with the Albert. There were four companies taken over by that arrangement, for the Western, the amalgamating company, had already amalgamated with the St. George, the Metropolitan Counties, and the Manchester and London Companies. That was the last amalgamation, and whatever mischief took place must have occurred subsequently to that. He presumed the Gentleman to whom he had referred was capable of making proper inquiries, and they had a right to believe that his conclusions were correct, and properly arrived at [Cries of "Name."] Everybody knew whom he meant—there was no occasion to mention the name. But he could show the House that the ruin that fell upon the society had arisen not from its amalgamation with the Western Office, which was paying 20s. in the pound now, but from the present condition of the law of liquidation. The present condition of the law offered enormous bribes to those who could succeed in knocking down or bringing into liquidation a joint-stock company. Only the other day Mr. Denison, Q.C., stated in a Committee of that House, that since liquidation was invented, some 15 or 16 years ago, not a single company had come out of it, and he went on to speak of the cost of the liquidation of the Albert, which he put down at £30,000 a-year. In fact, a good company in liquidation was a fine property, and meant a large fortune to those who could succeed in bringing that liquidation about, and therefore bands of needy persons had organized themselves systematically in order to wreck such companies. Four years ago bank after bank fell in the most mysterious and sudden manner before the designs and arts of these wreckers, who operated by means of 399 forged telegrams and the sale of shares that never had any existence. The Stock Exchange, however, with the assistance of Parliament, stopped those tricks in reference to banks, or else there was reason to believe that nearly every bank in the City would have shared the same fate and then the wreckers turned their attention to the insurance companies. Agreements were drawn up and entered into by persons to arrange how the plunder was to be shared, and it was well known that such agreements were entered into with regard to the destruction of the Albert and of the European. He held in his hand the copy of an agreement for wrecking and plundering and dividing the plunder of the European, which came out in an arbitration, where the gentlemen interested had been quarrelling among themselves. The agreement stated that "it was arranged between the under-signed," that Mr.—was to make the best arrangement he could with the solicitors and liquidator whom he might select for the winding-up of the European and its subsidiary offices, and that he should divide the money obtained in the following proportions:—two-fifths to Mr. A. and his friends, one-fifth to Mr. B. and his friends, one-fifth to Mr. C. and his friends, and the remaining fifth to Mr. D. and his friends. One of the persons who signed that agreement was formerly a Member of that House, where he represented a metropolitan constituency. [Cries of "Name."] It was not necessary to mention the name, it was pretty well known; but if it was desired, he would give the particulars to the right hon. Gentleman in the chair. These were the methods by which companies were wrecked. For three years the wreckers attacked the Albert in every possible way, by issuing circulars to shareholders and agents; by putting advertisements in the papers, offering shares for sale at an enormous discount; and by holding sham meetings of policyholders; but it was only when a firm in Northumberland sent a circular to the Indian branch of the Albert that it became of the utmost importance that an investigation should take place. The Indian branch stopped, and called upon the home branch to make an inquiry into its affairs, and the home branch stopped also—not because it was unable to fulfill its engagements, or 400 was deficient in funds—for it had a large balance at its bankers—but because of the excessive drain brought on it by this systematic and organized attack. They appointed accountants and solicitors to examine into their affairs, and called in five of the most eminent actuaries of the day, four of whom had been presidents of the Institute of Actuaries, and these gentlemen made investigations into the then condition of the Albert. The office stopped not for liquidation, but for rearrangement and re-construction, and they found that they were not in the position in which their traducers said they were. The result of the inquiry was, that with a liability of £8,000,000 upon its policies the deficiency of the office was less than a year's interest, or £260,000; and that, after valuing at 4 per cent—while 5 per cent was readily obtained upon their Indian and 4½ per cent upon their other securities; after depreciating to their selling prices all their assets; after striking off £100,000 for loans on houses; and after striking off the goodwill. Not only that, but when the proposition for re-construction was made, the companies attached to the Albert agreed to subscribe the amount of the deficiency, so that there should be no stoppage, and they would have been willing to have found ten times the amount. Re-construction was, of course, the proper step to take, for 20s. in the pound was better than 2s. in the pound—which was all they must expect in liquidation; but the wreckers were too many for them, and attended meetings where they assured the shareholders that liquidation in the Court of Chancery was much the best thing for them, and greatly to be preferred to re-construction. Ultimately, Lord Cairns was appointed Arbitrator, and it was hoped that the scheme of re-construction might be accomplished; a powerful committee was formed: but the difficulties were then found to be insuperable, for the business of the office had been distributed. It was well worth while to inquire who was responsible for that. He protested against the idea that the companies which amalgamated were insolvent: at that time they were in a position to pay the claims on them, and they had only failed because of the failure of the present company, in which they had merged. For four years the European had been exposed to incessant attacks. 401 Bills in Chancery were filed against it, and during the time that the contest lasted £200,000 of its annual business was lost for ever. Being, however, obliged to yield at last, even at that time, a New York Company would have bought the concern; but the old cause was in operation—systematic wrecking by an organized band—which resulted in the destruction of the value of the goodwill. If the Government were to purchase these insurance companies, he believed that they could pay a clear profit of £1,500,000 annually, allowing a liberal sum for the purchase; but in that, as in any other case of purchase or amalgamation, the purchase money must be allowed. It was a mistake to suppose that only young offices amalgamated; on the contrary, the Colonial amalgamated after 20 years' existence, the Victoria after 27, the Britannia and others after 28, the Promoter after 36, the Leeds and Yorkshire after 40, the Albion after 53, the Globe after 59, and the Amicable after 160. He would not further detain the House; but he had felt it necessary to show that there was no truth in the idea that the directors of these companies were mere nobodies who ought not to be trusted, or that they had amalgamated with rotten companies. He had also shown for how small an amount the Albert ultimately succumbed, and that the European fell under an organized system of attack nearly identical with that which was brought to bear upon, and which proved so fatal to the Albert. If the Government was disposed to agree to the Motion, he would propose, by way of Amendment, to add to it the following words:—And to inquire particularly, and to what extent, the present Law contributed to the downfall of these Companies, and prevented their proposed re-construction.
§ THE CHANCELLOR OF THE EXCHEQUER
said, that the question the House had to decide was the Motion of the right hon. Gentleman the Member for Shoreham; but, in his opinion, it was studiously vague and ambiguous. What did it mean? He presumed the right hon. Gentleman did not desire the appointment of certain official persons from different Departments of the Governments, nor did it appear from his speech that he wished the question to be referred to a Select Committee of that House. He could only, therefore, sup- 402 pose that the course the right hon. Gentleman probably had in view was the introduction of a Bill by the Government, for the purpose of appointing a Royal Commission to inquire into the whole subject connected with the failure of these companies. The House, however, should not be too ready to take a step which involved such important considerations. The question arose out of the acts of a body of persons who had grossly misconducted themselves. Had they brought themselves within the law? If so, the law of the country could be enforced against them, and those who were aggrieved could take the ordinary and constitutional course, and bring them before the tribunals of the country. If it were doubtful as to whether the power to prosecute in this case existed, the question then arose as to whether it was the duty of the Government or the House to supersede the ordinary machinery for prosecuting offences, and to appoint a special tribunal, armed with power to inquire into this matter and to search it to the bottom. He trusted the House was not prepared to take such a step. This country in the matter of judicial procedure was taken as a model for the countries of the earth; the means of inquiry into offences which we had invented and perfected was the envy and admiration of the world. Was the House prepared to throw aside all that, and to bring the whole force of the Legislature to bear against these persons in order to convict them of crime? No precedent more dangerous, none more subversive of the liberty of the subject, none more unworthy of the Legislature, could be conceived than that the House should embark upon such a career as that. If the right hon. Gentleman meditated such a step—and he hoped he had not misunderstood the intention of the right hon. Gentleman—the Government could not join with him in carrying it out. No doubt, the right hon. Gentleman and those who had followed him had related facts of the most painful and most revolting nature, well worthy of consideration by that House, and which called upon it to look carefully into matters, in order to see whether any step could be taken to prevent the recurrence of the evils they disclosed. There could be no possible objection, therefore, to an inquiry into the causes of the failures. It would no doubt prove a most instructive 403 history if carefully traced out by a body which would speak with authority. Nor could he see any objection to the proposal that those to whom the House might entrust the task of making the investigation should suggest a remedy for the evils in question. That course would be quite consistent with the usual practice of the House of Commons; and if it did turn out that the facts dislosed were of a criminal character as regarded certain individuals, the ordinary tribunals of the country would be open to any who chose to bring them to justice. The causes of these failures were very well known, and the causes of the failure of insurance companies in general were not far to seek, although he admitted it was quite desirable that they should be probed to the bottom and put in an authoritative form before them. The causes of failure, he apprehended, were very simple, and might be stated in most general terms. The nature of insurance business was, that at first it was all receipts, and at last all payments; and mankind was so constituted that while it was all receipts they would not look forward to the time when the payments would come, and when that time did arrive it was too late for them to consider it. It was just like what happened in the land of Egypt when they had seven years of famine. Of course, in the seven years of plenty they ought to have laid up stores to have met the seven years of famine; but they, like our insurance companies, did not do so and hence the seven years of famine. That was entirely in accordance with the laws of human nature, and he believed that any Committee who entered upon the investigation of the subject, would find that lay at the bottom of the failures. Whether they could leave those companies such liberty as all engaged in commercial pursuits ought to have, and at the same time exercise such an amount of control as would prevent the recurrence of these calamities for the future, was a subject well worthy of the consideration of the Committee; and with that view, the Government would willingly consent to the appointment of a Committee on some such terms as these—"To report upon the Albert and European Insurance Companies as to the causes of their failure, and also to report upon any further measures that may be necessary." Such a Committee might 404 tend to prevent the recurrence of the matters which had been complained of, while it would certainly avoid—and purposely avoid—the notion that in its appointment there was any ulterior view to criminal proceedings against individuals. That would be a course which the House of Commons might reasonably take, and, he would submit, would answer all the objects sought by the right hon. Gentleman opposite.
observed that it was, at all events, satisfactory to find that the Government recognized the necessity of inquiry, but he hoped it would be extended beyond the immediate subject of discussion; for, without agreeing with him on many points, he concurred in what had fallen from the hon. Member for Dudley (Mr. Sheridan), with regard to the subject of liquidation, and it was certainly a scandal upon our administration of the law that such cases as those referred to by the hon. Member should be possible. Cases were continually occurring in which persons speculated on the misfortunes of these companies, and sacrificed not only the interests of the shareholders, but of creditors and all who were in any way dependent on those companies. It was high time that a stop should be put to what was known as the system of "wrecking," and it would be a question well worthy the attention of the Committee appointed upon the subject to inquire whether some means should not be taken to limit the operation of the Limited Liability Act and the Act for the Winding up of Joint-stock Companies.
§ SIR JOHN LUBBOCK
said, he believed that undue importance had been attached by the hon. Member for Dudley (Mr. Sheridan) to what was known as "wrecking"—a practice which he believed to be perfectly impossible in the case of these great insurance companies, unless they were grossly mismanaged. The statements made by the hon. Gentleman might, unless contradicted, create a wrong impression throughout the country. He trusted that the right hon. Gentleman opposite would accept the modified Committee, as suggested by the Chancellor of the Exchequer.
§ MR. STEPHEN CAVE
said, that he had already stated his opinion that a Parliamentary Committee would be useless. The inquiry, however, which he desired was precisely that which the 405 Chancellor of the Exchequer had admitted to be desirable. His object was not to bring charges against individuals, but to secure the results indicated by the right hon. Gentleman. He would, there-fore, withdraw his Motion, preferring, as they could not agree upon the mode, to leave the matter entirely in the hands of the Government.
§ Amendment, by leave, withdrawn.