THE EARL OF ONSLOW
rose to call attention to the recent disclosures as to the management of certain insurance companies in the United States having branch offices in this country, and to the laws of other countries and colonies affecting foreign insurance companies carrying on business there; and to ask His Majesty's Government whether they will take any steps to require that foreign companies carrying on business in England shall keep in this country such proportion of their assets as may suffice to meet claims that may be made on them by English policy holders.
The noble Earl said: My Lords, I will endeavour to detain your Lordships for as short a time as I can consistently with putting before you the reasons why I think His Majesty's Government ought to take some steps to protect those who are insured in American insurance offices doing business in this country. Let me say, at the outset, that I am by no means desirous of pitting the methods of English companies against those of American companies. I remember too well that we have had cases in this country where great trusts have been administered with effects disastrous to those who entrusted their money to them, and I am not going to say, because I see a mote in the eye of brother Jonathan, that there is no beam in the eye of John Bull. Nor am I going to suggest for a moment that any of the companies carrying on business in this country are anything but absolutely solvent. I should 1013 greatly deprecate it if the result of any discussion here were to cause those who hold policies in American companies to throw them up in panic for fear they might not get full value for their money. Indeed, in the case of the worst company into whose affairs inquiry has been made, where the assets have been, to use an American phrase, "scaled down" to the very lowest, it has been shown that, in addition to the face value of the policies, there is a reserve of £12,500,000 sterling for unassigned surplus funds; that is to say, for deferred bonuses.
The system of deferred bonuses enables the accumulation of vast surpluses, and leads the officials of these offices into laxity of administration. Under the laws of the State of New York, and they are pretty much the same in all the States in America, there is practically no restriction on the class of security in which the managers may invest; it has thus been the custom to invest in subsidiary business corporations, necessitating sometimes advances of large sums of capital for the benefit of the shareholders in those corporations, while those shareholders have in many cases been the managers of the insurance companies themselves.
The three great companies carrying on business in this country are the New York Life, the Mutual, and the Equitable. I shall have to state to your Lordships some figures the size of which will be somewhat startling, but I want to give an idea of the enormous amount of money which is controlled by these institutions. These three companies have absolute possession of money or property to the extent of £200,000,000 sterling, and a ready cash surplus of almost £40,000,000 sterling. This is greater than the combined capital of the four greatest institutions in Europe, the Bank of England and the Banks of Russia, France, and Germany. On the last day of 1903 they had £227,000,000 of assets, but their business was increasing so rapidly that it was estimated that if it went on at only 50 per cent. of its then rate of increase, they would have in twenty-five years no less than £800,000,000 sterling to deal with. That enormous sum of money is practically at the disposal of four persons; it is or was at the disposal of the Presidents of the Mutual and the New York Life, and the 1014 President and Vice-President of the Equitable. By an ingenious system of exchange proxies these gentlemen control the Mutual and the New York Life, while the Vice-President of the Equitable Society, holding 502 out of the 1,000 shares into which the capital of the company was divided, had the control of that company. The Vice-President gave a great ball, at which it was said that not all the dancing took place upon the floor, but some of it on the table, and that the proceedings were of doubtful morality—at any rate of doubtful taste; and the result was that the President and Vice-President began calling each other names, and, as usually happens when people of that kind fall out, honest men began to come by their own.
Two inquiries were held into the condition of the affairs of the Equitable Society, and the report was that the Vice-President had made large profits out of the Equitable funds; that he had erected buildings and leased them to companies in which he was interested at rents which turned out to be a loss to the Equitable; that he forced himself on the board of other companies; that he took a salary of £20,000 a year; and that he had been accustomed to buying a large amount of securities and involving the society in other important venture without authority. In the case of the Mutual it was found that the President had voted himself a salary of £30,000 a year; that he had given £18,000 to what in this country I suppose we should call the Carlton Fund, and had given £40,000 to "oppose hostile legislation." That was the condition of affairs. What is the position now? As regards the Equitable it simply is that that gentleman has disposed of his 502 shares to another gentleman, a Mr. Ryan, who already has a large interest in the Mutual and controls another insurance office called the Washington, which does not do business here, for a sum of half-a-million sterling, and all that he has got for his £500,000 is 502 shares of £20 each, which cannot carry more than 7 per cent. interest. I leave your Lordships to judge whether so large a sum of money as that has been paid merely for the pleasure of owning 7 per cent. stock. I think it is quite clear that the position is no better now than it was before these disclosures were made.
1015 I throw no doubt on the solvency of the companies, yet when it is made manifest that these irresponsible persons are able to dispose in the way they have done of the assets of the companies, we have no security in this country that they may not do the same thing on a much larger scale, and that the English policy holders may not wake up some morning to find that the whole of their assets have been dissipated. Since these charges have been made there have been several resignations in one of these offices in New York, and it was announced this morning that the manager of the Mutual, in this country, who for nineteen years, at great sacrifice and at great pains, has built up the business of that society, is so dissatisfied with the administration of affairs in New York that he has resigned his post. People in the prime of life do not throw up offices of that kind, carrying with it the salary of a Secretary of State, unless they are profoundly dissatisfied with what has taken place. I know there have been some attempts on the part on these companies to meet the object I have in view. I believe one of them, the New York Life, and also, I think, the Equitable, deposited a sum of money in the hands of trustees in this country, but, if I am correctly informed, it is only £100,000. What is £100,000 in comparison with the £15,000,000 which one company—the Mutual—alone is liable for to policy holders in this country?
I will not go through the laws of other countries on this subject. Suffice it to say that in almost every country—in France, Germany, Russia, Italy, Austria, Switzerland, and also in Canada, there are most stringent laws, everyone of them providing that there shall be deposited in the country where the business is carried on a sum of money or securities, in some cases equal to the whole of the premiums which have been paid, in other cases to a certain proportion of those premiums, while in some cases there is a State control and State supervision over every action of the companies. In this country, however, we have scarcely any control whatever. Your Lordships are, perhaps, aware that under the Act of 1870, every company has to deposit a sum of £20,000, but as soon as it can show that it has assets of £10,000 or upwards, that deposit is immediately allowed to be 1016 withdrawn. Every company has to make an actuarial valuation of its liabilities and assets. That is done by the actuary to the company, and the assets are simply taken for what they may be worth; there is no possible way of making an accurate valuation of them. I submit to your Lordships that that is no security whatever for the cash being forthcoming whenever it may be called for by those who hold policies in the companies.
I am not concerned with anything that may happen to policy holders on the other side of the Atlantic; I am concerned with policy holders in this country only. One of these companies—the Mutual—has 26,000 policies, of which 20,000 are for £1,000 or under. The three companies, therefore, may reasonably be estimated to have out something like 40,000 policies, and if we put that at two persons interested in every £1,000 it gives us 80,000 policies. We may, I think, safely say that there at least three people—wives and children—besides the insured, who are interested in each of these, and, therefore, you get 240,000 English people—nearly a quarter of a million—who are interested in the affairs of American insurance companies carrying on business in England.
A great deal has been said of the encouragement of thrift, and of the duty of the State to provide old-age pensions; but, in the case of Insurance it is the outcome of the thrift of the country. It is the provision of old-age pensions and provision for widows and orphans, and I say we cannot in this country allow the slightest risk to those who have invested their savings in this form of insurance. I earnestly hope, now that these disclosures have been made, that His Majesty's Government will see their way to introduce legislation which will follow upon the lines of that adopted by nearly every other civilised country, including our own Colonies, and insist that any foreign insurance company carrying on business in this country shall deposit, either with trustees or in some other repository, approved assets which shall be sufficient to meet any liabilities that they may be called upon to meet by those British subjects who hold their policies.
THE MARQUESS OF GRANBY
My Lords, the whole question of insurance has become such an important one that the matter referred to by the noble Earl cannot fail to prove of great interest. I shall only touch on the aspect of the question as it affects English offices. It is possible nowadays practically to insure anything. You can insure yourself against any risk, and I believe some insurance offices would almost undertake to insure the life of anything, including a Government. At the same time there is no doubt that some offices are a little apt, in the great rush that there is to get new business and to compete with their rivals, to produce very attractive schemes which often have most undoubted risks attached to them, and it is difficult to see how far we can legislate to prevent people being attracted by those gaudy proposals.
But I must say, speaking with all due deference to the noble Earl, that it does appear to me that there is one slight risk which might accrue if any legislation were initiated compelling foreign insurance companies to hold sufficient securities in this country to cover their liabilities to British policy holders. You might produce a certain retaliatory feeling, and it is possible that the large sums which some foreign countries compel English insurance companies doing business in those countries to have held in trusts and in securities abroad, might possibly, under such circumstances, be increased pro rata. But that is only a possibility. It does seem hard, I admit, on genera grounds, that English insurance companies should be compelled to work abroad in some cases under arbitrary conditions.
I do not know that it really affects seriously the operations of English companies as regards their foreign fire insurances, but at the same time I would be glad if an inquiry into this matter were undertaken by His Majesty's Government, because it does open up a large matter. The question of insurance is becoming more and more important every day, and if an equitable method of dealing with the subject both as regards the business done by English companies working abroad, and by foreign companies who come over here to compete with English companies, could be arrived at, it would be a great advantage, taking into consideration the 1018 vast growth of the insurance business throughout the world.
§ THE EARL OF GRANARD
My Lords, I think the majority of your Lordships' will agree that it is not at all unreasonable to ask a foreign insurance company trading here to give some guarantee for the protection of the policyholders in this country. In most foreign countries the same laws apply both for foreign and home companies. In France and Sweden there are separate laws for the foreigner. In the case of Germany the law is so very stringent that no foreign company whatever does any business in that country. The control that we have here is very small. Provided a company wanting to do business in this country places a sum of £20,000, with the Court of Chancery they can immediately commence business, but as soon as the policy fund reaches the sum of £40,000 they are at perfect liberty to withdraw the £20,000 originally placed in Chancery. There is one other condition we make. We insist on all companies publishing their accounts; but it is very hard to distinguish much from these, and especially with regard to foreign companies. We cannot tell how much business they actually do in this country. The Government have very carefully considered this matter, and they are of opinion that the best way to deal with it is by appointing a Select Committee. I hope to move the appointment of the Committee in a very short time, and I trust that this will meet the view of the noble Earl the Chairman of Committees.
THE EARL OF ONSLOW
My Lords, I am very glad to hear that His Majesty's Government are going to take some action in this matter, because I think it is one of very great importance. I did not suppose that in the present state of public business it was likely that they would promise to bring in a Bill this session, and if they did, it is doubtful whether it would make any progress. Therefore, I welcome further inquiry into this subject. I think the public require a great deal more enlightenment. I am confident that the Select Committee will be efficiently manned, and I believe its Report will give satisfaction to the policy holders of whom I have been speaking.