The Early History of the New England Mutual Life Insurance Company

36 Pages·08.363 MB·English

by  Barbey

Willard Phillips
First President, 1843 to 1865
The Early History of the
New England Mutual Life
Insurance Company
By JACOB A. BARBEY
Vice -President
87 MILK STREET
BOSTON, MASSACHUSETTS
1923
Printed in V. S. A.
Bus. Admin.
Library
The Early History of the
New England Mutual Life Insurance Company
By JACOB A. BARBEY, Vice-President
'HE birth of an idea that finally develops into a very vital
part of our economic life, is a matter of historical interest,
not only to the curious student, but to those who are at all
interested in the progress of mankind.
However shrouded in mystery is the origin of Life Insurance,
the beginning of the era that marks the greatest growth toward
its present magnitude is so comparatively recent, that its
different stages are easily identified and readily traceable.
It seems scarcely credible that a business conducted in
England on a profitable and, since the advent of the Equitable
of London, a fairly scientific basis, should have been so timid
in its early efforts in our own progressive country, particularly
when it is realized that, once fairly started, it grew enormously,
until it finally far outstripped its English prototype, and is now
not only a power in the business world, but a recognized neces
sity of our every-day life.
There were a few early attempts to establish the business
before the New England Mutual Life Insurance Company was
incorporated, by companies organized for profit on the joint-
stock basis; but it was not until the mutual principle was made
the essence of the plan that the present era of Life Insurance in
the United States really began.
The Presbyterian Ministers Fund was organized in Phila
delphia in 1759, and while it is still in operation, its business is
confined to insurance for clergymen of the Protestant churches.
The Pennsylvania Company for Insurances on Lives and
Granting Annuities commenced business in Philadelphia in
1809, and was incorporated under the laws of Pennsylvania on
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March 10, 1812. Its earliest life contracts were made in 1818,
and in 1836 the Company was authorized to accept and execute
trusts. This marked the beginning of what finally overwhelmed
its insurance business.
The Massachusetts Hospital Life Insurance Company was
incorporated in 1818 with a capital of $500,000, and the New
York Life Insurance and Trust Company, with a capital of
$1,000,000, in 1830.
These three latter companies gradually gave up the life
insurance business, and, confining their efforts to banking and
the care of trust estates, have become strong and honored
institutions, operating under the banking laws of their respec
tive states.
The Founder
The first to conceive the idea that an insurance company
could successfully operate under the mutual plan, in this coun
try, was Willard Phillips. It is quite possible that this same
faith may have been held by others at as early a date, but to
Judge Phillips belongs the credit of being the first publicly to
establish this belief by procuring a charter for a company
that should be purely mutual in operation.
Willard Phillips was born in Bridgewater, Massachusetts,
on the nineteenth of December, 1784, and passed his youth in
the town of Cummington.
With the mind and all the desires of a scholar, but without
adequate means to pursue his studies uninterruptedly, he
supported himself by teaching while increasing his knowledge,
principally under the tutelage of Mr. James Thomas of Bridge-
water and the Rev. Mr. Niles of Abington, finally preparing
for college at an Academy in Bridgewater. While attending
the Academy, he lived with Dr. Noah Fearing, who held his
young friend in such high regard that he advanced the means
necessary, in addition to what Mr. Phillips could earn by teach
ing, to enable him to complete his education.
He entered Harvard in 1806 and was graduated in 1810. Al
though afflicted with such weak sight that he had to depend
upon the courtesy of others who were willing to read aloud to
him, he was able to attract friends who willingly aided him in
this manner to complete his studies with distinction.
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After graduating, he became a tutor in college, giving up
his spare time to the study of law. In December, 1814, an
association was formed for the starting of a literary periodical
"
under the title of the New England Magazine and Review,"
of which Mr. Phillips was to be the editor. It was learned
that a project was on foot to establish a similar publication
by Mr. William Tudor, and the "New England Magazine"
was abandoned. The first number of the "North American
Review and Miscellaneous Journal" was published in May,
1815, and after the lapse of one year, Mr. Tudor put the
"Journal" at the disposal of Mr. Phillips. In 1817 Mr.
Phillips gave up his active management of the paper, but for
some time continued as an advisor and contributor.
He was admitted to the bar in 1818, and in 1823 published
the first edition of his "Treatise on Insurance," which, in its
several editions, became a standard work of importance.
"
In 1837 he published a Treatise on Patents," which was, with
his "Treatise on Insurance," a part of the course of reading
in the Harvard Law School.
In 1825-1826 Mr. Phillips was a member of the House of
Representatives of Massachusetts from Boston, and in 1837
he was appointed one of a commission to codify the common
law relating to crimes.
In 1839 he was appointed Judge of the Probate Court for
the County of Suffolk, which position he resigned in 1847, as
his duties as President of the New England Mutual Life
Insurance Company demanded his closer attention.
He was honored with the degree of LL. D. by Harvard
University in 1853, and died at the age of eighty-nine years on
September 9, 1873.
The Charter
On April 1, 1835, the General Court of Massachusetts
granted to Ebenezer T. Andrews, George Bond, Willard
Phillips, Charles P. Curtis and Samuel H. Walley, Jr., and
the persons who may be insured under the act, a charter for the
purpose of makinginsurance upon lives. It provided that there
should be an original guaranty capital of One Hundred Thou
sand Dollars ($100,000) subscribed, one-half to be paid in,
in cash, before the Company should commence operations.
It also provided that dividends, if earned, not exceeding seven
io
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per cent per annum, might be paid on the capital, and a sum
was to be set aside to redeem the outstanding capital whenever,
after ten years, this fund should be sufficient for the purpose.
There was one very unusual clause in the charter, arising
from the following interesting circumstances:
In 1811 the Massachusetts General Hospital was incor
porated as a charitable or benevolent institution, and in 1814
an act was passed allowing the Trustees to grant annuities on
lives, the intention probably being to assure the Hospital a
much needed source of income.
In order to take advantage of this provision, the Trustees
of the Hospital organized the Massachusetts Hospital Life
Insurance Company in 1818, and one-tenth of the capital stock
was owned by the Hospital. The Life Insurance Company
was empowered "to make insurances on lives by sea and on
land, and to contract for reversionary payments, and generally
make all kinds of contracts in which the casualties of life and
interest of money are principally involved." The charter
"
provided that the Company should each year pay to the
Trustees of the Massachusetts General Hospital one-third of
the net profits which shall have arisen from the insurance on
lives made during the preceding year;" and further, should
any other person or corporation be empowered to make insur
ance on lives within the Commonwealth, "the obligation of
this corporation to pay to the Trustees of the Massachusetts
General Hospital for use of said Hospital the third part of the
profits which may thereafter arise on insurance on lives shall
cease, unless the same obligation shall be imposed on such
persons or corporation thus hereafter empowered."
Evidently it was to save to the Hospital the profits it was
receiving from the Insurance Company, or because the legis
lators did not realize the difference between a company organ
ized for profit and one organized for the mutual benefit of its
members, that the same clause was inserted in the charter of
the New England Mutual Life.
Doubts arose as to what the profits of a mutual life insur
ance company were. Judge Phillips maintained that there
could be no profits in a purely mutual company, as the amounts
paid to policyholders as so-called "dividends" were merely the
return of excess premiums collected over the amount actually
needed to pay for the insurance. The matter was finally
settled by an Act of the Legislature, Chapter 82, passed in
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1846, in which it is declared that the only profit that can arise
in a mutual company is the amount of the dividend paid to
holders of the guaranty capital in excess of six per cent, the
legal rate of interest for money.
As dividends on the capital stock were paid at the rate of
seven per cent per annum, the difference would be one per cent,
and the Hospital consequently was entitled to one-third of one
per cent per annum on $50,000 — the paid-in capital. One-
third of one per cent amounted to $166.66 per annum, and
this was paid until the guaranty capital was cancelled in
January, 1854, the total payments to the Hospital amounting to
$1,666.67.
The Massachusetts Hospital Life Insurance Company
gradually gave up its life insurance business, confining its
operations to the granting of annuities and the care of trust
estates, until finally it became known as a highly honored and
important banking institution, still in active operation.
The Guaranty Fund
The charter secured, the next problem was to obtain sub
scribers to the guaranty capital. A cash subscription of Fifty
Thousand Dollars ($50,000), with an additional liability of the
same amount, was no small matter in those days, particularly
for an untried enterprise that offered no profit, save a small
advance over the legal rate of interest. An attempt was made
to raise this capital, but these were trying times for mer
chants. The country was just entering on that period of
business and financial depression lasting for six or eight years,
during which gold went to a high premium, the currency of the
country was variously quoted on exchange, mercantile failures
were of constant occurrence, and which finally culminated in
the suspension of specie payments by all the banks in the
country, with but one exception.
Judge Phillips, with, probably, many of his friends, suffered
financial reverses, and the actual organization of the Company
was temporarily postponed. In 1837 he was appointed one
of a Commission, under an Act of the Legislature, to reduce
the common law relating to crimes to a code. For four years,
most of the time serving as Chairman, he applied himself with
his well-known thoroughness to this arduous task, and had little
leisure for other pursuits. Finally the horizon cleared, and the
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time seemed opportune for completing his long cherished plan
of establishing the Insurance Company.
Meanwhile, in April, 1842, a charter had been granted to
the Mutual Life Insurance Company of New York, and this
Company commenced business on February 1, 1843, with
guaranteed applications amounting to $500,000, no capital
being required.
It is a tribute to the worth of Judge Phillips that he was
able to persuade his friends to advance the necessary funds,
and there is no doubt that it was due to the high estimate of
his character and disinterested purpose, held by his associates,
that he was enabled to enlist their interest and obtain their
assistance. Indeed it was thought, by some, that they were
subscribing to a charitable organization, and surprise was
expressed when the money was paid back after a lapse of ten
years.
There were ninety-eight subscriptions in all, one for $4,000,
one for $3,000, six for $2,000 each, seventy-two for $1,000, and
eighteen for $500. The list of subscribers is interesting to
those familiar with the names of the most influential of Boston's
business and professional men of the day.
Among them we find the name of Mr. James Savage, a
potent factor and efficient aid to Judge Phillips in the starting
of the Company, and one of its first Directors. Mr. Savage
was a noted philanthropist of sound business judgment, and
had been largely instrumental in founding the "Provident
Institution for Savings in the Town of Boston," chartered in
1809, for the purpose of collecting and safeguarding the savings
of the poor, an institution that stands today a monument, in
size and worth, to its founders, and a pride of its city.
It was indeed fortunate for Judge Phillips that he could
count among his friends men of rare character to sustain him
during the years of waiting, and cheer him on to ultimate
success.
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Organization
Notice having been sent to the subscribers to the guaranty
capita], the first meeting was held at the Merchants Exchange
Coffee House on October 26, 1843. Mr. Charles P. Curtis
called the meeting to order. Mr. James Savage was chosen
Moderator, and Mr. Thomas A. Dexter, Clerk.
A Committee was appointed to examine the list of sub
scribers, to ascertain if the full amount required was pledged.
Upon their report that the list was correct, and there being
$65,000 of the stock represented in person or by proxy, it was
voted to accept the charter establishing the Company.
The next procedure was the election of a Board of Directors,
and the following gentlemen were unanimously chosen:
James Savage Samuel A. Eliot
Willard Phillips William Parsons
John A. Lowell William W. Stone
George Howe Robert Hooper
Charles P. Curtis Francis C. Lowell
John L. Gardner George H. Kuhn
The Directors were authorized to pfepare by-laws and
perform the usual duties of such a Board.
The first meeting of the Directors was held at the office of
Mr. Thomas A. Dexter on October 31st, and, there not being
a quorum present, was adjourned to November 3d, when a
Committee, consisting of Messrs. Savage, Parsons and Stone,
was appointed to draft by-laws; and Messrs. Phillips, Curtis
and F. C. Lowell were appointed a Committee to prepare a
form of policy, tariff of premiums and form of application.
At an adjourned meeting of the subscribers, held on Novem
ber 9th, Mr. Samuel A. Eliot and Mr. John L. Gardner having
expressed their inability to serve as Directors, Mr. R. Bennett
Forbes and Mr. Peter Wainwright were elected to fill the
vacancies. The by-laws were adopted, and it was voted
that the capital stock should be divided into two hundred
shares of five hundred dollars each.
At the next meeting of the Directors, held on November
20th, Judge Willard Phillips was elected President, and Mr.
Jonathan Amory, Secretary. The President was requested
to perform the duties of Actuary of the Company until otherwise
ordered by the Directors.