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AMALGAMATIONS. The Act of the Legislature to which allusion has already been made (Chap. 148 of the Acts of 1863), which prohibits Life Insurance Companies from issuing new policies when their actual funds, after providing for all other liabilities, are not equal to their reserve, as defined by the Act itself, affords no relief to those who have already become policy-holders in those Companies. The Act treats the duty of making provision for obligations which are to mature in the future as a present liability, and the provision required is an amount of assets equal to the net value of the policies, actual funds only being considered as assets.
It will be perceived that this enactment does not interfere with the transaction of any business, except the issuing of new policies. So far as the statute is concerned, Companies have the opportunity to obtain, if they can, the funds required, either by subscription or by economy. Companies may reinstate themselves by one or the other of these methods. They may even do so by the exercise of economy alone, provided the premiums their policy-holders have stipulated to pay are sufficiently high. The higher the premiums the greater the probability of their being able to do so.
A course, however, which is frequently adopted by Companies that have failed to meet with all the success which they anticipated, is to transfer their business to some other Company. This is done by way of re-insurance, the policies of the unsuccessful or retiring Company being re-insured in a mass in the other Company. Such a transfer is properly termed an amalgamation, and is different from a consolidation of the two Companies by an act of the Legislature. But re-insurance does not put an end to the legal existence of a Company. The Massachusetts statute (Chap. 349 of the Acts of 1870) relating to this matter only forbids re-insurance of fire and marine risks in Companies not represented in the State. If the Company in which the re-insurance is obtained is so represented, the statute does not prohibit a re-insurance of all the policies of a Company. But this does not affect life insurance, and there would seem to be no statute in force in this State against
amalgamations. It is for the Legislature to say whether they ought to be regulated by law, and a statute passed for the purpose.
Since the valuations for 1871 were commenced by this Department, several of the Companies doing business in the State have been amalgamated, and large numbers of the policyholders in those Companies have made complaint that their rights and interests have been sacrificed by the process. Their feeling is very strong that they have some rights which should entitle them to a voice in such disposition of their interests. As there is no right of action on a policy of insurance until after the death of the party insured, and as a right of action, if any existed against a Company which had transferred its whole business, would be of no practical value, no opportunity is given to the policy-holder of making any election. He is practically compelled, whether he wishes to do so or not, to look to a different Company for the performance of a contract entered into with another. If he accept a dividend or any advantage from the new Company, or even if in order to prevent a forfeiture of his policy he make a payment of a premium to it, he may find that these acts are construed as an election binding him to that Company exclusively; and he may also find himself, without his knowledge or intention, deprived of his technical right of recourse to the original Company."
It may be urged in justification of such wholesale re-insurance, that under certain circumstances it is the only course open for a Company, and the most advantageous thing that can be done for the policy-holders. In regard to what is most advantageous, opinions often differ. People generally like to decide for themselves what is most for their own interest. If the option were allowed policy-holders, they might prefer, under the circumstances suggested, to take the value of their policies, or their proportionate share of it, and choose for themselves the Company in which to obtain re-insurance.
It has happened in other countries, if not in this, in cases of amalgamation, that the Companies with which the re-insurance was effected, have in the end become themselves insolvent. If it should happen that a Company which had assumed in succession the business of several other Companies should itself be forced, by a deficiency of assets, to make an assignment,
conflicting rights of the different Companies and their policyholders would come before the receiver or assignee for adjustment. In view of the peculiar nature of life insurance, and the number of parties whose rights would need to be determined in such a case, the ordinary proceedings provided for insolvent corporations might not prove sufficient, especially when it is remembered that the larger part of the Companies which do business in this State have been organized in other States.
Happily the cases which have been suggested have not yet occurred within this State, but it will be observed that when business passes through a number of successive amalgamations, and then finally into the hands of a receiver or assignee, the officers of each of the Companies, and the receiver or assignee all receive salaries, fees, commissions or other compensation. A large number of persons have thus derived a profit from the course which the business has taken. Life insurance in common with all other kinds of business may prove unsuccessful in particular cases,
and Life Insurance Companies as well as other Companies may become insolvent like individuals.
Every citizen of Massachusetts expects protection in the enjoyment of his rights, from the regular and established tribunals of the State. The Commissioner, has, therefore, deemed it his duty to briefly point out some of the difficulties which may reasonably be anticipated, as likely to occur, in order that the Legislature may, if it see fit, take them into consideration seasonably, and make such provision for them as is proper.
Otherwise the Legislature may be compelled to resort to special and exceptional measures, as the English Parliament has been. Lord Cairns, who, by special act of Parliament, was appointed arbitrator in the case of the Albert, has not yet been able with all his care and talent to fulfil the expectations which were formed when he was appointed ; and grave objections were raised upon the recent appointment of Lord Westbury, as arbitrator in the case of the European. Such appointments are objectionable on principle, and liable to abuse in practice.
CONCLUSION. With these pages and the statistical compilations therewith presented, the Seventeenth Annual Report of this Department is closed. The information communicated in this and in its first volume imparts as full an exhibit of the insurance interests of the country, as could well be given from the data secured. At this date, August 3d, the writer, who is officially delegated for a service abroad, is compelled to leave the unfinished printing and proof-reading of the Report to other supervision, in order to improve a brief respite from nine long years of exhaustive labor, unrelieved by even a single day of vacation. But with the aid of faithful and competent assistants, with which the Department is favored, the remaining work will be properly cared for. We should fail to do justice to our own sense of obligation, did we not also acknowledge our indebtedness to James F. Lyman, Esq., of New York, who, in the hurried preparation of departure, has kindly rendered us valuable aid.
In closing these pages, however, it may be proper, though perhaps unnecessary, to add, that if, in the discussion of topics that have been introduced, there have appeared opinions adverse to cherished schemes, or criticisms of seeming severity, they have had no purpose other than a courteous and faithful suggestion of apparent fallacy and danger, or advocacy of principles and interests which should dictate and govern an honest, judicious and equitable insurance administration. Under such a regime only can the institution of insurance preserve its integrity. Under such auspices alone can it fulfil the beneficent purposes of its organization. Under no administration less pure and conscientious can it perpetuate itself as a blessing to society and to the world.